Personal Contract Purchase can make it possible to spread the cost of a new or used car while keeping several choices open at the end of the agreement. When comparing pcp car deals, the monthly payment is only one figure to look at. Your deposit, APR, annual mileage, agreement length and Optional Final Payment can all change what you pay overall. Understanding these figures before choosing a vehicle makes it easier to compare offers on similar terms and decide whether PCP suits the way you plan to use your next car.
How PCP Car Deals Work?
Personal Contract Purchase normally divides the cost of a car between an initial deposit, monthly repayments and an Optional Final Payment.
The Optional Final Payment is based partly on the vehicle’s expected value at the end of the agreement. Because this amount is left until later, the regular payments can be lower than they would be on an equivalent ownership-focused agreement where more of the vehicle cost is repaid each month.
Once the agreement ends, you will normally have several choices. You can pay the Optional Final Payment and keep the car, return it subject to the agreed conditions, or use any available equity towards another vehicle.
If you are new to this type of agreement, our guide explaining what PCP car finance is covers the basic structure in more detail.
Compare More Than the Monthly Payment
A low monthly figure can catch your attention, but it does not tell you whether one agreement offers better value than another.
When comparing pcp car deals, look at the main figures together:
- Vehicle cash price
- Customer deposit
- Any finance deposit contribution
- Representative APR
- Number of monthly repayments
- Monthly repayment amount
- Annual mileage allowance
- Optional Final Payment
- Total amount payable
- Excess mileage charges
Two deals on similar cars can have very different monthly payments simply because one requires a larger deposit or leaves a bigger amount until the end.
The car finance section explains the wider funding choices available if you want to compare PCP with other ways of paying for a vehicle.
Decide How Much Deposit You Want to Pay
Your deposit affects the balance being financed.
Putting down more money will normally reduce the amount covered by the monthly payments. However, a deal with a bigger deposit should not automatically be treated as cheaper.
For example, one agreement might advertise a lower monthly figure but require considerably more money upfront. Another could have a slightly higher monthly payment but require a much smaller initial commitment.
Add the deposit into your comparison rather than focusing on the monthly figure in isolation.
Manufacturer offers can sometimes include a finance deposit contribution. This is different from your own deposit because it is an incentive provided as part of the offer. Check whether the contribution is available on the exact model, specification and agreement you are considering.
Pay Attention to the APR
The APR helps show the cost of borrowing and can make it easier to compare finance offers.
Some new cars are promoted with reduced or 0% APR finance during manufacturer campaigns. Others may carry a higher rate but have a lower vehicle price, larger discount or different deposit requirement.
This means the lowest APR does not automatically produce the lowest total cost.
When reviewing pcp car deals, compare the APR with the cash price, deposit, monthly payments and total amount payable.
Our guide to what makes a good car finance rate explains some of the factors that can affect the rate available to you.
Understand the Optional Final Payment
The Optional Final Payment deserves as much attention as the regular repayments.
If you want to own the car at the end of the PCP agreement, you will need to pay this amount under the terms of the contract. Depending on the vehicle, it can represent a significant proportion of the original price.
A larger Optional Final Payment can help reduce regular monthly repayments because more of the balance has been deferred.
Before accepting a deal, ask yourself whether you are likely to keep the car. If ownership is already your main aim, it can also be worth comparing PCP with Hire Purchase car finance, where the agreement is structured more directly around owning the vehicle after the required payments have been made.
Set a Realistic Mileage Allowance
PCP agreements are normally based on an agreed annual mileage.
The finance provider uses your expected mileage when estimating what the car could be worth at the end. A vehicle expected to cover fewer miles may retain more value, which can affect the Optional Final Payment and monthly cost.
Choosing a very low annual allowance can make some pcp car deals appear cheaper, but it may not work in your favour if you actually drive much further.
Excess mileage charges can apply when a car is returned above the contracted allowance.
Think about commuting, family journeys, holidays, motorway travel and possible changes to your working arrangements before selecting your mileage.
For a closer explanation of the payment structure, read how PCP finance works.
New and Used Cars Can Have Different Offers
PCP is not limited to brand-new vehicles.
Used and nearly new cars can also be available through Personal Contract Purchase, subject to the age, mileage and value limits set by the finance provider.
New cars may have access to manufacturer-backed incentives, lower promotional rates or deposit contributions. Used cars can have a lower purchase price, but the available APR and agreement length may be different.
When comparing new and used pcp car deals, use the total amount payable rather than assuming that the lowest purchase price or lowest monthly repayment will always be the cheaper route.
For a used vehicle, also check the service history, MOT record, mileage, condition and remaining manufacturer warranty before committing to the purchase.
Think About What Happens at the End
Your plans for the car can help you decide whether PCP fits.
If you think you will want another vehicle after three or four years, having the option to return or change the car may be useful. If you already know that you want to own the vehicle for many years, compare the PCP figures with an ownership-focused agreement.
If you return the car, the finance provider can assess its mileage and condition against the agreement terms. Damage outside the permitted condition standards may lead to additional charges.
If you decide to keep it, you will need to deal with the Optional Final Payment. Do not assume that refinancing this payment will automatically be available. Any new borrowing would normally require a separate application and approval.
Check Affordability Before Applying
PCP payments need to fit alongside the rest of the cost of running the vehicle.
Allow for insurance, fuel or electricity, servicing, tyres, Vehicle Excise Duty where applicable and other maintenance costs.
Your eligibility for finance can also be affected by your credit history, income, existing commitments, deposit and the amount you want to borrow.
The what do you need to finance a car guide covers some of the personal and financial information that a provider may request during an application.
Approval is never guaranteed, and advertised pcp car deals remain subject to the relevant provider’s lending and affordability criteria.
PCP or Another Type of Finance?
PCP is one way to fund a vehicle, but it will not suit every buyer.
PCP may appeal if you value lower regular repayments than an equivalent HP agreement and want choices at the end. HP can make more sense if ownership is your main aim and you would rather avoid a large Optional Final Payment.
Leasing is another option for drivers who are comfortable using a car for an agreed period and returning it without an ownership option.
Think about what you want from the car before choosing the agreement rather than selecting finance based solely on the advertised payment.
FAQs
Yes. You can normally keep the vehicle by paying the Optional Final Payment and any applicable fee stated in your agreement. Check the amount at the start so you know what would be required if you decide to buy the car.
Yes. Many used vehicles can be financed through PCP, although providers can set limits relating to vehicle age, mileage and value. The interest rate may also differ from promotions available on new cars.
If you return the vehicle above the agreed mileage, excess mileage charges may apply. The rate should be set out in the finance agreement, so check it before signing.
You can choose another vehicle once the existing agreement has been dealt with. If your current car is worth more than the settlement amount, there may be equity available towards another purchase. A new finance agreement would still require a separate application and approval.
Not automatically. PCP can have lower monthly repayments because part of the vehicle value is deferred until the end. Compare the deposit, APR, total amount payable and final payment with an HP agreement before deciding which costs less for your circumstances.
Compare the Full Agreement Before Choosing
The strongest pcp car deals are not simply the ones with the smallest monthly payment. A useful comparison takes the vehicle price, deposit, APR, mileage, monthly repayments, Optional Final Payment and total amount payable into account.
Think about how many miles you drive, how long you want the vehicle and whether you are likely to own it at the end. These points can help you narrow down the type of agreement that fits your budget before you apply.
Enjoy Finance provides information about vehicle funding and may link to third-party providers. We do not provide finance directly. If you have questions about the information on the site, you can contact Enjoy Finance. Any finance application remains subject to the relevant provider’s eligibility, affordability and agreement terms.
