PCPs can be a great way of financing a new car but it’s not for everybody writes Geraldine Herbert
When you buy a car on a PCP you are essentially paying to use it for a fixed number of years, with the option of buying it at the end of your contract or giving it back to the dealer. In terms of monthly repayments, it works out cheaper than hire purchase because it lets you defer part of the total cost of the car – a sum known as the guaranteed future value, or GFV, which is set at the start of the agreement. The GFV represents what the car will be worth at the end of the contract. The future value, plus any deposit you choose to put down, usually between 10 and 30 percent, is taken away from the total cost of the car, and you pay monthly payments (plus interest) on the remaining balance for the term of the contract.
At the end of the contract you have one of three options; to return the car to the dealer, pay the final payment and keep the car or trade the car in against a replacement. For many it is a useful way to stretch a small budget but there are number of factors you need to keep in mind
- If you plan on keeping the car at the end of the PCP you will need to set aside money for the final payment.
- Cars depreciate, so put down the minimum deposit only.
- Be realistic about how much you use your car, if you exceed the agreed annual mileage on a PCP you will be charged for it,
- Before you embark on a PCP remember to factor in other costs particularly insurance and fuel costs.
- If you cancel your contract and return the car you’ll probably have to pay a fee.
- You may not get the colour you’ve always wanted. Pinks and purples won’t be a goer.
- You won’t be able to modify the car in any way.
- If you return the car with scratches or any damage you may be charged to cover the cost of putting this right.
Geraldine Herbert
2nd July, 2015
