An increasingly popular way to finance a new car is under a Personal Contract Plans (PCP). But what exactly is a PCP and who is it best suited to asks Geraldine Herbert
What is a PCP?
PCP (Personal Contract Plan) is a type of car finance that offers lower monthly repayments compared to traditional HP or bank loans. This is because, instead of paying off the full cost of the car, you are only covering its depreciation over the contract term.
At the end of the agreement, you have three choices:
1️⃣ Make the final payment (also known as the GMFV) and own the car.
2️⃣ Return the car and walk away.
3️⃣ Trade it in for a new model using any equity built up.
PCP deposits typically range from 10% to 30% of the car’s value, which can be paid in cash or covered by trading in your current vehicle. These agreements usually last between three to five years.
A Guaranteed Minimum Future Value (GMFV) is set at the start, representing the car’s projected worth at the end of the contract. Your deposit and GMFV are deducted from the total cost, and you make monthly payments (plus interest) on the remaining balance.
What to Consider?
PCP offers can be tempting, such as “Drive away in a new car for €200 a month”, but these deals often assume a 30% deposit.
Pros ✅
✔ Lower Monthly Payments – Compared to a standard car loan, you are financing a smaller amount.
✔ Equity Potential – If your car is worth more than the GMFV at the end of the contract, you can use the difference towards your next car.
✔ Easier Upgrades – Swap for a new model every few years without worrying about selling your old car.
Cons ❌
⚠ Large Final Payment – If you want to keep the car, you must pay the GMFV, which can be a significant amount.
⚠ Risk of Repossession – Missing payments means the finance provider can take the car back.
⚠ Early Exit Fees – Cancelling your PCP agreement before the term ends can be costly.
⚠ Mileage & Maintenance Rules – You must stay within agreed mileage limits and maintain the car properly to avoid penalties.
Final Thoughts
PCP is ideal for those who like to upgrade cars frequently and want lower monthly payments. However, if you plan to own your car long-term, other finance options might be more cost-effective.
Before signing up, read the fine print, calculate potential costs, and compare it with other finance options to see if PCP suits your needs.
📌 Would PCP work for you? Always shop around and compare deals before committing!
Geraldine Herbert
