Media post: Is Personal Contract Purchase Right for You? Key Considerations for Car Buyers

Although there are many ways to finance a new vehicle, there are even more considerations to make when settling on the ideal finance option — all depending on your unique situation.

One of the most common options is personal contract purchase, also known as PCP. It’s necessary to consider several factors in order to understand whether this type of financing is suitable for you or not.

That’s why we’ve put together seven important factors for you to use when deciding whether PCP is suitable for the next car you want to buy.

Factor #1 — Understanding Personal Contract Purchase

First, define what is actually involved in a personal contract purchase. PCP financing lets you pay an initial deposit and a set number of fixed monthly instalments thereafter. 

So what happens at the end of your contract term? The most common options are the following: 

– You pay a final lump sum to take ownership of the car 

– You return the car to the finance company

– You replace the current car with a new model and enter a new contract

This kind of flexibility makes PCP very popular among car buyers.

Factor #2 — Assessing Your Budget

One of the first questions you need to ask yourself is: What financial resources are available to me? PCP deals involve a smaller deposit and lower monthly instalments than hire purchase deals. 

However, the focus should not be limited to the cost that can be incurred in the present moment. Think about the total cost of the agreement, with interest rates and the applicable balance at the forefront of your mind as well.

Budgeting accurately for these expenses will help you make the right decision for your current status and your future projections.

Factor #3 — Evaluating Driving Habits

There are certain driving behaviours that are crucial in order to find out if a PCP is suitable for you or not. Many PCP deals have limits on the number of applicable miles. If you go over these, you will get charged. 

Consider how many miles you drive in a year and whether the restrictions set by a PCP deal are suitable for you. If you often drive long distances or have many long daily trips that crop up, then perhaps a different type of financing is best suited for your situation.

Factor #4 — Considering Future Plans

Next, what are your plans for the future? A PCP agreement typically has a contract duration of between two to four years. So consider any significant life alterations that may be possible in the given years, like relocation to a new city, marriage, or job transition. 

These factors can affect your immediate car requirements, better shaping your assessment of whether a PCP agreement will be advantageous or disadvantageous overall.

Factor #5 — Depreciation and Car Ownership

Another crucial factor in car financing is depreciation. Under a PCP agreement, you’re effectively paying to use the car for the term agreed. The added incentive is having the option to own it at the end of the term. 

This implies that the depreciation risk is with the finance company and not you. If, on the other hand, you’d like to change your car every few years without concerning yourself with the car’s resale value, then PCP can be even more beneficial. 

Remember, if car ownership with no balance is significant to you then the total amount you’ll be paying in the duration of the agreement should also be considered.

Factor #6 — Understanding Terms and Conditions

Every PCP agreement has its own set of unique conditions; these can be quite different from one lender to another. Before you start the process, make sure you fully understand all of these terms. 

Some important aspects to consider include: 

– Early termination fees

 – Extra charges for excess mileage 

– Who is responsible for the vehicle maintenance

– Road tax

Weighing up your options and comparing deals will help you avoid hidden charges and ensure your chosen agreement meets your requirements perfectly.

Factor #7 — Comparing Alternatives

Last but not least, a PCP has to be compared with other types of financing, such as hire purchase, leasing, and conventional loans. Each has its advantages and disadvantages. 

Bear in mind that what is suitable for one person may not be the same for the next. You’ll need to consider all the possibilities. Carefully assess where all these fit into the reality of your financial abilities, your driving profile, and your future goals.

Personal Contract Purchase | Your Considerations Made Simple

All in all, personal contract purchase presents a good deal for many car owners as they have lower monthly instalments. The option to pay the remaining amount at the end of the contract is also extremely attractive. 

Still, it may not be for everyone. The CarMoney team recommends thinking carefully about your budget, your driving habits, any future plans, and the details of the PCP agreement. That way, you can decide whether or not this type of financing is suitable for you. The key is to always compare different options to make the right financial decision for your specific situation.