PCP Finance Explained
What is car finance?
When you get a car loan, you borrow the value of the vehicle from a lender to buy it. Then, until you've paid back what you borrowed, you'll make monthly payments that cover the car's worth plus interest.
What is PCP finance?
Typically, when you purchase a car via PCP finance, the payments you'll be making will cover more than just the car's value and interest. The car's depreciation agreed on mileage limits as well as the Guaranteed Minimum Future Value (GMFV) will also be factored into how much the payments will be. Unlike hire purchase finance, PCP finance includes annual mileage restrictions and you can be charged if you exceed them.
When a PCP finance is coming to an end, you can choose to return the vehicle, return it and take out another PCP contract on a different car or you can make a final payment to own it outright.
If you decide that you want the vehicle, the final payment will be larger than the previous ones. This is because the payment will be covering any future value that the vehicle has (GMFV) and is often referred to as a ""balloon payment'.
Is PCP finance right for me?
Choosing to finance your car with a PCP contract is dependent on the following factors:
Is a PCP better for my budget?
Unless you intend to purchase the vehicle once the contract ends, the monthly repayments essentially pay for you to drive the car until the contract ends. This results in the monthly repayments being more affordable in comparison to an HP contract.
Because several factors contribute to the monthly repayment amount, you're in a better position to negotiate the car's cost with the added finance. Allowing you to make it work for your budget.
You're unsure if you want to keep the car once the contract ends
Having the flexibility to return the car or pay the ""balloon payment' can be a reassuring thing as your tastes and needs for a vehicle can change over time. PCP finance can also be a viable option if you prefer to drive new cars, you can take out a contract on the latest model of your choice and return it when you're ready to try a different one.
PCP finance allows you to drive vehicles without the need to own or sell it one once you're ready for a change.
How often will I be driving the car?
This can be difficult to answer. However, if you intend to choose PCP to finance your car, you'll have to agree on your annual mileage limits. Mileage limits can impact how often you drive your car, or if you allow anyone else to drive it.
You will also be expected to keep the vehicle in a good, driveable condition for the duration of the contract. Any damage to the vehicle can also result in additional charges once the contract comes to an end.
What do I need to apply for PCP finance?
As with any car finance application, you'll need the following documents:
- Driver's licence
- Proof of income
- Proof of address
You're credit score and history will also be taken into account, and it's a good idea of what your annual mileage limits should be.
Pros and cons of PCP finance
To summarise, PCP finance is a great option if you prefer flexibility and more affordable payments.
However, there is still the large ""balloon payment' to consider if you decide that you want to own the car once the contract ends.
Even though the repayments are more affordable, you can still face additional charges for exceeding annual mileage limits or returning the car in a different condition than what's mentioned in the contractual agreement.
Why apply for PCP finance with Rix Motors?
At Rix Motors, we have a great range of used cars that can be purchased using car finance. We make applying for PCP finance in Warrington simple and easy since our finance form is uncomplicated to make for straightforward completion.