If you’re a professional looking for a new vehicle, then it’s worth considering PCP finance (Personal Contract Purchase). Let’s quickly run through what a PCP will look like for you.

Once you know the vehicle you want a PCP finance deal will mean you’ll usually (but not always) put down a deposit. But it can vary wildly depending on the day, the deal, the vehicle.

How does a PCP work out financially?

After your deposit, you will be offered a deal that reads as ‘You pay £x every month, for y length of time, with £z as a guaranteed future value’

Say you put down £x on a vehicle. You’ve got the vehicle cost less £x left to pay, and an optional final balloon after say 24 to 48 months – plus some interest. It all depends on the terms you negotiate at the start.

What are the options at the end of a PCP deal?

This doesn’t mean that you’re tied into stumping up a large balloon payment for a  2 to 4-year-old car. You will have a few different options.

Pay the remaining balance, the vehicle is yours. (But it’s worth understanding the balance you owe vs. the value remaining on the car. Make sure you’re making the right choice.)

Refinance the remaining balance Keep in mind it’s could be on a different APR than you had on the original deal though. So, consider how much will you have paid total?

Hand the keys back buts it’s no longer your vehicle – and the vehicle must be in good condition and serviced to the manufacturers schedule to avoid further charge  

Depending on any mileage allowance that was agreed when you first took the vehicle, (if you go over, there is usually a penalty per mile) let’s say that you are under your mileage allowance, and the balance you owe on the vehicle could be less that the value of the car.

Consider whether there is equity in your car?

To keep monthly payments attractive the guaranteed future value is carefully estimated to provide some potential equity but there are many factors that impact on this … market trends for your vehicle type or fuel … and brand-new version of your car now available.

Equity in manufacturer branded PCP’s is often less than those offered by other funders and worth considering if you are likely to keep the car beyond the initial term or putting in a larger deposit 

Part exchange your car on PCP is an option

Your dealer, or even a competitor, broker, etc. will most likely be more than happy to part exchange your vehicle based on its value against the remaining balance – it’s worth doing a bit of homework before asking such questions so you know if your car has true equity – or you’re being given an over allowance [ often at the expense of the new car discount ] to give the appearance of equity.

If you have cash and now find yourself with equity you could find yourself with a larger ‘deposit’ against a nice new vehicle that suits your needs, that may well have evolved after several years with the vehicle – potentially making the switch to a new car even easier.

PCP is popular for the above reasons. You get a new car for a very manageable monthly payment. And you know that you will have options once you reach the end of your agreement.

PCP in not the only option when acquiring a new car

Of course, PCP isn’t the only option available to you. You can buy outright, giving you the flexibility to keep the vehicle as long as you want before changing. Or you can lease – often attracting smaller up-front payments but as it is a fixed term contract offers much less flexibility than other funding solutions – and consider your mileage allowance carefully as there will be penalties to pay if you go over your contract total.

As a professional you need to weight up the value of your time, cash flow, and value of what you’re getting. These often add up to PCP being an attractive choice, but whatever you do, it is wise to get professional advice before signing a new deal.