PCP (Personal Contract Purchase) car finance is an alternative option to traditional HP (Hire Purchase) finance. It’s an attractive option because of its affordability and easier approval rate, however it has its drawbacks such as mileage restrictions and a balloon payment. This post delves more into these pros and cons to help you decide whether PCP is a good option for you.
Table of Contents – The Pros And Cons Of PCP Car Finance
Pro: Cheap monthly payments
PCP finance plans often come with much lower monthly instalments than a HP finance plan. For those on a tight monthly budget, these plans can therefore be a much better solution. PCP plans may even be an affordable way to buy newer and more expensive vehicles.
Con: Expensive balloon payment
The reason why monthly payments are so much lower with a PCP finance plan is because you have to pay a balloon payment at the end. This could be 10% to 50% of the total sum of the loan. Many people cannot afford to pay this balloon payment without taking out another loan.
Pro: No requirement to pay balloon payment
You must pay the balloon payment if you want to continue owning the vehicle. However, you don’t have to pay the balloon payment and could simply return the vehicle to the dealership and then take out a new PCP plan. In this essence, PCP finance can be much like leasing a car but with the option to buy the car at the end if you want.
Con: Additional surprise costs
Unfortunately, there are all kinds of additional surprise costs typically thrown into PCP finance plans. This includes high fees if you miss a payment and even large fees if you choose to pay off your loan early or exit the agreement. Extras like GAP insurance and commission are sometimes mis-sold with these plans. The good news is that you can claim back these mis-sold financial products using a PCP claims service.
Pro: Easy to get approval
PCP plans are often easy to approved for compared to many other finance plans. You do not need a very good credit score or do you need to be on a high income. In some cases, you don’t even have to pay a deposit. While it is still possible to get rejected, those that that have struggled to get approved for other types of finance may find that PCP plans are more forgiving.
Con: Mileage and modification restrictions
When taking out PCP car finance, you do not own the car until you pay off the balloon payment at the end. Therefore, you are often disallowed from making many modifications that you would be able to do with other finance plans. Many PCP lenders also require you to provide annual information on your mileage. If you go over a certain mileage restriction, your finance plan rates may increase. This is something to consider if you end up driving your car more often in the future.
Should you choose PCP car finance?
PCP finance is a good option if you’re looking for something cheap and accessible and you have no worries trading in your car at the end of the agreement. However, you want to eventually own the car outright and don’t want to pay a balloon payment in order to have to do this, a hire purchase agreement or personal loan may be a better solution.
