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What to look for in a PCP deal

The PCP – or Personal Contract Purchase – is a very popular way of buying a new car. Here are some of the best cars you can buy on a PCP deal.

Published on 22 July 2021 | 0 min read

If you’re looking for the best PCP deals, but you’re not entirely sure what makes one deal better than another, don’t worry.
We’ve put together this guide to the different elements of a PCP deal so you can start shopping with a keener eye for a bargain and a better understanding of what you’re looking at. On Auto Trader, you can browse the best PCP deal by car type – so if you already know what you fancy, take a look at the best bargains available today.

What is PCP?

Personal Contract Purchase (PCP) is a popular way on financing a car. You pay a deposit, then make monthly payments with interest.
Rather than paying the car’s full price in instalments, you’ll pay the difference between the car’s price and the guaranteed minimum future value (GMFV) – which is how much it’s predicted to be worth at the end of the agreement. This means monthly payments can be lower than other finance agreements. The GMFV can be affected by how long your contract is set to last, your mileage and other factors, so play around with contract length and mileage caps (though remember you’ll pay per mile if you go over that cap) to find an agreement that works for your budget. At the end of the contract, you can make a final ‘balloon payment’ and legally become the car’s owner. You can also trade the car in for a new PCP deal, or you can hand the car back and walk away. You can learn about PCP in more detail here.

Where can I get a PCP deal from?

PCP deals are usually offered by dealerships, manufacturers and online finance lenders. It’s worth getting quotes from online brokers so you know how much you can get for your money (and how much you can get a specific car for) – and head into negotiations prepared.
More info on where to get PCP deals from.
Citroen C1 PCP deals
Mini Electric PCP deals

Choosing the right PCP deal for you

Several factors go into making a specific PCP deal the best one for you at any time.
• There’s the length of the agreement – cars depreciate most in the first three years, so that’ll play a factor in the GMFV. • There’s also the size of the deposit – a bigger deposit tends to result in lower interest rates, but you’ll need to work out how much you can afford to put down up front and make sure you have enough savings for a rainy day, or any other purchases. • Think about how many miles you’ll cover in a year – your GMFV will be based on estimated mileage, and you’ll pay per mile if you go over that agreed estimate – make sure you don’t over- or underestimate too much.

How can I make repayments as low as possible?

You should never overstretch your finances. If monthly repayments look too high, go for a cheaper car.
If you can afford the cash, you could pay a bigger deposit. You could also spread repayments over a longer period – just be aware you’d likely pay more interest as a result, and the car would be older so the GMFV may be impacted – it’s not guaranteed this will work out cheaper every time. You could also lower the mileage, but if you go over the mileage cap you’ll have to pay per mile. If you’re falling behind with payments, consult impartial (and free) sites like the Money Advice Service or Citizen’s Advice. You can also talk to the lender about potential solutions to help catch you up.
Lexus UX300e PCP deals

What to look for in a PCP deal

Dealerships and finance providers use different jargon and terms to describe their deals, so we’d encourage you to research around and make sure you know what you’re looking at before you commit to any one deal.
This article is a guide to the sorts of things you’ll likely see, it’s not advice on which option you should take – that’ll be your decision based on how much you can afford every month. If you’re unsure of anything, consult Money Advice Service or Citizen’s Advice.

Guaranteed Minimum Future Value (GMFV)

The GMFV is likely to be the same wherever you go – it’ll be affected by the length of the finance agreement and car’s mileage at the end of the term. Older cars with more mileage are usually worth less, so longer contracts with higher mileage tend to cost more per month.
That said, if you do a lot of miles and know you’ll want a reliable car for the next few years, it might still be worth going for (if you can afford it).

Don’t fixate on the monthly payment figure

As we mentioned above – a PCP deal includes the deposit, the length of the contract, the mileage allowance and the monthly payment figure. You should check interest rates are included in that monthly figure too (and whether they’re fixed or variable, more on that in a bit).
Take everything into consideration to make sure you’re comparing like-for-like quotes.

Factor in the age of the car

Older cars usually end up being cheaper to finance. Their cash price (the amount it’d cost to buy outright) is usually lower already, and their rate of depreciation tends to be slower so the amount to pay off against the GMFV will likely be less.
You may find that this proves a cheaper option, even when compared to financing a brand-new car with low or zero interest rates. You may find you can afford a slightly older model with a better engine, nicer interiors, or higher trim level, for the same monthly cost ass a new model.

Always check the deal’s details

Not all deals are too good to be true, but you should always check the fine print to see if a saving in one area is accompanied by offsets in another.
For example, 0% APR deals are very tempting – but they often require a bigger deposit and may also include bigger balloon payments at the end, or higher charges for excess mileage and minor damage. Look at the total cost of financing and running a car for the duration of your contract – don’t feel pressured into a quick decision by an apparent bargain.

Check the APR and interest rates

The Annual Percentage Rate (APR) shows how much interest (plus any other compulsory charges) will be added to your loan. Generally, the lower the APR the less interest you’ll pay – so keep the APR figure in mind when shopping.
Also remember that the more you borrow, the more interest you’ll usually pay – and paying 7% APR on a £20,000 would end up being double the interest you’d pay on a £10,000 car at the same rate. What's the difference bwteen APR and flat rate interest?

Variable or fixed interest rates

Variable interest rates can go up or down each month and tend to look more competitive. Fixed rates are the opposite – you’ll pay a set amount every month.
You’ll have to decide if the risk of paying more on some months is worth the reward of paying less on others – and make that decision based on whether you can afford the worst-case scenarios of interest rates jumping.

Factor any deposit contributions in

Dealers and manufacturers use deposit contributions as a discount – and generally the larger your deposit, the larger the discount.
The discount is usually deducted from the car’s cash price before the finances are done, meaning the car costs you less and you end up borrowing less. Again, check the APR and the total cost before you commit – you’ll also need the money for a pretty hefty deposit.

Don’t forget your balloon payment

If you want to own the car at the end of your contract, you’ll have to save up for that final balloon payment as you go.
You may be able to refinance this, but make sure you have a proper plan in place from day one. If you definitely want to own, look at Hire Purchase and Conditional Sale as options too – neither of those have a balloon payment.
Skoda Karoq PCP deals

Top PCP deal tips:

• Make sure you can afford the payment every month of the contract, not just at the start
• If you want to buy the car, budget for your final payment as you go • Calculate your mileage to avoid overpaying every month and the risk of going over your mileage cap • Check the contract for early termination fees and the system if you fall behind with payments • Also look for what you can and can’t do to the car before you’ve bought it outright – you may not be able to modify the car, or drive abroad without permission, for example

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