View all new car reviews. What is a PCP? Car deals. View all deals. Why should I choose PCP? Ford Focus. Kia Sportage. Buying a new car Car finance advice and guides. News and advice. Most - and least - reliable family cars. Get the best deal Read our review Get the best deal Read our review Get the best deal Read our review Get the best deal Read our review. Repair and maintenance costs are the biggest part of this, which can become frequent and more expensive the older your car gets.
Some providers may be able to extend your deal in order to reduce the monthly payments if you want to avoid hefty charges. This is when you trade your current car for a cheaper model in order to bring down the cost.
Moneyshake finds you the best car lease deals, simplifying your search for a brand-new vehicle. Want to find out more about leasing and car finance? Then check out our other guides for all the information you need before making your decision. Related: Electric Car Leasing Explained. Ready to secure the very best lease deal on your next car? It all seems too good to be true — is it? So here it goes…. The low monthly repayments can make driving a new car appear very affordable.
PCPs can also be a tempting choice as they are easy to arrange — you can organise your finance and buy the car in the one place from your car dealer. Source: Unsplash. Unlike traditional car loans where the repayments are spread out equally during the loan term, with a PCP, a large part of the cost is deferred until the end of the contract in the form of the Guaranteed Minimum Future Value GMFV.
You need to think about how you will pay the GMFV long before your contract ends if you want to own the car. If your circumstances change and you need to sell the car during the contract, you will need permission from the owner to sell it, which is the finance company. At the end of the agreement, there might be a difference between the GMFV and the market value of the car, giving you some equity in the car. But depending on the market value and condition of the car, you may have no equity at all.
This is important if you intend to use equity you have in the car as a deposit for your next PCP. If you are planning on trading the car in at the end of the agreement, think carefully about how you would come up with a deposit for your next PCP. The low monthly repayments — which can make new cars appear very affordable at the start of a PCP — may mean that you enter into a contract which could be unaffordable for you when you take into account the size of GMFV or the final payment.
The other potential issue is that you may not have enough equity in the car at the end of the contract to use as a deposit if you want to enter into another PCP agreement.
This means you would have to find the money for a deposit elsewhere, maybe from your savings. Other issues which can arise are people being penalised for not sticking to terms and conditions — specifically the agreed annual mileage limit and conditions around servicing of the car.
Or if you want to trade in the car and get a new PCP at the end of the contract, you need to think about how you will come up with the deposit.
And regardless of how you finance the car, consider the cost of tax, insurance and maintenance costs. These products are complex and people can find them hard to fully understand, particularly the options at the end of the contract. For some people who intend to trade in their car for a newer model or to trade up, they will need to pay a deposit. But the value of the car will depend on its condition. If the market value of the car is less than the GMFV, then you may not have any equity in the car at the end of the contract.
If you have no equity to use as a deposit on your next car, you will need to fund it another way such as savings. Find out how Universal Credit works and how to manage your payment. Entitlements to help with the cost of pregnancy or bringing up children. Understand what support is available for coping with ill health.
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How to invest, types of investing, buying and managing. Help with meeting goals, tax-friendly saving, saving for children. A personal contract purchase PCP is the most popular way of financing a car. At the end of the contract, you can:. For instant money guidance based on your circumstances, get started with with our Money Navigator Tool. You can check your credit score for free with:. First is the affordability of the PCP payments across the whole term of the contract based on your finances — think of it as finding out how difficult it is for you to keep up your repayments.
The second is credit risk, which is the chances of you not paying your PCP loan back to the loan company. To help you plan for these future costs, use our Budget Planner. Make sure you stay within your mileage restriction. There will be charges if you go over your limit. Be extra careful not to damage it too as you may be charged at the end of the contract. If you think you may go over the allowed mileage it may be worth considering getting a deal with more mileage.
People save money faster if they have a definite savings target, so find out how to set a savings goal. This can range from a few hundred to a few thousand pounds, but will be much more than the normal monthly payments. Be careful and check how big your balloon payment would be. Source: Drover.
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