What is PCP car finance and how it works
  • February 25, 2020
  • admin

Why Go With Personal Contract Purchase to Finance Your Car

Everyone desires to have their car in the garage, be it a freshly passed grad student or a family man. Many people out there go for the option of taking financial assistance from external sources. Now, when it comes to financing a car, plenty of options are available in the market. In times, this can be confusing for the person which one to choose.

However, if you are looking for an affordable option where you have to make lower payments, then Personal contract Purchase could be the right choice. It is a bit complicated financial product but provides a plethora of benefits to the car borrower. Thus, before you plan to apply, you must first understand what is PCP finance and then come up with a decision.

What is PCP Car Finance And How it Works

Purchase Contract Purchase or in short PCP is a loan product that helps the borrower to purchase a car. However, the thing that makes PCP apart from other loans is that you don’t have to pay the full car amount. Also, you will have the option of whether you want to buy the car or move to the next deal.

It might get difficult for you to comprehend the process of PCP financing. Thus, to make you understand, we have broken down it into three major components.


The first thing that the financial company or dealer will ask you to provide a deposit that could be anywhere around 10 % of the car’s cost. The larger will be the deposit, the lesser will be the amount that you will owe. It can be a deciding factor how much you will pay in the end as the total amount.

The borrowed amount

Now, the borrowing amount will be determined by the dealer or finance company. They will evaluate the depreciation value of the car within the given period of the deal. So, the reduction in the car price minus the deposit is going to be the amount that you will have to borrow. So, this will be the amount that you will have to pay along with interest.

The balloon payment

The final part of the PCP financing is the balloon payment or also known as the Guaranteed Minimum Future Value (GMFV). It is the final value of the car, which is already calculated by the dealer during the early stage. This final amount will be presented you as optional, which you have to pay if you want to keep the car.

How Does PCP Finance Work?

PPC works like other loan products where you can spread your payments of the car for a fixed period, which is generally around (24-36 months).  The borrower will have to make the deposit and the fixed monthly instalment throughout the term of the loan.

After that, the borrower is given the option where he/she wants to keep the car or not for which the final amount or balloon payment needs to be done. And if the actual value of the vehicle exceeds more than the calculated price of the company, the borrower could use the equity to deposit the new PPC deal.

Things You Will Need to Get PPC Finance

To avail the PCP finance, you will have to provide necessary information to the dealer, including:

  • Personal details
  • Employment history
  • Account details
  • Credit report

Make sure that you have all the documents with you before applying for the loan because lacking any one of these could be the reason for the rejection.

The Additional Payment That You Might Have To Pay

Apart from the deposit, monthly installment and balloon payment (optional), there are certain payments you might have to make including:

Extra Mileage Charges: When you get the car with PCP finance, the company will provide you with an annual mileage limit that you could use in the car. Going beyond that means additional charges, so ensure that you get the deadline that you can manage.

Damage Charges: You must understand that until you clear the balloon payment, you don’t owe the car. In the meanwhile, if the vehicle receives any damage, you will have to pay for it. The dealer might accept slight wear and tear in the car, but if it is not in the sale condition, you will be charged with the damage penalty.

So, this was everything that you need to know about PCP finance and how it can help get your dream car.  Before going with it, make sure that you have fully understood this and take the final decision.

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