Is PCP car finance a good idea? The honest answer

PCP is the most common way to get a car on finance. But is it a good idea? Get the honest answer in our guide.



There are different ways to rent a car on finance. The three main ways are:

1. Get a personal loan
2. Get a hire purchase (HP) arrangement
3. Get a personal contract purchase (PCP) agreement

In this article, we look at PCP in particular. What does it involve – and, most importantly, is it worth it?

What is PCP car finance?

PCP is a flexible car financing plan. You pay a deposit followed by fixed monthly payments, typically for between two and four years.

At the end of the agreement, you can pay a large final "balloon" payment and keep the car. Alternatively – and more commonly – you can hand back the car to the dealer.

It's the most commonly used kind of car finance agreement – but is it worth it? The answer, as so often, depends on you, your requirements and your financial situation.

Is PCP honestly worth it?

If you want to prioritise lower monthly payments and want the freedom to change your car at the end of the agreement, PCP is the option for you. If, however, your goal is to own the car outright, it can be more expensive in the long run.

Let's look at some of the situations where PCP makes sense.

If you want lower monthly outgoings

Do you want a new car on a budget? Then PCP is a great option.

PCP agreements are set up so that you're paying for the car's depreciation rather than its full value. This means your monthly payments are lower than HP agreements, where you're paying off the total value of the vehicle.

If you want a new car at the end of the contract term

You might be somebody who wants to change cars regularly. Perhaps, for instance, you want to enjoy a range of cars that you wouldn't be able to afford outright.

At the end of a PCP arrangement, you can hand back the keys and start a new agreement – and you don't have to go to the trouble of selling the car on.

If you want to avoid losing out to depreciation

PCP agreements serve as a defence against depreciation. The dealer will guarantee a minimum guaranteed future value (GFV). If the car's market value drops below the GFV, you can hand it back to the dealer without dealing with the financial hit.



When should you AVOID a PCP agreement?

PCP car finance has many perks. However, it's not for everyone.

If you…

• Want to own the car outright
• Want to keep it for a long time
• Don't want to pay a balloon payment to keep the car
• Don't mind higher monthly payments
  
  

…it's often more sensible to get a car on HP than PCP.

What's the difference between PCP and HP?

Both PCP and HP are common ways to finance a car – and they both involve paying a deposit followed by monthly instalments.

Another similarity is that both PCP and HP finance agreements are available to people with bad credit histories. In both cases, however, you'll probably need to work with a specialist bad credit car finance broker, as many mainstream lenders will consider you too big a risk to lend to.

They differ, however, in monthly costs, ownership, end-of-contract flexibility and the reasons people go for each model.

With HP, you always own the car at the end

An HP agreement enables you to spread the cost of the car over a longer period. You pay an initial deposit followed by fixed monthly instalments (with interest).

The finance company owns the vehicle throughout all of these monthly payments. When you've made the last payment, however, you own the car outright.

With PCP, you can choose whether to purchase the car

With PCP, you can own the car outright at the end of the agreement – but to do so requires paying a large final balloon payment.

HP has higher monthly costs than PCP

Because you're spreading the full cost of the car over your monthly repayments, you'll pay more per month with HP than PCP.

On the upside, you'll know you're getting a car at the end of it all. Plus, you won't have to fork out for a balloon payment to cover the cost.

Which is right for me?

The different car finance models lead to different outcomes.

Put simply, you should:

• Consider PCP if: you want lower monthly payments and the flexibility to change your car at the end of the deal.
• Consider HP if: your main goal is to own the car outright and you want to hold onto it for a long time.
  
  

Can I get PCP with bad credit?

Having a bad credit score can make it harder to borrow from mainstream lenders.

There are, however, specialist bad-credit car finance brokers (like us) that work with lenders to secure car finance no matter your financial history.

They do this by working with a wide panel of lenders that look at your financial circumstances as a whole. They don't just look at the black marks on your credit file.

A bad credit car finance broker will carry out eligibility checks for you. These are soft searches, meaning credit checks that don't show up on your credit report.

This is more in your interest than directly applying for credit. Doing this counts as a hard search – it's recorded on your credit file and may make you less appealing to lenders in the future.

How we can help

At Zoomo, we work as a bad-credit car finance broker, helping people get the car they want or need, regardless of their financial history.

PCP is one of our main financing options (though we also offer HP). We match you with a wide panel of lenders known for approving people with bad credit, past defaults and CCJs. These lenders look at your current affordability, not just your credit history.

The process is simple. Fill out a quick application form on our website and we'll search our panel of lenders for an appropriate match.

The decision will reach you quickly – often in less than an hour. And because we carry out a soft search for you, your credit score won't be affected.

Once approved, you can choose from hundreds of used cars, hatchbacks and SUVs. Paperwork completed (often with £0 deposit options), you can come to the dealership and drive away with your new vehicle. Happy driving!