Here's an example of how PCP works:

Let’s say that you sign up for a PCP contract over 3 years and that the vehicle costs £20,000 and the finance provider calculates that the car or van will be worth £8,000 after three years.

• You would pay a 10% deposit such as £2,000 with an £18,000 loan for the balance

• You owe £18,000. If it’s been agreed that the car will be worth £8,000 at the end of the contract, you will only need to repay £10,000 (plus whatever the interest is for the entire £18,000) over 3 years

• At the end of the contract, you either pay the final £8,000 to own the vehicle or you can choose to hand the car back to the finance provider

Please note that even if you hand the car back at the end of the agreement you will have still paid interest for the full loan amount (£18,000) over the 3 years.

What happens at the end of the PCP agreement?

You have three choices at the end of the PCP contract:

1. Purchase the vehicle by paying the final balloon payment (Guaranteed Future Value). Do check if the finance provider charges a fee for this, to cover admin costs for transferring the vehicle to you

2. Lease a new vehicle. This is perhaps the most common option for people taking out a PCP deal. Normally, at the end of the PCP contract, the car will be worth slightly more than the balloon payment. If this is the case use can use this ‘equity’ as a deposit for your next lease

3. Hand the car back. If you want to you could just hand the car back to the financial provider and have nothing more to pay, unless there are excess mileage or damage related penalty charges

Considerations of PCP

• Similar to Personal Contract Hire, you will need to agree on a mileage allowance at the beginning of your contract and there may be excess mileage charges if you exceed this

• You won’t own the car until you’ve made all of the repayments

• You will need to keep the vehicle fully insured, maintained and in your possession until the full value is paid off

• If you want to buy the car you will need to pay the final balloon payment (GFV)

Disadvantages of PCP

• A charge can be made for damage to the vehicle which is outside of the BVRLA’s guidelines for fair wear and tear

• A charge will be made for excess mileage if the contracted mileage is exceeded

• You will have to decide at the end of the contract to either sell, return or keep the vehicle

Can I settle my PCP deal early?

You can normally settle your deal early, however, the finance provider will require you to pay off the difference between what your car is worth now, and what you still owe (negative equity). On the other hand, you may find that at the end of your term your car is worth more than the Guaranteed Future Value, which means you’ll have some positive equity to contribute towards your next car.

Can an 18 year-old get PCP finance?

Yes, 18-year-olds can apply for PCP finance.

What do I need for PCP finance?

When applying for PCP finance, you will need to provide some personal details, including employment details and history and your bank details.

As well as PCP options, Fleet UK also offers a range of other finance options. So if you’re not sure which is the best finance option for you, or if you have any questions about the car leasing process, please call our friendly, professional and helpful team on 02392 245570.