Personal contract purchase is the default way a new car is sold in the United Kingdom, and its monthly figure is low for a structural reason rather than a generous one. You are paying the difference between what the car costs now and what the funder forecasts it will be worth at the end of the term, plus interest on the whole balance. The forecast value waits as an optional final payment. Everything people find surprising about PCP follows from that one sentence.
PCP finance cars by paying the depreciation, not the price
The funder sets a guaranteed minimum future value for the car at the agreed term and mileage. Your instalments cover the gap between the price and that figure, with interest charged on the full amount outstanding throughout. At the end you hand the car back, pay the final figure to keep it, or use any equity above the figure as a deposit on the next one. The mileage limit exists because the forecast value depends on it.
PCP comparison is a comparison of four numbers, not one
Two quotations are only comparable on the same car, the same deposit, the same term and the same annual mileage. Change any of the four and the instalment moves without the deal getting better or worse. The figure that actually compares them is the total amount payable if you keep the car, which every regulated quotation has to state, alongside the excess mileage rate.
Electric car pcp and the value nobody can forecast yet
A guaranteed minimum future value is the funder's forecast, and on a fast-moving segment the forecast is doing more work than usual. Where residual values fall faster than expected the funder carries that risk if you hand the car back, which is the one place a PCP protects the customer rather than the other way round. It also means the final payment can be well above what the car is then worth, so handing back is often the rational choice.
PCP with bad credit, and PCP car leasing which is not the same thing
PCP is a regulated credit agreement with an option to purchase; a lease is hire with no such option. On a damaged file the lease is usually the harder of the two to get, because the funder is relying on rentals alone with no part-paid asset behind them. Applicants declined for one are sometimes written for the other, so establish which product you were actually declined for.
Questions people ask about pcp new car finance
Is pcp car loan a fair description of the product?
It is a credit agreement, so loosely yes, but it behaves differently from a personal loan. The car is not yours during the term, the instalments do not clear the balance, and there is an optional final payment to deal with at the end.
What happens if I go over the mileage?
You pay an excess mileage charge per mile above the agreed allowance, at a rate stated in the agreement. It is worth estimating honestly at the outset, because buying the mileage up front is normally cheaper than paying the excess later.
Can I settle a PCP early?
Yes. A regulated agreement carries a statutory right to complete payments ahead of time with a rebate of some future interest, and it is linked below. Ask for a settlement figure in writing; it will usually include the final payment.
Is the final payment negotiable at the end?
The figure itself is fixed in the agreement. What is flexible is what you do with it: hand the car back and owe nothing more subject to condition and mileage, pay it, refinance it, or part exchange and use any equity as a deposit.