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Car Financing

PCP Finance – Personal Contract Purchase

This plan allows you to purchase a higher spec/luxury car at a lower monthly payment. Traditional payment plans usually spread the cost of the car equally over a number of months. A PCP plan defers a percentage of the total cost of the car towards the end of the payment term.

This percentage is known as the Minimum Guaranteed Future Value (MGFV). The MGFV is the main difference between PCP and regular car finance.

The monthly payments are calculated from the total of the MGFV and your deposit on the car, subtracted away from the total price of the car. This amount is then divided amongst the payment term. Therefore your payments are lower because you are effectively paying off the depreciation. There are a number of options available at the end of the payment plan:

Option 1
Should the vehicles value become less than the predicted MGFV you can simply return it to the finance company, providing it is in good condition and the agreed mileage has not been exceeded. As the finance company calculated the MGFV they will absorb the loss.

Option 2
However, if you want to keep the car, you can purchase it outright by paying the MGFV to the finance company.

Option 3
Another option is to part exchange the vehicle with a dealership for another car. If the trade in value is greater than the MGFV, the excess can be put towards a deposit for your next car. Alternatively you could sell the car privately and keep any remaining profit above the MGFV.

Excess Mileage
During the decision stage of purchase you will be asked to predict the amount of miles you expect to drive. At the end of the agreement, if you decide to give back the car but it has exceeded its predicted mileage, you simply pay the price per extra mile agreed before the agreement.

Wear & Tear
Ideally everyone wants their car to remain as new as possible, but time takes its toll on anything and everything, including your car. However it is in your best interests to take extra special care of your car when purchased using PCP, so that potentially it might be worth more than the MGFV at the end of the payment term. A detailed guide is provided by the finance company at the beginning of the agreement.

Hire Purchase

Hire purchase is a very straightforward payment plan. You simply choose how much deposit to put down; alternatively you can use your old car and part exchange. Then you make monthly payments over the course of anything between 1 – 5 years.

Personal Loan

A third option is to arrange the financing completely separately from the purchase of the car, which can be a good approach to take. If you think about it logically, a car dealer is indeed a good place to turn to in order to buy a car, but surely a specialised lender is a better place to turn to in order to arrange financing.

Taking out a personal loan has a number of advantages over dealer financing schemes, firstly you will be dealing with a company that specialises in the area, and who will have a range of loans to offer – plus of course you will be able to choose from a range of lenders, whereas with a dealer scheme you have no option but to use the dealer you are buying the car from.

Having the loan and therefore the cash organised separately will also put you in a stronger position when it comes to negotiating the price of the vehicle. It is far easier to knock down the price when you have the cash ready than it is to do so when asking at the same time to borrow the money from the dealer.

As well as allowing you to potentially get a better deal on both the financing and the price of the car, choosing the personal loan route also has the advantage of you actually owning the car outright upon purchase, rather than it belonging to the dealer until the final payment of the finance scheme has been made.