Car finance calculator

Good credit
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Amount to borrow:
£
To repay over:
5 Years
Car finance rate XX% APR
Cost of credit £ XXX
Total repayment £ XX,XX.XX
48 monthly payments of
£ 245 /mo

Representative example - Borrowing £5,500 over 4 years with a representative APR of 19.8%, and a deposit of £0, the amount payable would be £162 per month, with a total cost of credit of £2,282 and a total amount payable of £7,782.

How PCP car finance works

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Find a deal

Submit your details and choose from a fantastic range of car finance deals.

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Final arrangements

If successful we’ll organise everything with the lender.

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Enjoy your new car

All that’s left to do is to enjoy your new car for the duration of your contract.

Personal contract purchase (PCP) car deals are ideal for anyone who wants to keep monthly payments low while having the option of driving a new car every 2-3 years. If you are new to PCP and are unsure how the process works and if it is a good fit for you, below we cover the essentials to help get you started.

Personal contract purchase explained

A PCP deal works in the same way as personal loan to enable you to get a new car. However, the details are a little different to a personal loan as you only pay for the lender’s valuation of the car, rather than the full price. At the end of the contract you will only own the car if you choose to pay the final large-sum instalment.

There are three parts to a PCP deal:

  • Deposit: Most dealers will ask you to provide at least 10% of the car’s value as a deposit. The larger the deposit you are able to put down at the start, the lower the monthly instalments will be during the contract. If you choose to take up a finance deal directly with a manufacturer some may offer a ‘deposit contribution’ - somewhere between £500 and £2,000 (or more for a brand new vehicle).
  • Loan amount: The finance company will base their valuation on how much value they think the car will lose over the duration of the deal (which is usually 2-3 years). Once your deposit is deducted from this total you will have the amount that needs to be paid back during the contract, plus interest. APRs can vary depending on the company, but many range between 4-7%.
  • Final payment: Known as a balloon payment, or Guaranteed Minimum Future Value (GMFV), this is only paid if you wish to own the car at the end of the contract. The amount is based on how much the dealer believes the car will be worth once the contract as finished. This will be agreed before any contract is signed, so you are fully aware of the potential cost of owning the car. If you choose not to pay this figure you will have other options available to you, which we’ll explain in more detail below.

If you see a 0% offer, it is best to proceed with caution. The general rule is, if it seems too good to be true, then it generally is. On the face of it, this type of deal doesn’t offer a way for the company to make a money on the deal. But that obviously cannot be the case, which means other ways and means could be used to make the profit. This might be something like increasing the balloon payment at the end of the contract to compensate for the lack of interest applied to your monthly instalments.

How does personal contract purchase work?

As an example, imagine signing a PCP deal for three years for a car valued at £20,000. The finance company predict that by the end of the contract the car will be worth £8,000. That would be broken down into the following:

  • You pay a 10% deposit of £2,000, taking out a loan for the rest of the car worth £18,000.
  • This would then mean you owe £18,000. Even though the car will be worth £8,000 at the end of the contract you only have to pay back £10,000 (plus interest set on the full £18,000 loan) over the course of the 3-year contract.
  • Once the contract is finished, you have the option to pay the remaining £8,000 to own the car fully, or you can return the car to the dealer.

Even if you return the car to the finance company at the end of the contract, it is important to remember you have also paid interest on the full loan of £18,000 over the 3 years.

What are your full options at the end of the contract?

Once you reach the end of the agreement there are three options available to choose from:

  • Pay the balloon payment: If you choose to pay the large sum at the end of the contract you will then own the vehicle. You may also have to pay an additional fee towards the finance company (in some cases up to £500 but usually lower) in addition.
  • Return the car: You will no longer have to make any monthly instalment payments. As long as there is no damage or over-mileage on the car (explained below) then your financial ties to the car are at an end.
  • Choose a new car: By the end of the contract the car is likely to worth a little bit more than the balloon payment. If this is the case, you will be able to use this ‘equity’ as a deposit on a brand new PCP car contract. For example, if the balloon payment was set at £9,000 and the car’s value is actually £10,000, the £1,000 difference between the two sums can be used as a deposit on a new deal.

Of course, not everyone opts for a new PCP deal, but many people do. There is no option to ‘cash out’ the difference between the valuation and the balloon payment – it can only be used as part of a deposit for new vehicle.

If you get to the end of the contract and the car is worth less than the balloon payment the best option is to return the car back to the finance company. They will have to deal with the financial disparity on the vehicle and it will not be something you have to deal with.

Are there any additional charges involved?

In the section above we mentioned there may be some additional fees to pay once the car is returned. There are two main charges to think about here:

  • Over-mileage: When you are putting together the contract for the PCP deal, you will be asked to say how many miles you expect to drive. This will help the dealer assess the value of the car and set the balloon payment. Cars driven a lot will naturally be worth less than those that are rarely used. It is important to give an accurate figure, as the mileage on the clock will be checked at the end of the contract. If you go over the limit, you may be charged an additional rate per mile for each one in excess. Some companies may waver this if you have only gone a little bit over the limit, but driving tens or hundreds of miles beyond the agreed limit is likely to see you charged.
  • Damages: Normal wear and tear on the car is acceptable (at the start of the contract you should be given details as to what is deemed ‘acceptable’ wear and tear). Once the car is returned the finance company need to sell it, so any scratches/issues with bodywork or damage of that nature is likely to be chargeable to you.

Before returning the car to the dealer it is always a good idea to check the car to ensure there are no major issues. If there is damage that needs to be repaired, get a price from a reputable service centre as it may be cheaper than getting it done via the finance company.

Should I get a PCP deal?

Deciding on whether a PCP deal is the right choice for you will come down to personal choice and circumstances.

If you would like to get a new car every few years, then a PCP could be a good option for you. If you would like to keep hold of the car for longer, then a hire purchase or personal loan may be a good alternative. However, it is worth noting that these two options are more expensive as you are paying for the full valuation of the car to own it at the end of the contract.

PCP is a more cost effective option, and if you choose not to pay the balloon sum at the end of the contract you then have the choice to get a brand new car on a new contract.

Only about 20% of people who take out a PCP deal end up buying the car at the end of the contract. Many people who do not want to buy the car and cannot afford the higher costs of a hire purchase or personal loan tend to opt for leasing. This doesn’t offer the option to own the car which means you pay less on a monthly basis.

PCP car finance advantages

There are a number of advantages you can enjoy from taking out a PCP contract:

  • You can enjoy lower monthly payments compared to a personal loan or hire purchase while enjoying a brand new car.
  • There are no concerns about reselling or trading at a future date, as the deal guarantees the vehicle’s minimum worth at the end.
  • PCP gives you a number of options at the end of the contract – including full ownership of the car.
  • Service and maintenance and warranty and insurance packages are also available, so you can cover almost all the costs of the car in one single monthly payment.
  • Taking out a PCP deal could allow you to drive away a more expensive that you otherwise may not have been able to afford.
  • Most PCP deals are available on new or nearly-new cars, which means you are less likely to experience repair issues with the car during the course of the deal.

It would also be fair to point out there are some drawbacks of taking out a PCP deal:

  • You only have the option to own the car at the end of the contract – and this will involve paying a large lump sum to pay off the valuation of the car.
  • If the predicted valuation at the end of contract is close to its actual value you may not have much equity to use for another deposit. This will mean having to find the remaining deposit required to secure another PCP deal.
  • Driving over the mileage limit agreed at the start of the contract could mean you are liable to pay a fixed-price for each excess mile you have driven.
  • The dealer will also predict the future value of the car based on it being returned in good condition. If it is returned requiring repair work beyond anything caused by normal wear and tear you are likely to be charged for this.

Where to find a PCP deal

The two main options available to you here are either through the dealership offering the car, or via online brokers. Before committing to one or the other it is worth looking at the deals being offered by both. This gives you a good idea of average prices and could also provide some leverage if one of the companies are willing to negotiate on a deal.

When comparing deals be sure to look at the overall costs and ask if there are any additional fees or charges that are not being advertised. The Financial Conduct Authority have stated that some buyers are being unfairly overcharged by more than £1,000 in interest on finance deals due to lender incentives. Always be clear about the full cost of the deal, how much you will pay each month, and the interest rate involved.

Online finance brokers

Online finance brokers provide a broad range of deals to suit many different circumstances. Some also offer deals specifically tailored towards those with a poor credit history. This option gives you access to a range of quotes from a number of different finance lenders, allowing you to choose the right one that suits you.

Before proceeding with any application with an online broker, be sure to check whether they will run a soft or hard credit check in the first instance. A soft search does not leave a footprint on your credit file, while a hard check will – even if your application is not successful. Failing too many hard credit checks could have a negative impact on your credit rating.

At Carplus we always run a soft search first and always seek customer permission before performing a hard credit check.

Some brokers also offer cars as well as finance options. It is entirely up to you, as you have the option to use the broker for the finance deal only, while still getting your car from a separate dealer. In this scenario the money is sent to the dealer once the paperwork for the finance agreement has been confirmed.

Dealer finance

Almost every dealership in the UK offers this option, which is also referred to as car finance or forecourt finance. The dealers will either be branded by a manufacturer (Audi for example), operate as an independent dealer, or as a car supermarket.

This is what to expect with each one:

  • Branded dealers: The manufacturer’s finance department will deal with the financial aspect of the deal. They may also give you a ‘deposit contribution’ worth £500 to £2,000 along with 0% finance – as long as you qualify. People with good credit are likely to get better interest rates than those with a poor credit history.
  • Independent dealers/car supermarkets: Finance options are usually sourced via the consumer arms of big banks, offering similar deals to those offered by manufacturers. Deposit contributions and 0% finance deals are less likely to be offered, and similarly, anyone with good a credit history is more likely to get a better deal than someone with poor credit history.

How to refinance a PCP balloon payment

Are you coming to the end of your PCP agreement and have a balloon to repay? At the end of a PCP deal but don't have the cash to buy your current car? You can refinance the balloon payment into a new Hire Purchase agreement. Check out refinancing a PCP balloon payment guide.

PCP car finance FAQ

No, cars that are only a couple of years old can also be financed with PCP. However, you may find that interest rates on these deals are much higher than PCP deals on new cars. This is because the value of the car is much lower, so the inflated interest rate is the only way the dealer is able to make money on the contract.

A PCP deal consists of an initial deposit (about 10%), monthly instalments (plus interest) and any additional fees for insurance, service and maintenance that may be required.

Be sure to look at the APR percentage on the deal, rather than any fixed-rate of interest offered, as this will show the true additional amount to be paid. By law this has to be stated on each deal and if you cannot see it you should ask for it in writing.

Depending on the car you purchase, the finance company may also charge additional purchase and arrangement fees ranging anywhere between £100 and £500.

If you want to pay a lower amount each month on your PCP deal, the best option is to put down a large deposit upfront.

You should be realistic about the mileage limit you set at the start of the contract – the mileage amount will also impact your monthly payment. However, also be aware that exceeding the level by the end of the contract is likely to lead to additional mileage charges.

It is worth remembering that the lower the value of the car you want to drive, the less you will have to pay each month.

You usually have the choice to pay off the full contract early, although this may cost you more.

The finance company make their money over the full course of the contract, so even if you want to finish early you’ll still have to pay the remaining amount left on the deal.

This means paying for the value of the car at the point you want to end the contract. For example, if you are mid-way through the deal and it is worth £13,000 and your settlement figure is £15,000 – the extra £2,000 is due to clear away any ‘negative equity’ to free you from the deal.

You may also be charged an additional fee for choosing this option, although that will depend on the finance company.

If you get to the end of the contract and decide to buy the car there is also likely to be an ‘option to purchase’ fee, which could be anywhere between £100 and £200. This fee is to transfer the vehicle into your ownership and is payable in addition to the balloon payment.

You cannot be asked to pay more than the GMFV figure (discussed earlier on this page) by the dealer. This also applies to you returning the car and asking for more than its original valuation.

A soft credit check will be carried out, followed by a hard credit check, if you wish to proceed with an application. Only a hard credit check will be recorded on your file.

Because all car finance is secured on the car the check may not be as strict as those used for personal loans. As a result, if a customer defaults on a PCP deal the finance company can simply repossess the car to take back ownership of the asset loaned to you.

As long as you pay the monthly instalments on time, you will not experience any diverse effect on your credit file as a result of a PCP deal. Defaulting on a contract could have a negative effect on your credit file and could affect your chances of securing credit elsewhere.

In the first instance the lender will follow up to see if you have simply forgotten to pay. As long as this is only a one-off and can be rectified straight away, there should not be a problem. If you continually fail to maintain payments they could cancel the contract and repossess the car.

Gap insurance is an additional policy you can take out while on a PCP deal to protect you from having to pay the car’s current value should it be stolen or written off due to a crash.

This type of policy will either pay out the original sale price of the vehicle, the remaining amount outstanding on the PCP contract, or the amount it would cost to purchase the same car as new.

Cars generally depreciate very quickly, with the AA estimating that within the first 3 years the value can drop by up to 60%.

Also be aware that since September 2015, dealers are not able to offer you gap insurance at the same time as selling you a finance deal. They can offer it at a later date (they must wait at least a week) but in general buying gap insurance from same dealer is not a good idea. This is because you can usually find cheaper alternatives elsewhere.

Gap insurance is not a necessity and you are under no obligation to take this type of policy out while on a PCP deal.

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