PCP schemes, are they worth it?

19.02.2015

Our answer:

Hi Justin,

Yes, they are, but like all credit or finance agreements you have to go in with your eyes wide open. PCP is basically like Hire Purchase with a twist – it allows you to finance a smaller portion of the car’s cost because you’re guaranteeing the future value and trading that against a final ‘bubble’ payment at the end. If all goes well, you’ll have enough value left in the car at the end to pay off the bubble and leave enough for a deposit for your next car. It’s a very clever way of financing a car, it keeps the monthly costs down to a minimum and it’s reasonably flexible in how you can end the agreement (roll over, hand back, pay off).

Downsides? You never own the car. With HP once you make your final payment, the car is yours. With PCP, it’s likely that you’ll never make the final payment so you’ll never actually own the car. You also need to pay close attention to the condition and maintenance of the car, and the mileage as there are financial penalties for exceeding any of the agreed limits contained in the PCP contract.

It’s also worth bearing in mind that, in many ways, PCP exists as a way to keep you loyal to the dealer and brand you buy from. Because of the structure of the bubble payment, it’s much more likely that at the end of the term you’ll take the ‘easy’ option and just roll over into a new agreement. Which is fine if that’s what you want to do, but that’s why PCP rates and repayments are so tempting – they’re often subvented by the marketing budget because a loyal customer is worth anything.

So, yes, PCPs are good and worth it as long as you really do your homework and pay attention. Don’t discount other forms of finance though – there’s still a lot to be said for HP or a personal loan. As ever, shop around.

Answered by Shane O'Donoghue
19.02.2015

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