PCP Finance

PCP is a simple and ever-popular type of car finance. You put down a deposit and pay monthly with an optional balloon payment at the end. PCP finance actually pays for the loss in the car's value, which is why the monthly payments are usually lower than other types of finance.

How does PCP work?

The way PCP works is very simple.

1. You put down a deposit on the car, which can be tailored to your budget.
2. Next, you choose the duration of your PCP deal which usually ranges from 12-48 months.
3. The duration of your agreement affects how much you pay each month, with your monthly payments locked in for the agreement.
4. Once you reach the end of the term, you have an optional balloon payment that allows you to buy the car. Or you can simply hand it back or trade it in.

Your payments are fixed for the agreement of your term so you’re never hit with any surprises. Also bear in mind you will have a yearly mileage limit to stick to. Going over this limit may incur additional charges.

What does PCP stand for?

PCP stands for “Personal Contract Purchase”. Let’s break this down:

• Personal: the agreement is typically for personal users rather than businesses
• Contract: the agreement is a contract set over 12-48 months
• Purchase: you have the option to pay a final balloon payment to purchase the car

How is PCP car finance calculated?

The interesting thing about PCP car finance is that your payments (deposit and monthly costs) cover the car’s depreciation, rather than the full value of the car from new.

This is worked out by calculating the guaranteed minimum future value, or GMFV, of your car. This estimated evaluation is then taken away from the car’s original price, and that’s how we work out the depreciation on which to base your PCP finance.

You’ll also pay interest on all payments too, even including the optional final payment.

What is guaranteed future value?

GMFV, or guaranteed minimum future value, is the estimate of how much the car will be worth at the end of the agreement. This number is then removed from the car’s original price to calculate your PCP deposit and monthly payments.

Your car’s guaranteed future value is based on industry data. So if you choose a model that retains its value well, you’ll end up with a better deal. If you end your agreement in equity, you can actually get some money towards your next PCP finance deal.

So why would you choose PCP? Everyone’s needs are different. If you’re after low monthly payments over 12-48 months with fixed prices and the option to own, PCP finance may be a great way for you to fund your next car.

What are the benefits of PCP finance?

The main draws of PCP car finance are:

What is PCP equity? It’s when your car’s value is more than the final balloon payment.

This is actually happening more frequently due to the current used car market, meaning you can part-exchange your car for an even better deal on your next PCP agreement. This is something to consider when choosing your car.

Your deposit goes towards paying for the depreciation of your car. So you don’t get your deposit back at the end of PCP finance.

If you increase your deposit, your monthly payments go down. Decrease it and monthly instalments go up. The deposit and monthly payments combine to cover the loss in your car’s value based on the duration of your PCP finance deal.

PCP-financed cars are legally owned by the finance provider, but you are the registered keeper. You become the legal owner of the vehicle if you pay the optional final payment.

Who pays road tax on a PCP deal?

As the registered keeper, you have to pay the road tax on your PCP car.

If you have an EV on PCP, you don’t have to worry about paying road tax. But you do still need to apply to get it taxed. Hybrid cars will also pay a reduced rate. This is because currently road tax is based on emission outputs.

Who pays for repairs on a PCP car?

As the registered keeper, you are responsible for sorting out any necessary repairs on your car whether that’s through insurance or privately.

"Fair wear and tear" is included as part of your agreement, but you should get heavier damage fixed before you hand the car back as you may be charged. Keep your PCP car in good condition, including paintwork, the interior, the engine and the windows, and you shouldn’t be hit with any surprises.

Here at Pentagon, we have an exciting range of PCP deals. All of our customer-facing finance staff are fully SAF-approved so you know you’re speaking to an expert. We also offer great deals supplied by our panel of lenders with:

• Fixed interest rates
• Low & locked-in monthly payments
• Low & no deposit deals
• A quick & convenient application

Learn more about PCP or find out how to secure your next car with one of our bespoke deals by getting in touch. Our team of SAF-approved finance specialists are here to help across all Pentagon branches.