What is Purchase Contract Plan (PCP) car finance?

Help & Advice

With PCP, as with HP, you choose the car and Zuto will arrange for the payment of the vehicle. You still pay monthly instalments to the finance company as with other forms of credit, but you are only paying for part of the total amount due. The rest is due as a lump sum, (commonly known as a balloon payment) at the end of the repayment period. This means you pay less each month for a car of the same value than you would with a traditional HP plan. At the end of the repayment period, you have a number of options:

  1. Give the car back and start again with a newer vehicle and because the lender has pre-agreed the resale price with you at the beginning, you don’t need to worry about depreciation.

  2. Alternatively, you can pay the pre-agreed balloon payment and buy the car.

  3. If your car turns out to have more value than the resale price you were originally quoted, it is worth settling the finance and trading the vehicle in yourself as part exchange for your new car

There are a number of possible complications around returning the car.

  1. It has to be in good condition—you’ll be charged for the costs of any damage

  2. You have to estimate your mileage at the start. If you go over, you'll be charged for every mile above the estimate, unless you negotiate this early in your agreement

  3. It’s important to consider if your circumstances will change before the end of the PCP deal, so that you don’t find yourself unable to get a new finance deal at the end of this one. Remember, PCP is not designed for you to own the car unless you decide to settle the balance. So, if for example, your earnings may decrease, you may not be able to gain the same level of finance in the future.

PCP Key details: PCP agreements offer fixed monthly repayments over an agreed period with you and the lender, typically between 12-36 months.

To find out if PCP is suitable for you go to our Car Finance Explained guide.

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