For car buyers who want to drive a new car without having to take ownership of it at the outset, the Personal Contract Purchase (PCP) deal can be a game changer. Flexibility and lower monthly payments are what PCP deals have to offer. But it’s important to understand the terms fully so you don’t get hit with unexpected costs down the road. Following are some practical tips to help you secure the best PCP deal that suits your needs and budget.
Knowing the Structure of PCP Deals
Before we get deep into the specifics, it’s important to understand how PCP works. A PCP agreement is basically paying an initial deposit, followed by lower monthly installments, over a fixed term. Unlike a hire purchase, you don’t get to own the car at the end of the contract unless you pay the optional balloon payment. The flexibility of this structure comes at a price, which is why it’s important to scrutinise each part of the deal.
Negotiate Interest Rates
If you are looking to discuss PCP deals with a finance provider such as CarMoney PCP, don’t be afraid to discuss the interest rate, or APR (Annual Percentage Rate). A lower rate may be available if you have a good credit score.
The interest rate is one of the most important factors to think about when closing a PCP deal. The lower the APR, the more money you’ll save over the life of your agreement. Take the time to compare the rates that different lenders and dealers can offer because you might find that these rates are different from each other. You should always negotiate the rate you pay to see if you can get a better deal.
Calculate the Balloon Payment
When you complete a PCP deal, you can either return the car, trade it in for another vehicle, or pay the balloon payment to own the car. This balloon payment is usually a large sum that will have a bearing on your decision at the end of the agreement.
When you’re trying to decide whether a PCP deal is affordable in the long term, make sure you work out the amount. Lower monthly payments sound good, but you don’t want to get caught with a big final payment if you’re planning on keeping the car.
Think About the Effect of Mileage Restrictions
A standard feature of PCP agreements is mileage limits. If you go over these restrictions, you’ll pay a hefty penalty when you return the car. If you’re a high mileage driver, you need to be upfront about how much you expect to use. Many buyers underestimate how much they drive and end up having unexpected costs.
Factor in Maintenance Costs
The benefit of PCP deals is that you’ll often drive a newer car that’s less likely to need repairs, but you still need to consider the price of maintenance. Routine servicing and repair work is covered by some PCP providers in maintenance packages. Decide if these packages are worth it and if they protect you from big repair bills during your contract.
Take a look for Early Termination Options
You may need to end your PCP deal early if your life circumstances change. Before signing the contract, make sure you know your options to terminate early. You can exit early with some agreements, but they usually come with steep penalties. Clarify the details upfront and read the small print so you won’t be surprised later.
Shop Around for the Best Deal
Lastly, don’t take the first PCP deal that you’re offered. Financing is mostly supplied by dealerships directly, but there are also third party financing companies to explore. When you compare multiple offers, make sure you get the best overall deal for your situation. Comparison sites can make this process a little easier by showing you multiple deals side by side.
Final Thoughts
The right PCP deal is all about how much you pay, interest rates, balloon payments, and mileage restrictions. Doing your homework and negotiating the agreement will help you understand what the agreement entails and how it will fit your budget and driving habits. It doesn’t matter if you’re dealing directly with a dealer or a finance provider; the main thing is that you’re aware and proactive in getting the best terms.
