In short a PCP deal is a loan to enable you to purchase a car. Unlike a normal personal loan you don’t be pay off the full value of the car and you won’t own it at the end of the deal. You can choose to own the vehicle at the end of the loan period if you take out this option.
PCP deals are fairly complex financial deals but to help you understand how they work and what you are choosing below are the three main sections of the deal.
Car dealerships offering PCP finance will typically want around 10% of the car as a deposit. The larger the deposit the less you will have to borrow. The amount of deposit can depend on you choosing to keep the vehicle at the end of the agreement, as most people would pay the minimum deposit and return the vehicle in a 3 year term knowing they haven’t invested too much money for a car they are not keeping.
Some finance deals offer contributions on new cars but be aware this is only if you take up their specific finance offer.
You are borrowing what the finance company is predicting the car will lose over the term of the agreement, which is typically between 24 & 48 months. This is minus the deposit. You will be paying off this amount and interest calculated for the duration of the deal. Current typical APRs on a PCP are between 4% & 7%.
This is also known as the Guaranteed Minimum Future Value (GMFV or GFV). This term refers to how much the car dealer expects the car to be at the end of your finance deal. This sum is calculated and agreed at the start of your deal so it’s important you understand it. On completion of your finance deal you will be offered a choice on what you would like to do with the vehicle. If you choose to keep the vehicle you will have to pay this sum.
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