PCP (Personal Contract Plan) is a flexible Hire Purchase agreement that enables you to have a reduced monthly payment thanks to a Guaranteed Minimum Future Value (GMFV) for your car in 2 or 3 years’ time.
MyPCP is here to help you get the right deal for you. Understanding how PCP’s work is a simple as A, B, C.
You pay a flexible deposit and select an anticipated annual mileage at the end of your agreement. Your dealer will agree a GMFV (calculated from your deposit + expected mileage) and you repay the difference between both.
You only pay for the portion that of the car that you need to help keep the repayments low.
Like any hire purchase agreement you will still fund the car minus the deposit you have paid.
At the end of your PCP you can – upgrade to a new car (with a new PCP agreement), keep your current car (making the final payment) or simply hand back the keys (with no furhter payments).
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You can typically get a new car for lower monthly repayments than a personal loan or hire purchase.
You don’t need to worry about the future trade-in or resale value of the car, as the there is a minimum trade in value on the car.
It's flexible. You've several options at the end of it - you can even buy the car if you like.
Technology is changing at a rapid pace, PCP gives you an opportunity to move with this change as you can upgrade in 2-3 years time.
There is a common misconception that you have to return your vehicle to the dealer that you purchased your vehicle off. It is possible for another Dealer to purchase your car and settle the outstanding PCP agreement. Read our FAQ section to help dispel any PCP myths.
PCP is not for everyone. You should keep these points in mind when you are making this decision.
If the predicted GMFV is set very close to the actual value of the car you will have little equity to roll onto a new car in 3 years time. If there isn’t any, you will have to get your hands on a deposit for a new car elsewhere.
The future value is based on keeping the car in good condition. You may be charged extra to put right anything that’s not down to normal wear and tear.
You will only fully own the car when and if you pay the GMFV or the last installment. This is the same with a normal hire purchase however the last installment is a lower amount.
Even though your payments are based between the finance amount borrowed and the GMFV you still borrow the full amount for the car minus any deposit.
Myth Buster: Any car dealership can agree to purchase your car from you. It is not mandatory to go back to the dealer you purchased it from. There could be equity in your car which contributes to a deposit towards a new or used car.
Myth Buster: A PCP is a form of hire purchase (HP), so you are buying the car over time. It doesn’t officially become your property until the last euro is paid off, just like a classic hire purchase or the mortgage on your house, but you are making payments towards eventual ownership unless you choose not to make the final payment.
Myth Buster: This is another misconception, consumers are often told that they are not borrowing the full value of the car. When you take out a PCP agreement, you are borrowing the whole value of the car, minus any deposit. However, you don’t repay GMFV until the very end, so you have 36 smaller monthly payments followed by one larger payment, that if you choose to keep the car.
Myth Buster: This one isn’t true either. Some people seem to think that if your circumstances change or you can no longer afford your payments, you can simply hand the car back to the dealer or finance company and walk away at any time. PCP works in the same way a traditional hire purchase agreement works.
However there is a clause in all PCP agreement called Voluntary Termination, which allows you, in specific circumstances to terminate the contract. If you have a current PCP finance contract you can check the terms and conditions to understand how this works in greater detail.
Myth Buster: Technically this is not true, you can pay a deposit of between 7 & 35% of the sale price of the car in most PCPs however it is very important to understand what will happen at the end of the PCP agreement. Regardless of whether you pay a small deposit or a large one you need to understand what could potentially happen at the end of the agreement. Please see the explanation below, bear with us…..It’s good to know.
For simplicity, let’s assume that your next PCP deal is similar to the first one in terms of the price, the interest rate and the Guaranteed Minimum Future Value.
Retail Price = €20k, Interest rate = 5% & GMFV = €8,000. Your car is worth €10,500 (trade in value) in 3 years’ time. Potential Equity: €2,500 (trade in value minus the GMFV).
There is no additional deposit required for the PCP deal number 2.
Scenario 1: Deposit €2,500
The monthly payment in the 2nd PCP deal is more likely to be similar to the monthly payment from the 1st PCP deal and it is feasible that a deposit may not be required to get to the same monthly payment. The finance amount borrowed is higher as the deposit is lower.
Scenario 2: Deposit €5,000
The monthly payment in the 2nd PCP deal is more likely to increase dramatically which is not in line with the current monthly payment (PCP Deal 1). To reduce your monthly payments then you will need to have additional deposit, which is fine but often consumers are not aware of this.
The lower the monthly payments the less of the finance amount and interest you will pay and the higher the monthly payments the more of the finance amount and interest you will pay.