Personal Contract Purchase: The PCP Plan Explained

10 Posted: 10th Nov 2021
Personal Contract Purchase: The PCP Plan Explained

Buying a new car can sometimes be a daunting process and it is normal to feel overwhelmed with the different options of payment available to you. One of your choices is to consider a Personal Contract Purchase (PCP), to pay for the vehicle.

In this guide, we will explain exactly what a PCP plan is and why it’s so popular amongst car buyers.

  • What is a PCP Plan?

    A PCP plan is a method to pay for your new car, at Toomey Motor Group we also offer PCP plans on used cars. It differs from other payment options, as you have 3 different options at the end of your agreement, which we will get into later in this guide. A PCP plan consists of 3 main parts;

    1. Deposit - also known as initial payment, which is paid at the very start of the agreement.
    2. Monthly Payment - you will agree a set payment with your Salesmen as to how much you want to pay each month for X amount of months, this can start from 24 months.
    3. At the end of the contract;
      1. Optional Final Payment - also known as Balloon Payment or Guaranteed Minimum Future Value (MFMV), after paying X amount for the duration of your contract you can pay this figure and you will officially own the car.
      2. Hand the keys back and find your new car!
  • How does it work?

    Above was a breakdown to give you a better overview of what a PCP plan is, but so that you can get a better understanding of a PCP and recognise if a PCP plan is right for you we’ve taken this guide a step further, to give you all the tools that you need.

  • Find your Car!

    Toomey Southend PCP Plan

    The first part of this journey is easy, roll up to Toomey Southend and Basildon, take your test drives and find the right car for you.

    The next step is to sit down with your salesmen and discuss your PCP options, for example, whether you would rather pay a high deposit, which result in lower monthly or vice versa.

  • Deposit

    Before you leave the dealership with your shiny new car, you will pay the agreed deposit, it is advised that your deposit is around 10% of the car’s value, although, your Salesmen will be able to help accommodate this to what works best for you.

    If you currently have a car, you can ‘part-exchange’ your current car and the value of this can go towards your deposit. Doing this, will mean you do not have to worry about finding a buyer to sell your vehicle or leave your car on your driveway loosing value. Part-exchanging your vehicle avoids the big upfront deposit or will at least make the deposit smaller and much more attainable.  

    It is often thought that you will get your deposit back at the end of the agreement, however, this is not the case with a PCP plan. At this point, you are not the owner of the car, the finance company of whom you are paying back throughout this agreement, owns the car.

  • Monthly Payment

    Once you have decided on your deposit, you will now know how much your monthly payment will be and how long you will pay it for, this can range from 24 to 48 months. Within your monthly payments, it will include your APR and interest rates, these percentages are the amount of interest you are paying to borrow this money for the duration of the contract.

    TIP: The higher your monthly payment is, the more you will pay in interest in those monthly payments, compared to lower monthly payments, as you are borrowing less money for the duration of your PCP plan. 

    Despite this, when you come to the end of your PCP plan, and have been paying smaller monthly payments, when you start your next PCP you will have to provide the higher deposit, to continue paying a similar cost on your new plan.

    Therefore, in the long-run it can work cheaper and much more attainable to stick with a smaller deposit, to assist you when you finish your lease.

  • During the PCP Plan

    If during the PCP plan you have a change circumstances, for example you need a bigger car if you have had more children, you can part-exchange your vehicle. Meaning at any point during your agreement, we can start a new PCP plan for you and you are not ‘locked’ into this and have to wait for the full duration to be finished before you switch to a new car.

  • Part-Exchange During your PCP Plan
  • At the end of your agreement

    After you have paid all of your monthly agreements your finance company/dealership will contact you, to make you aware that your PCP plan is coming to end. Once you have finished your duration, you will need to bring your car to the dealership to decide what you would like to do and to review the wear and tear of the vehicle.

    This is now where your excess mileage charge comes in. At the start of the agreement, you decided with your sales executive your amount of mileage per year your PCP plan was set upon, most agreements are set with 7,000 miles a year. Ultimately the less mileage per year you decide on, will result in lower fees, as you are creating less wear and tear on the vehicle. In the agreement, your dealership will have a set charge if you go over this, this is called the excess mileage charge, which is calculated per pence, per mile. Therefore, if your excess mileage rate is 7p, and you have gone over your mileage by 3 miles, you will have to pay 21p.

    There will also be an assessment of the vehicle, and if there is any damage there could be a charge.

    After you have settled any charges you then decide which option you would like to take;

    1. Pay the optional final payment, also known as balloon payment, once this figure has been paid you will officially be the owner of that car.
      1. Pay the Optional Final Payment; Guaranteed Minimum Future Value (GFMV) – This figure is set out at the start of the agreement and is the current value of the car, now, at the end of your agreement, it is fixed and will not be changed. If the car is worth less than this, you will not have to pay extra. If you pay this, you will now officially own the car.
      2. If your vehicle is now worth more than the optional final payment, which is likely at the moment due to the value of used cars increasing you have two options;
        1. Hand the keys back and use this balance to go towards the deposit on your next PCP plan. If you do not go onto a new PCP, you will not be able to get the money back in cash, it can only be used towards your next PCP plan.
        2. Pay the optional final payment (because this cannot change) and sell the car to a third-party, so that you can profit from the value increasing.
    2. If you decide not pay the optional payment, you will not own the car and you can start a new PCP plan with your dealership with a brand new vehicle
  • Other aspects included in your PCP plan;

    • Amount of Credit: After you have paid the deposit, this is how much is left to pay for the vehicle for full ownership, essentially, it is the cost of the vehicle minus the deposit paid.
    • Brand Deposit Contribution: If you lucky enough that your dealership puts in a sum to help with the deposit, this is their total contribution.
    • Total Amount Payable: This is the total amount that has been paid for you to gain full ownership of the car, this includes the interest and APR and any brand deposit contribution.
    • Total Amount Payable by Customer: Exactly the same as above, but excludes the brand deposit contribution, this is everything that only you will pay.
  • If you have any questions please feel free to contact us and we will be able to help explain the PCP plan in further detail. 

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