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PCP Car Finance Explained
14 February 2022

PCP Car Finance Explained

Personal Contract Purchase (PCP) has become one of the main methods of paying for a vehicle, and while this type of finance has a number of benefits, it is rather complex, and it can be a challenge to get to grips with exactly how it works. With our expertise in arranging used car finance in Barnsley, we have put together an explanation of PCP agreements, which should tell you everything you need to know before you apply for finance.

PCP finance will allow you to pay for a car in small, monthly instalments rather than all at once. Your monthly payments will not go toward the entire price of the vehicle. Instead, they will cover the cost of the value the car loses during the contract period. The PCP process can be explained in the following three stages.


The beginning of a PCP agreement

At the start of your PCP agreement, your finance provider will make a prediction of how much the vehicle will be worth by the end of the contract period, in other words, how much it will depreciate in value. This is known as the Guaranteed Minimum Future Value (GMFV), which will be used to calculate the cost of each monthly instalment.

 The first payment you will need to make is an initial, interest-free deposit to secure the vehicle. This will contribute to the overall amount due. At Autozone/Car Credit Now, you can adjust your deposit amount to suit your budget. The higher your deposit is, the lower your monthly payments will be. Once you have paid your deposit and signed the relevant paperwork, you will be handed the keys to the car to use for the duration of your agreement period. 


During the agreement

After your contract has begun, you will start making monthly repayments to your finance provider. The amount you will pay each month will depend on the price of the car and its GMFV, estimated by your lender. The difference between these values will be the total amount due plus interest. This amount, minus your deposit, will be divided by the months in your contract to give you the cost of each instalment.


The end of a PCP agreement

When your PCP finance agreement ends, what happens next will be up to you. As your monthly payments will have only covered the vehicle’s depreciation rather than its entire cost, it will not become yours at the end of the contract period. Essentially, you will have just paid for your usage of the vehicle. So, at this point, you will have three options:

  • Return the car - you could simply return the car to your finance provider
  • Keep the car - you could pay the remaining GMFV to take ownership of the vehicle
  • Part exchange the car - you could part-exchange the car and begin a new finance agreement

Benefits of PCP Finance

  • Low monthly payments
  • Option to keep or return the car
  • Potential to gain equity if the vehicle is worth more than the GMFV

How to Apply for PCP Finance

You can apply for used car finance in Barnsley on our website in a matter of minutes!