How to spot the best used car PCP deal

Finding the best PCP finance deal can sometimes feel like an impossible task, but we've got five expert tips that will help you on your way

James Mills
Aug 15, 2019

Finding it difficult to get your head around all the jargon and numbers that come with financing a car? The last thing you need is to find yourself stuck in a finance contract that doesn't suit your situation, so we've put together five expert tips to help you find the best used car PCP finance deals.

Personal contract purchase, or PCP is the most popular (and most common) form of car finance. The idea is that you pay an initial deposit on the car you've chosen, followed by a series of monthly payments culminating in an optional final payment at the end that you can pay if you want to take ownership. Our PCP finance guide explains all the details. 

The tips below run through the simplest ways to spot the best PCP deals and get the best value for money when you finance your next car.


Understanding PCP Finance

PCP finance is effectively a way of borrowing money to pay for a car in affordable chunks.

The reason it's so affordable is that with PCP your monthly payments don’t cover the full value of the car. The deposit and monthly instalments actually only equate to the value the car loses while in your possession, plus interest. Because of this, the vehicle itself remains the property of the finance company, unless you decide to buy it outright by making the optional final payment.

You usually pay an initial deposit - though this can be very small with plenty of no-deposit PCP finance deals available - depending how much cash you have to hand. Do bear in mind, though, that the lower the deposit, the higher your monthly payments will be. If you are part-exchanging your current car, the sum offered for your outgoing car can be used as a deposit against the new model if you so choose.

The amount you'll have pay over the course of your contract (typically, a PCP term last between two and four years) will be based upon an estimate of the value the car will lose during that time, according to what the finance company believes the car will be worth at the end of the term. That end value is known as the optional final payment or Guaranteed Minimum Future Value (GMFV).

At the end of a PCP agreement, you’ll have the opportunity to buy the car outright by making the optional final payment. Alternatively, you can simply hand the car back with nothing left to pay, provided it's in good condition and below the pre-agreed mileage limit. If it's not, you can expect to be issued with additional charges.

It is important to be confident you'll be able to make all the monthly payments before you sign on the dotted line, as ending a PCP deal early can prove costly if you're not careful.

1: Compare like-for-like PCP deals

It’s important to shop around when looking into car finance deals; this is a substantial investment and just like you wouldn't take out a mortgage without thinking about it first, it's worth looking at a couple of finance deals to see which works for you best.

So, in much the same way you might compare the performance figures and fuel economy of a Ford Focus and a Volkswagen Golf, you should compare PCP offers for several different models to determine which offers you the best value and then narrow down which is the best version of that car available.

Don't fixate on the monthly payment figure and ignore everything else. You cannot work out whether a car is good value from that figure alone; you need to know how large the deposit is, plus the length of the contract and the mileage allowance, too - as all of these affect the monthly payments. Therefore, it's important to compare like-for-like quotes to see which really offers the best overall value.

Fail to compare like-for-like quotes and you could end up paying through the nose without even realising it, as some £100 per month cars could cost you far more than other £200 per month cars. A £100 per month car with a £5,000 deposit would cost £1,400 more overall than a £200 per month car with no deposit over three years, for instance. If you're intending to take ownership of the car once the finance term is complete, you also need to make sure you can afford to make the optional final payment; low monthly payments are no good if you then can't afford the final payment.

2: Look out for low cash prices

The cash price is the cost of the car if you were to walk into the showroom and buy it there and then. Fewer and fewer of us are able or indeed inclined to do that, especially when some finance deals charge such low rates of interest. However, low cash prices are normally a good starting point for low finance costs.

With new cars the cash price should be pretty similar across dealers, however with used models there are bargains to be found if you do your research. You may know you want a specific type of Nissan Qashqai and have found one that suits your needs, but simply shopping around could find you a practically identical model for £1,000 less.

That saving could instantly slash £20 per month off your finance costs - either reducing how much you need to spend every month on your next car or potentially you could find a better equipped model or one with a more powerful engine for the same cost.

3: A ‘deposit contribution’ is a discount

If you see the words ‘deposit contribution’ in a PCP offer, that’s good news because it is effectively a discount in disguise. Both dealers and manufacturers use deposit contributions as a way to sweeten a deal.

The larger the deposit contribution, the larger the discount, as this is being deducted from the cash price of the car before the finance sums are done. This means the car costs less and you’re consequently borrowing less, which in turn helps shrink your monthly payments and the overall amount of interest charged.

4: Compare APR charges

Annual percentage rate, or APR, shows the amount of interest and any other compulsaory charges that is added to your loan. Generally speaking, the lower the APR, the less you’ll pay in interest, assuming you are comparing two differing APRs against the same loan amount over the same period.

Some manufacturers or dealers offer incentives such as 0% finance. These may appear tempting, as you're not paying any interest. However, you will probably have to pay a substantial deposit and sometimes interest-free credit deals feature higher cash prices - meaning they can cost you more overall than a deal which charges interest but features a lower cash price to begin with.

When you see advertised PCP deals, remember that ‘Representative’ or ‘Typical APR’ refers to the rate that at least 51% of people who are accepted for that product will pay. Therefore, up to 49% of people who take out that product may pay a higher APR than that advertised, and the only way you’ll know exactly what you’ll pay is to apply for the loan.

5: How much is the optional final payment?

If you intend to buy the car at the end of the PCP plan, you need to pay extra careful attention to the optional final payment sum, also known as the guaranteed future value.

The higher the value of the car is predicted to be at the end of the PCP period, the less you’ll have to pay over the term of the loan period, so you'll face lower monthly payments. Beware, though, that as you're paying off the balance slower, you'll end up paying more in interest - so if the interest rate is particularly high, you could face steep overall interest charges.

The flip side to this, however, is the greater the optional final payment, the more money you’ll need to buy the car outright at the end of the contract. If you really want to own the car at the end of the plan, therefore, ask yourself whether you’ll be able to afford it, or put more money aside during the contract if you can.


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