So what exactly is this pcp, is it another term for finance or something? Who do u arrange it ......with the dealers is it? And as for this affordable payment at the end of each month, how do you come to arrange it?
PCP stands for Personal Conract Plan
It's very much like a businessey type lease except for the important fact that it's regulated by the consumer credit act 1974 which gives the private punter much more protection, rights and flexibility.
Say a car costs 20,000 quid. You put down a deposit. Usually about 10% but can be as little as nothing or usually a maximum of 30%. You then have your normal monthly payments but at the end yuo have three options:
1. Pay the end amount (often called a balloon, but proper name Guaranteed minimum future value (GMFV)) and walk away keeping the car.
2. Hand it back to the finance company and walk away without keeping the car - effectivily renting it, this is what makes it similar to a business lease or conract hire agreement.
3. The most common and logical option, you part exchange it using any equity (the difference between the GMFV and the cars value as deemed by the dealer valuing it) as deposit for your next PCP agreement.
Typically, a three year PCP arrangement with a 10% deposit works out the same per month as a five year conventional Hire Purchase (HP) agreement.
With something like the GTI, the residual value (the amount it will be worth when you sell it) will be sky high so PCP makes great sense with this model. If you intend to keep the car for ten years, PCP isn't for you as you will pay more interest in the long term, but if you want to change/upgrade in three years, go this route.
[
i]Downsides of PCP?[/i]You need to let the dealer know at the start how many miles you will do over the (say) three years. This will become important at the end because if you choose option 2 or 3 from above, the end value will be critical and if you've gone over your agreed mileage (say 30,000 agreed but you've done 40,000) and this means the car is worth less than the GMFV, then you will have to pay a pence per mile charge - usually about 6p per mile. However, it's important to remember that the finance company (usually VW financial services) will deliberatly set the GMFV quite low because they don't want to have to dispose of the car (if you've handed it back).
The APR (i hate those letters) will seem high. This is because APR is a calculation based on amount borrowed/length of term/interest per annum and total amoutn payable including all charges. You will pay interest on the total amount including the GMFV even though you are not paying off the actual capital of the GMFV. This, if you intend to keep the car and pay the balloon payment, this is a slightly more epensive route and you'd be better off asking your dealer about lease purchase or going the five year HP route and possibly setlling early.
Upsides of PCP?Lower monthly payment than equivilent term loan or HP agreement.
Removes the uncertainty at the end and removes possibility of negative equity
You effectively "rent" the car so you know what you are paying and thats it.
As it's regulated by the consumer credit act, you've got bags of protection if things go wrong - early settlement, repossesion rights etc.
Sorry, this should have been a thread in inself, I do this for a living so if anyone has any questions, please feel free to PM me or if you're really interested I can start a thread on financing options. It's actually a little pet love of mine....
Cheers
VWmd
