How to spot the best used car PCP deal

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

James Mills
Mar 14, 2022

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 and then at the end of the contract there's an optional final payment, which you can pay if you want to take ownership or you can hand the car back with no more to pay (assuming you've kept the car in good condition and stayed under the mileage limit).

What sets PCP finance apart from Hire Purchase (HP) and PCH leasing is that PCP offers lower monthly payments than Hire Purchase while still offering the option to buy the car, with similar monthly payments to PCH leasing plus the choice to buy it outright - something that isn't possible with a lease.

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. Meanwhile, if you're a little confused about how PCP works or whether it's the right type of finance for you, check out the video guide below.

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 cover the value the car loses over the contract, 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 and there are plenty of no-deposit PCP finance deals available - depending on how much cash you have to hand. Do bear in mind, though, that the lower the deposit, the higher your monthly payments will be and the more you'll pay in interest, as you're borrowing more. If you are part-exchanging your current car, the amount offered for your outgoing car can be used as a deposit against the new model if you so choose.

The amount you'll have to pay over the course of your contract (typically, a PCP term lasts between two and four years) will be based upon how much value the car will lose during that time, which the finance company works out by estimating what the car will be worth at the end of the term and deducting that from the original price. 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 also 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. To decide if a finance deal is good value or not, you also need to know how large the deposit is, how long the contract is and what the mileage allowance is - these will all affect the size of the monthly payments. Therefore, it's crucial to compare like-for-like quotes, with the same deposit, contract length and mileage allowance, to see which really offers the best overall value.

Fail to compare like-for-like quotes and you could end up with a bad deal without even realising it. For example, 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.

If you're intending to take ownership of the car once the finance term is complete, you also need to ensure you can afford to make the optional final payment; low monthly payments are no good if you then can't afford the final payment afterwards. You can reduce the size of the final payment by lengthening your contract and increasing the number of monthly payments, but this normally leads to a higher overall cost with more interest to pay.

It is also possible to refinance that final lump sum, while you can instead opt for a Hire Purchase deal, which comes with slightly higher monthly payments, but those payments cover the entire cost of the car, and you automatically become the owner of the car at the end of the contract, with no large optional final payment to make.

2. Look out for low cash prices

The cash price is the cost of the car if you were to 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, since there's less cost to finance.

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. Remember, though, that a deal with a large deposit contribution but huge interest charges may still be expensive, so you need to consider the APR charges, too.

4. Compare APR charges

Annual percentage rate, or APR, shows the amount of interest and any other compulsory charges that is added to your loan. Generally speaking, the lower the APR, the less you’ll pay in interest. Don't forget that the more money you're borrowing, the more interest charges can rack up. Finance a £20,000 car with a 6.9% APR deal and you'll pay twice as much interest as if you go for a £10,000 car with 6.9% APR.

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 if you go for an interest-free credit offer you miss out on other discounts - meaning they can cost you more overall than a deal that charges interest but features a lower cash price to begin with.

Similarly, 0% APR is typically only available on new cars which typically have the highest cash prices. So, you may be paying no interest, but your monthly payments are still likely to be higher than if you went for a two-year-old equivalent with a much lower cash price but with interest charged.

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 contract, so the lower your 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 flipside 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.

Alternatively, you can refinance this amount at the end of the contract, or go for a Hire Purchase deal, where the monthly payments are a little bit higher, but you own the car once you've paid the last instalment, with no large optional final payment to make.


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