Personal Contract Purchase (PCP)
PCP is a type of car finance where you pay an initial deposit followed by monthly installments
over a fixed term (typically 24-48 months). At the end of the term, you have three options:
- Return the car with nothing more to pay (subject to mileage and condition agreements)
- Pay a final "balloon payment" (also called the Guaranteed Minimum Future Value or GMFV) to
own the car outright
- Use any equity (if the car is worth more than the GMFV) as a deposit on a new PCP deal
Buying Second-Hand Cars
Purchasing used cars involves paying the full amount upfront (or financing with a traditional
loan), owning the vehicle outright, and then selling it when you want to upgrade. This approach
typically involves:
- Researching and purchasing a reliable used car
- Paying for maintenance and repairs as needed
- Selling the car after several years of ownership
- Using the proceeds (minus depreciation) toward your next vehicle
Pros of PCP
- Lower monthly payments compared to traditional loans
- Flexibility at the end of the agreement
- Ability to drive a newer car that might otherwise be unaffordable
- Manufacturer warranties typically cover the entire contract period
- Predictable costs with minimal unexpected expenses
Pros of Buying Second-Hand
- Full ownership of the vehicle from day one
- No mileage restrictions or condition penalties
- Freedom to modify or customize the car
- Lower insurance costs typically
- Potential for lower total cost of ownership over time
- No ongoing monthly payments after purchase
Cons of PCP
- You don't own the car unless you make the final balloon payment
- Mileage restrictions with excess charges
- Potential charges for excessive wear and tear
- Higher total cost compared to buying outright if you keep the car
- Early termination can be expensive
Cons of Buying Second-Hand
- Higher upfront costs
- Unpredictable maintenance and repair expenses
- Older technology and safety features
- Potential for unexpected mechanical issues
- Responsibility for selling the car when upgrading
- Depreciation risk falls entirely on the owner
Investment Perspective
This calculator takes a unique approach by considering the investment potential of any
savings. If buying second-hand cars is cheaper in a given year, the difference could be invested and
grow over time. Conversely, if PCP is cheaper in some years, the calculator assumes you would
withdraw from your investment pool to cover the difference. This approach provides a more complete
financial picture beyond just comparing direct costs.
Making Your Decision
The best financing option depends on your personal circumstances and preferences:
- Choose PCP if: You prefer driving newer cars, want predictable costs, don't
drive high mileage, and value the flexibility of changing vehicles regularly.
- Choose buying second-hand if: You're comfortable with some maintenance
responsibility, prefer to own your vehicle outright, drive higher mileage, or want to minimize
long-term costs.
Use this calculator to see which approach makes the most financial sense based on your specific
situation and values.