When it comes to buying a car, there are plenty of different financial arrangements to help make the cost more manageable. Personal Contract Purchase (PCP) and loans are two of the most popular ways to achieve this. Below, we explore the pros and cons of both.
PCP
PCP is one of the most popular choices for car financing. This is where you make monthly payments to take ownership of the car, before having a choice at the end of whether to pay a lump sum for outright ownership or to return it to the dealer. These are particularly popular amongst people who enjoy owning a new car every few years.
Pros
One of the main benefits of PCP is that instead of parting with one huge fee for a car initially, you’re able to take control of it with small monthly payments. On top of this, you can add on maintenance packages and if the time has come to move on from your car, you should be able to negotiate with your dealer to arrange an upgrade. Combined, these perks can help you enjoy a new car every few years.
Cons
One of the main issues is that you don’t own the car until your lump payment at the end. As a result, you’re often paying for depreciation and loan interest each month rather than working towards owning an asset. As a result, you can be charged extra for going over a mileage limit or for excess damage. The worst-case scenario is if the car has to be written off following an accident, or if it’s stolen. If you don’t have PCP insurance, you’ll find yourself having to pay for the remaining cost of the agreement.
Loan
Alternatively, you can go for a bank loan to finance your car. This is a simple process where you have monthly payments over a set period with a rate of interest to repay as well.
Pros
The main benefit here is that you’ll own the car immediately. This means you’re free to do whatever you want with it: there’s no mileage limit or set of conditions imposed by the lender.
Cons
On the flipside, you’ll be solely responsible for all repairs and road tax. Plus, once you no longer want the car, you’ll be the one who has to sell it on – this can be an arduous process. On top of this, a bank loan can exacerbate credit issues if you have a low rating.
PCP and bank loans can help you move a step closer to getting a dream car. Just consider both options carefully and go with the option that works best for you.
