One of the most popular car finance products on the market is PCP – personal contract purchase. In part because of its comparatively low monthly repayment costs, but also because of the flexibility you have at the end of the finance term where you have three options – return the car to the dealer, pay a one-off balloon payment to own the car, or use the vehicle towards a new car finance package.

If you’ve never taken a PCP car finance package before, it can seem a little mystifying. What’s a balloon payment? What does guaranteed future value mean? The good news is that there are lots of useful advice and tools out there to help make things less complicated. One of which is the PCP calculator.

What is a PCP calculator?

The PCP calculator works to help you work out just how much a personal contract purchase finance package would cost you each month. By inputting some simple details, you can get an idea of how much you could borrow, what your monthly repayments would be, and also how much interest you’ll be charged.

What information do I need to use a PCP calculator?

All you need to know is roughly how much you can afford to repay each month. So if you know that, after you’ve paid your bills and living costs, you have £300 per month to spend on a car finance package, then you can use this to see how much you can potentially borrow. Feel free to adjust the amount between the higher and lower end of your budget. You might be surprised at how much you can potentially afford to spend on a car finance package.

You’ll also be asked how long you want the finance package to last for. This will help total up how much you’ll be able to borrow. It’s also a good idea to know what your credit rating is, as this will affect how much interest is added to the package, plus what types of product are available to you. Choose one of the many free credit check websites to work out what your credit rating is before you use the tool.

What isn’t included in the PCP calculator?

Each PCP package is calculated based on the difference in value of the car between the start and the end of the finance agreement. There are a whole host of different factors that affect how much value a car loses – its depreciation – over time, which would make providing an accurate reading here almost impossible. Make, model, age and mileage will all affect a car’s value. So use the tool to see how much you could borrow and then look at vehicles.

What other things could affect my PCP package?

There are many factors that you’ll need to take into consideration. We’ve already mentioned how your credit rating will affect your deal, as some providers will only offer a PCP deal to those with a good or excellent credit rating.

Another thing that has an impact is the size of your deposit. The bigger the deposit, the less money you’ll pay across the finance agreement, meaning you’ll end up with lower monthly repayments. This means you could pay off a finance package quicker, or afford a more expensive vehicle. Discuss this with your customer advisor to get advice on what the best approach for you is when it comes to your circumstances and the type of car you want to finance.

So why use a PCP calculator?

A PCP calculator will give you an idea of what you can borrow before you apply. If you don’t use it, then you might end up applying for a package and realising that it’s unaffordable. You don’t want to find a car and get your hopes up that you can afford it without doing the research first. The PCP calculator will help you get a good idea of what your budget will be, so you can shop with the knowledge that you aren’t wasting your time!