PCP Deals | Why is this car finance option becoming so popular?


As the leading ethical car finance provider in the UK, Creditplus offer customers a finance solution that suits their individual needs. Three of our most popular options are Personal Contract Purchase (PCP), Hire Purchase (HP) and Lease Purchase (LP), with PCP still remaining the favoured choice of consumers. Creditplus first reported on its continued success back in 2013 ‘The growth of PCP plans – will the balloon burst?’. So why is PCP still such a popular option when buying a car, and what exactly is it?

What is PCP?

Introduced to the UK market in 1996, PCP is nothing new, but many people are either unaware of this option or simply don’t understand exactly how it works. This article will cover the basics of PCP, but for a full breakdown of what a PCP deal covers, along with a video explanation, go to the Creditplus PCP finance options page and Personal Contract Purchase Explained page.

Essentially a PCP deal will allow you to get a better car for your money at a lower monthly cost, with the option at the end of the agreement to either return the car, keep the car by paying the outstanding balance (known as a balloon payment), or part exchange for a new car.

Creditplus founder and MD Shaun Armstrong explains: “Creditplus provides a variety of car loan funding methods and, in the prime lending space, PCP greatly outstrips other more traditional funding options such as hire purchase, with more than 79% of consumers opting for a PCP programme.”

According to the RAC, the length of car ownership is approximately four years, which has not really changed since the early 90s. A PCP deal runs from two to four years which supports the average car owner, whereby they can either upgrade to a newer model or exchange for a different car entirely. It’s also great for the customer to know that they have the flexibility to choose whether they would like to keep the car or exchange for another come the end of their agreement.

So it’s clear that getting a better car for less money and having the option to keep it or trade it is the main appeal and why so many customers are still attracted to a PCP finance option. However, the PCP offering is reserved for those who are looking for a car loan with a good credit rating.

Other finance options

As previously mentioned, Creditplus do offer other options which are at times more suitable for the individual. It does depend on what the customer is looking for, as well as considering their financial status (credit rating), and their personal preferences.

A Hire Purchase deal provides a more traditional loan option, whereby a set amount is borrowed over a fixed period at a fixed interest rate, and with the option to pay off the total early. As well the customer owning the car at the end of the loan agreement, there are also no restrictions on annual mileage limits. For more in depth information, visit Hire Purchase Explained.

Alternatively, a Lease Purchase deal allows a customer to defer as much as 31% of the payment to the end of the agreement (to be covered by the final balloon payment). However, unlike PCP the balloon payment must be made and car ownership ends with the customer. A benefit of lease purchase is that it’s open for consideration to all credit ratings. More information is available on our Lease Purchase Explained page.

PCP opportunities

It’s clear to see once the PCP offering is understood amongst the other options why car buyers find this finance solution so appealing, and why it’s an essential option to provide car buyers. However, it has recently been reported that many dealers are still unaware of the advantages of PCP and face missing out by not offering this option to their customers. Creditplus also wrote a recent article ‘UK car dealers losing out on potential business due to lack of online product offerings’ with their own statistics showing an increase in online applications, suggesting that car buyers are now looking to find the finance first before approaching a dealership for a car. Historically the trend has been with customers finding the car they want first, with finance being a secondary concern. Could this inversion be due to the fact that many car dealerships are not offering the most popular finance option?

Will this trend continue?

With Brexit still being a headline topic within the finance industry, how will this affect the popularity of PCP deals and how car buyers consider their finance options?

The view of Shaun Armstrong is clear where he goes on to say that: “2017 may see some interesting changes as manufacturer car loan schemes have been strongly supported with high residual values, making monthly payments very attractive as these schemes fund the difference between the purchase price and the residual value. Residual values in these cases will soften and new car price rises will mean certain PCP deals will become less attractive. However, with the changing attitude of the UK consumer, PCP schemes represent a great way of acquiring cars at lower monthly payments”.

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