03 April 2018, 10:54

Is PCP still king when it comes to choosing your car finance?


Is PCP still king when it comes to choosing your car finance?

GoCompare looks at car finance options as PCP costs rise

The use of Personal Contract Plans (PCPs) has boomed in the last few years, but as new car prices have increased and second hand car values have fallen, PCP payments have also gone up. So, what are the other finance options available and is PCP still king when it comes to getting you on the road? Experts from GoCompare Money have examined the pros and cons of various popular car finance options and compared costs for someone buying their first brand new car.

  • Leasing has the lowest monthly cost – but you never own the vehicle
  • PCPs are next cheapest but a large ‘balloon’ payment is required for ownership
  • Manufacturer HP may be cheaper than a personal loan
  • Other options are 0% credit card, second charge loan and good old cash


Car finance costs compared

Car – Ford Fiesta 1.5 TDCi Titanium B+O Play – 5 door - £20,270 on the road.  Deposit amounts used for personal loan, credit card and first lease payment examples assume the same deposit is available for all options. Leasing costs taken from Nationwide Vehicle Contracts and include VAT.

Finance type




Monthly payment

Final payment

Total cost

Own the car at end?


(Ford Options)







(inc 2 x £10 fees)

Yes - (with optional final payment)


(Ford Acquire)






(inc £10 finance fee)


Personal Loan

(Tesco – 3.1% APR)








Nationwide Vehicle Contracts


(1st payment of 36)





(inc £198 fee)


Credit Card

Sainsburys (31 months 0% purchases)






(assumes no credit card charge)


Georgie Frost, consumer advocate at GoCompare, said: “PCPs have boomed in recent years, and it’s not hard to see why. The monthly repayments spread over a number of years appear eminently more affordable compared to the outright cost. With little or no deposit to pay, you could be driving around in your brand new car just a couple of weeks after leaving the showroom.

“You also need to consider all the options and ask yourself a number of questions. The first, after you have decided you really do need a new car, is do want to own it or at least have that as an option. Going over the mileage allowance, and wear and tear, are also two areas where you could be hit with extra charges on a lease car. And, if you decide to buy the car you’ll need to factor depreciation into your ownership costs.

“With falling car sales, dealers are keener than ever to get you to sign on the dotted line, so expect the hard sell! Doing your homework, reading the fine print and holding firm on what you want, can save you a big financial headache.”

For more information on car financing and loans visit:  http://www.gocompare.com/loans/car-finance/


Finance options – the Pros and Cons

Personal Contract Purchase (PCP)

How does it work? – It involves paying a deposit and fixed monthly instalments, with the option of making a ‘balloon payment’ at the end of the contract, to take full ownership of the car or handing the car back and taking out another PCP deal.


  • Payments under a PCP can be lower than for other types of car finance although they have increased in the last few years to reflect higher new car prices.
  • There’s nothing to stop you ‘refinancing’ the balloon payment by taking out a personal loan (or similar) to settle it and spreading the cost over a further few years.
  • Some dealers may pay all or some of the deposit on a PCP deal to secure a sale.


  • PCP contracts impose a mileage limit and penalties apply if you exceed it.
  • Over the term of the PCP you may have only paid off the car’s depreciation so at the end of the contract you may not have any equity in the car.
  • A PCP is usually more expensive than a hire purchase deal, with larger deposits and monthly repayments.



How does it work? - Think of it as a long-term car rental. There’s no option to purchase and at the end of the term you just give the car back.


  • A personal leasing arrangement allows you to drive a new car for an agreed period, usually 1 to 4 years and a maximum number of miles.
  • Leasing arrangements may include other costs such as servicing, tyres, tax and insurance as added extras.
  • The leasing company bears the cost of the car’s depreciation.


  • No matter how long you lease the car for, you won’t own it, you are effectively hiring the vehicle.
  • Mileage limits are imposed with penalties for exceeding it.
  • You may also face extra fees for any damage or wear above what might be seen as reasonable wear and tear for a vehicle over that period.

Hire purchase

How does it work? - After paying a deposit of typically around 5-10%, you pay fixed monthly instalments over an agreed term which cover the purchase price of the vehicle.


  • At the end of the term, and on making the final payment, the vehicle is yours to keep.
  • Some dealers may contribute to the deposit in part or entirely.
  • A hire purchase deal, subject to you meeting the lender’s criteria, can enable you to borrow a larger sum of money than is usually available under a personal loan which is typically capped at £25,000.


  • The finance company, ‘buys’ the car and uses it as security, meaning that you do not own the car until the loan plus interest has been repaid.
  • If you default on the payments the lender can repossess the car.
  • You are unable to sell the car until the loan has been repaid although if you want to repay the loan before the end of the agreed term you can request an early settlement figure.

Personal loan

How does it work? - It’s a loan from a car dealer, a bank, building society. You apply to borrow a set amount with fixed repayments over an agreed term to settle the loan amount plus interest.


  • Over the long-term a personal loan can be one of the cheapest ways of borrowing money to buy a car.
  • It gives you the flexibility to choose the loan and you can borrow money to cover the whole cost of the car if you don’t have a deposit.
  • A personal loan enables you to own the car outright so if needed, you could sell the car before the end of the loan period.


  • If you have a poor credit rating you will have to pay a higher rate of interest or may find it hard to get a personal loan.
  • If you fail to keep up repayments on the loan the lender will take steps to recover their money through the courts.
  • If you are borrowing a large sum remember you are borrowing money to purchase a depreciating asset which may drop in value by 50-60% within three years.     

Credit card


  • A 0% purchase credit card allows you to spread the cost of the car and if you repay the loan within the interest-free period, you are effectively benefiting from a 0% loan.
  • Credit card purchases up to £30,000, are covered by the Consumer Credit Act, meaning the card company has equal liability with the seller if there’s a problem with the car or the company you’ve bought it from fails.
  • You don’t need to pay the full price by credit card, paying just part is enough to get you the legal protection.


  • Not all dealers accept credit cards, others may charge a credit card handling fee (1-3%) which will increase the cost of the car.
  • You will need a good credit rating to get the best interest rates and sufficient credit limit.
  • On a 0% purchase card, the interest rate may be high if you don’t manage to repay the debt within the interest-free period.

For more information on car financing and loans visit:  http://www.gocompare.com/loans/car-finance/


For further information please contact:

Anders Nilsson or Martyn John at GoCompare on 01633 654 054 / 01633 654 725

Gordon, Jason or Liz at MAW Communications on 01603 505 845

Follow GoCompare on Twitter; @GoCompare

Notes to editors:

*Ford Acquire plan - 1.1% APR Representative

About GoCompare

GoCompare is a comparison website that enables people to compare the costs and features of a wide variety of insurance policies, financial products and energy tariffs.

GoCompare does not charge people to use its services, and it does not accept advertising or sponsored listings, so all product comparisons are unbiased. GoCompare makes its money through fees paid by the providers of products that appear on its various comparison services when a customer buys through the site.

GoCompare does not sell its customers’ data.

When it launched in 2006, it was the first comparison site to focus on displaying policy details rather than just listing prices, with the aim of helping people to make better-informed decisions when buying their insurance. GoCompare has remained dedicated to helping people choose the most appropriate products rather than just the cheapest, and has teamed up with Defaqto, the independent financial researcher, to integrate additional policy information into a number of its insurance comparison services. This allows people to compare up to an extra 30 features of cover.

GoCompare is the only comparison website to be invited to join the British Insurance Brokers’ Association (BIBA) and is authorised and regulated by the Financial Conduct Authority (FCA).

For more information visit www.gocompare.com and www.gocomparegroup.com


Contact Information

Louisa Marsden

Senior PR Executive


01633 655 132