Motor Manufacturers have for many years pushed the virtues of PCP Finance. The idea of being able to pay a small monthly payment, over a short term, and having choices at the end of the agreement appeals to many customers, but why do manufacturers do it?
Why PCP Finance?
For the customer it represents the chance to secure a new vehicle on affordable payments. The typical 3 year PCP agreement instalments are about the same as a 5 year standard hire purchase agreement. This is simply because a PCP Finance agreement is simply a hire purchase agreement with a deferred payment (called the Guaranteed Future Value or GFV). Other than the aspects associated with this deferred payment, the type of finance is exactly the same as hire purchase.
Why PCP works for consumers – shorter repayment periods, vehicles can be changed before they incur higher running costs (mots etc), the kudos of having a new vehicle, lower monthly repayments, the protection of the GFV if the value of the vehicle is less than that figure at that point.
Why PCP for the manufacturer – Customer retention rate is higher. This is simply because the manufacturer knows when the end of the agreement is, and all the other manufacturers do not. This gives them an advantage in being able to present you with another deal. PCP agreements also generate lots of nice 2,3 and 4 years old vehicles for forecourt stock.
Choices with PCP Finance
There are 3 main choices a customer will have at the end of a PCP Finance agreement. The most popular choice, and what the dealer wants too, is simply to part exchange the vehicle with the same dealer, and drive away in another new vehicle. Second choice is to pay the GFV and own the vehicle. The third choice is simply hand the vehicle back to the finance company, with no more money to pay. When Ford launched their version of PCP Finance, they called it ‘options’, you can see why.
Remember though, that Gap Insurance can be as important on PCP Finance as any other finance agreement. If the vehicle is written off before the end of the agreement, you can be as exposed as any other agreement. Take time and look at the choices for PCP Gap Insurance.