Personal contract purchase (PCP) is a popular way of financing a new car, with low monthly payments and the flexibility to keep or ditch the car after a short agreement period (usually two or three years).
But because the arrangement is quite complex, it means car manufacturers can be sneaky and charge their customers more across the lifespan of the finance deal.
One way of extracting extra money from customers is by forcing them to have the car serviced by one of their main dealers.
This is something that PCP buyers may not be aware of when they sign up, because it is often buried deep in the car finance contract.
But getting your car seen to by a franchised dealer is more expensive than using a reliable independent garage. The extra cost can add up to hundreds of pounds across the life of your finance deal.
PCP deals look complicated at first, but when you break it down there are basically only three things you need to worry about:
If a car has a ticket price of £20,000, with a deposit of £2,000 and the finance company thinks it will be worth at least £10,000 after three years, you will end up borrowing £8,000.
If you want to pay the Guaranteed Minimum Future Value at the end of the contract, then you can pay a further £10,000 to own the car outright. Otherwise you can hand the car back and walk away without paying anything.
Part of the appeal of PCP car finance is that the finance company guarantees the minimum value of the car in future, so if the value dips more than expected then you can walk away without paying anything.
But the finance company will put some restrictions on how you use the car to try and ensure that their future value prediction is met.
These requirements will often include:
The finance company sets these restrictions because they want to retain as much of the value of the car as possible.
If you don’t stick to all these restrictions, then (in the finance company’s mind) the car will be worth less. So, they will either not honour the guaranteed future value or they will make you pay a penalty fee.
The service regime is an interesting condition.
We all know that if you don’t keep up with the manufacturer’s service plan then it will be worth less when you come to sell it.
EU competition rules mean that manufacturers cannot cancel a new car’s warranty if the car is serviced correctly by an independent garage, rather than an official dealer. But this consumer rights protection doesn’t exist for PCP finance deals.
So, the finance company can force you to use the main dealer, even though it is likely to be more expensive.
If the only difference between two three-year-old cars is that one has been serviced at an independent garage and one has been serviced with a main dealer, the gap between the real-world value of these cars is going to be very small.
But this doesn’t matter to the finance company. And it could mean that you spend hundreds more than you need to each year on having your car serviced.
Before you get a PCP deal, you should make sure you read the contract carefully and see what kinds of restrictions the finance company puts on your guaranteed future value.
If you are confused about anything, make sure you get to the bottom of it with the finance company. For example, you can ask for examples of what would be considered ‘normal wear and tear’ and what would be considered more serious damage.
You should also make sure you know what kind of dealers you can use for servicing and double check whether you can use an independent garage.
Ultimately, if you think that you are going to buy the car for the guaranteed future value after the PCP period, then it doesn’t matter where you get the vehicle serviced.
In this case, you can save yourself a few hundred pounds by getting your vehicle serviced with a local independent garage, which is almost always cheaper than a main dealer or a big chain.
There are lots of other ways that you can buy your next car, with different benefits and drawbacks. We will talk about a few of them and the restrictions on servicing below.
Hire purchase – With hire purchase, you are essentially borrowing against the cost of a car. You pay a deposit and monthly payments with interest. You don’t own the car until you make the final payment, but you can get the car serviced with whoever you like.
Personal Contract Hire – With this kind of agreement, you are basically leasing the car from a finance company. The car never belongs to you and you need to give it back after the agreement, but the best thing about this is that servicing and maintenance costs are included in the monthly price.