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Any good car retailer should be able to settle the finance on your behalf and arrange another finance agreement for your next model. However, instead of handing over the money to you, the company will settle the finance on your behalf by making the optional final payment to the lender. Any surplus is then put towards a new car - where it can go towards the deposit on a new finance agreement, reducing the monthly payments - or you can choose for it to be paid directly into your bank account.
In this case, trading your car in is a bad move. If no one will buy your car for the value of the optional final payment, then you would have to pay the difference between what you could sell the car for and the remaining finance balance, to ensure that the lender is paid enough to settle the agreement.
Instead of doing this, you're better off by simply returning the car to the lender as you'll have nothing further to pay, provided the car's within the pre-agreed mileage limit and in good condition. The low value of the vehicle is then their problem. BuyaCar team Oct 13, Which type of car finance is best? Search all car deals with finance. Returning a car What happens Potential charges Avoiding charges Fair wear and tear Disputing charges.
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Search all car deals. Deposit and delivery. Monthly payments. Paintwork and bumpers Some small chips are acceptable No more than two dents per panel - up to 10mm in diameter Some scratches and scrapes up to 25mm are acceptable, if not down to primer or bare metal.
Windows and glass Light scratches that don't affect visibility are acceptable Chips, cracks and holes must be repaired Damage to lamp covers is not acceptable. Usually, though, such deals are genuinely subsidised by the car manufacturer with the aim of increasing sales.
In lieu of a discount on the cost of the car, the manufacturer might contribute money towards your deposit, effectively reducing your monthly payment. This contribution may not be available the next time you buy a car, and your monthly payment for an equivalent car can swell without it. When entering into a contract, remember that it has been designed for a specific term.
You can leave a PCP agreement before the agreed term is up, but there are usually charges involved. For more car buying advice, read our guide to the 20 car buying secrets that dealers don't want you to know. Towing with an electric car, hybrid or plug-in hybrid - what's the capacity and can you tow a caravan? Electric car charging stations: a complete guide. Skip to header Skip to main content Skip to footer.
Tips and advice Home Car finance. What is PCP finance? New car finance explained. What happens at the end of a PCP? PCP deals: advantages PCP deals usually come with lower deposits and lower monthly repayments than traditional Hire Purchase agreements, meaning you can get a nicer car for less money up front and less each month.
PCP deals: disadvantages For some, the idea of making monthly repayments without actually receiving a tangible asset at the end of the contract means PCP deals are unappealing. Car finance Car buying Cars. Best new car deals Deals 11 Nov Ford EcoBoost engines: what are they and should you buy one? Ford Focus hatchback 5 Nov What is a DSG gearbox? Should I buy one? The difference between a car's starting price and its estimated value after a period of time is also known as its depreciation.
As a result, instalments for PCP finance are much lower than for a Hire Purchase HP deal with the same deposit and contract length, as HP monthly payments cover the whole value of the car and you automatically own it once you've made all those payments. PCP finance deals typically last between two and five years.
At the end, you generally have three options:. Mileage limits for PCP finance typically start at around 5, miles per year and go up to around 30, miles. The higher the mileage allowance, the higher your monthly payments. However, be aware that if you go for a lower allowance for lower payments, exceed this limit and then hand the car back at the end of the contract, you'll be charged anywhere from 3p to 70p for each mile over the agreed limit - depending on whether the car is a super-common hatchback or a hugely exotic sports car.
Therefore, it's worth being realistic about the mileage limit you choose, as excess mileage charges could amount to thousands if you go way over. Be aware of end-of-contract damage charges, too. If you hand back a car that's peppered with scratches and dents that go beyond the typical wear and tear you'd expect for the age of car, it's likely you'll be issued a charge for fixing the damage.
If you plan to buy the car by paying the optional final payment, you will not be charged for the excess mileage or damage, but this will affect its value later on when you come to sell it.
Choose the contract length usually two to five years and mileage allowance. Make set monthly payments. At the end of the contract, you have three options:. PCP is available on new and used cars, typically up to around four or five years old. In both cases, finance incentives may be available, including deposit contribution discounts.
Opting for used car PCP finance can be one of the simplest ways to slash your monthly payments, with used cars' lower cash prices typically resulting in notably lower monthly payments than with an equivalent new model, while PCP offers smaller instalments than Hire Purchase would provide for the same car assuming the same deposit and contract length.
Older cars are not normally available with PCP because it becomes difficult to predict their value at the end of the agreement, so the monthly instalments and optional final payment can't be calculated accurately. In these cases, Hire Purchase finance HP is usually offered, which spreads the total cost of a car across a series of fixed monthly payments. You will then own it at the end, though at this stage you are free to sell it and move on to another car.
PCP is the most commonly used type of car finance for a number of reasons, one of them being that PCP deals often come with substantial discounts. Dealers and lenders regularly offer low interest rates and deposit contribution savings to entice people, so in most cases, PCP deals will cost you less per month than other forms of finance including bank loans. That said, Hire Purchase is likely to be cheaper overall if you want to own a car outright. This is because the monthly payments are larger, meaning you're paying off the borrowing faster, reducing the cost of interest.
This isn't a problem with PCP, where the final value is set from the start, so you know what you'd need to pay if you wanted to buy it at the end of the contract.
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