Buy vs. Lease

Are you in the market for a new car? You can purchase a new car outright or you can go with a personal contract loan, basically, a lease in today’s terms. Going with a personal contract purchase loan can reduce the amount of depreciation you experience and allow you to get the car you want which you may not be able to afford otherwise.

What is a PCP?

A PCP, or personal contract purchase loan, is a contract for individuals. It allows you to set a contract term with monthly payments for a new car. When the term ends, you can purchase the car or let it go back to the dealer you leased it from.

Costs of a PCP

The costs of a PCP depend on the type of car you are buying, as well as how much deposit you are willing to put down, somewhat like a down payment on a car you are purchasing the traditional way. Usually the deposit can be as little as 2 payments, the first & last. The length of the contract also affect the monthly payment or rental. The length of the contract also affects the monthly payment. The term of the rental will usually be from two to four years. During this time, you pay a monthly payment as you would if you were purchasing the car. The difference is that at the end of the term, you don’t own the car yet.

money-saving-tips-imgGuaranteed future value

An advantage of a PCP is that there is a guaranteed value of the vehicle at the end of the term. This way, you know how much you will have to pay at the end of the rental term to buy the car if you choose to. You can either pay the guaranteed value and the car is yours or turn it back in, you owe nothing and they owe you nothing. You could also use the pre established value to purchase or lease another car, hand it back without any payments or use the guaranteed value towards another new car.

PCP is less expensive than other ways to get some wheels.

The best advantage of a PCP is that you have set monthly payments that are usually lower than financing a new car. If you include maintenance in your PCP, you won’t have to be concerned with large repair costs as you see with used cars. Depreciation is also limited with the PCP car because you are guaranteed in the contract with a value at the end of the term.

Losing the car

Probably the biggest drawback of PCP is that you do not actually own the car. You are leasing it from the provider or dealer. If you fail to make the payments, the car can be taken back easier than repossession of a car you own. Be certain you can afford the lease payments before you decide on a PCP. Your upfront costs are down the drain if you lose the car because you haven’t built up any equity in a leased car.

PCP means you do not own the car during the contract term, however, it is usually cheaper than a loan for financing a car. Even if you get a very low rate, you will pay back more and the depreciation will be higher. If you are looking to buy a car and you don’t want to pay outright, then go for a PCP.