You walk into the saleroom prepared to kiss your savings goodbye for that Range Rover Esate you’ve been humming and hawing over for years.
It’s a hefty chunk of your savings but you’re ready to give it up… you think.
You’re all but ready to commit when the salesman mentions that you could be eligible for PCP. It’s a great option when you’re not ready to commit to buying, and spreads the cost over more affordable monthly payments.
But how does it really work, and is it actually any better than buying outright?
In this guide to PCP vs buying, we compare the top pros and cons to help you decide what’s right for you.
If you’re on the fence about buying a car, Personal Contract Purchase (PCP) is one of the most popular ways to finance. All you need to do is choose a car, then you’ll have monthly payments over a set period. We’ve done whole guides on "what is financing a car" and “what is PCP finance” but we’ll go over the essentials here.
During this time you essentially hire the car, so if you want to keep it at the end of the term, you’ll have to pay a balloon payment to own it. Otherwise, just return the car at the end of the contract and take out another if you still need it.
With PCP finance you’re only paying for the cost of the car’s depreciation, so your monthly instalments are relatively low. Most contracts will run for around 3 years, but since you won’t be the owner unless you pay the lump sum at the end, you have stipulations compared to buying outright.
You need to keep the car in good condition, and agree an annual mileage with the dealership or finance company. Your mileage affects the deprecation, so you’ll be hit with hefty fines at the end of the agreement for going over what you agreed.
How does buying outright work?
Paying for a car with cash is as simple and straightforward as it sounds. There’s no complications, contracts or terms to agree to, just make the payment for the car and it’s yours. Though you’re making a huge payment upfront, it often works out the cheapest option as there’s no interest or additional charges.
Unless your car is on the cheaper end, most dealerships will expect you to make the payment with a cheque or by debit card. The documents you need to buy a car may vary slightly if you’re buying a car online, or a car from auction, but you’ll normally need:
- Driving licence.
- A bill dated within the last 2 months.
- Your passport or other form of ID.
Since cars are typically beyond the typical amount you’d spend on one purchase, it’s best to let your bank know in advance. If you have a transaction limit, banks will typically make an exception for the purchase, and it should help prevent the transaction being blocked by fraud prevention.
Pros and cons of each
Regardless of whether you buy outright or use finance, both options can feel like a significant financial commitment.
Deciding on the right one is an important decision, as you’re either saying goodbye to a huge chunk of cash, or signing up for monthly payments for the next couple of years.
To help you get started on choosing, we’ve rounded up our top pros and cons for both PCP and buying outright.
PCP Pros and Cons
Low monthly payments
Regular affordable upgrades
Damage and excess wear fees
You don't own the car (before balloon payment)
Buying Outright Pros and Cons
Immediately own the car
No restrictions on mileage
No interest rates to pay
Responsible for repairs/road tax
Stress of selling the car on
Which is right for me?
There’s a lot of advantages to buying a new car, and purchasing outright has long been considered the best way to buy a car. But in reality, it depends on a lot of factors like what you can afford, how you’ll use your car, and how long you plan to have it for.
Read on and also see our post "Should I get a car on finance?"
What can you afford?
Paying the full cost of your car upfront has little competition in terms of savings, as you’re only covering the cost of the car and have no interest or charges to potentially cover.
However, you won’t benefit from incentives like deposit contributions on finance deals and it’s a huge chunk of money to suddenly go out of your bank account. It’s worth thinking about how you’ll feel without that financial security, particularly if you rely on your savings as a backup for bills or other expenses.
PCP is seen as a more accessible way of getting a car as it spreads the cost over several years. This may be more appealing if you use your savings to top up bills here and there, but it does mean you’ll end up paying more in the long run. You’ll have to pay interest, and though a seemingly small addition to your payments, it can really add up when you consider the additional running and car maintenance costs.
Taking out a longer repayment plan results in lower monthly payments, but increases the amount of interest you pay overall. Bad credit ratings also make it more difficult to get the lowest rates, but making all your payments on time will help improve your credit score for future loans.
Some lenders will offer PCP on a used car, which can lower your overall cost, but buying outright offers the most flexibility as you can buy any type of car from anywhere.
How are you planning to use the car?
When taking your car out on PCP, you don’t actually own it unless you choose to make the final balloon payment so there are more restrictions than actually owning the car.
If you want to use your car to travel across the country every other weekend, PCP probably isn’t the best fit. You'll be putting up extra for the higher mileage allowance, and trying to stay under your limit could become an unnecessary stress. Buying outright offers total freedom to do as many miles as your car allows, and the only cost to consider is the fuel.
There’s also your general driving to consider. We all like to think we’re great drivers, but whilst it’s fine to ignore the odd bump, scrape or scratch if you own the car, with PCP this affects the future value of the car. Beyond the less than welcome reception you’ll get for handing your PCP car back in poor condition, you’ll be paying heavily for the repairs.
How long do you plan to keep your car?
If you’re hoping to keep your car for the long haul, buying upfront is probably the best option financially, provided you can afford it.
PCP is best if you’re not quite ready to commit to buying. You have the chance to drive the car for around three years, and if you change your mind you can just hand it back at the end of your finance agreement. If you decide it’s for you, you can make the final lump sum and it’s all yours.
Alternatives finance option to both
There’s plenty of other finance deals for a brand new car if buying or PCP don’t seem the right option. If you’re eager to own your new car right away, you can finance your car with a personal loan (read about how to get a car loan) or buying the car on a credit card to immediately cover the price of the car.
If you know you want to own eventually but can’t afford to pay the total amount upfront cost, Car Hire Purchase could be a better alternative. Your payments will be spread across a couple of years, and though you won’t own the car until your final payment, you won’t have the restrictions of a PCP deal.
Car leasing, or Personal Contract Hire (PCH) or Business Contract Hire (BCH), is another option that’s particularly suited to the expensive car fans. With leasing your monthly repayments cover the total cost of the depreciation over the term of a 3-4 year contract. You never own the car, but you’ll be covered for road tax, be covered under the manufacturer’s warranty, and you won’t have to deal with MOTs. You can check out our post “How does car leasing work” for more.
For deeper dives comparing all these options, see our posts:
- Lease vs finance
- PCP vs lease
- PCP vs HP
- PCP or bank loan
- PCP or buying outright
- PCP vs HP vs loan
- PCP vs HP vs lease
- Hire purchase vs lease
- Lease purchase vs hire purchase
- Lease purchase vs PCP
- Lease vs lease purchase
If you’re still stuck for choice, our guide to the best way to finance a car can help you on your way to getting that brand new car.
As car leasing experts, we’re obviously going to promote this finance method above all others, but we’re not about tricks here! We want to make sure you’re armed with all the info you need to make a balanced choice.
While you’re hunting out the best deals for you, use Lease Fetcher to compare car lease deals with ease. We round up the top personal car leasing and business car leasing deals from UK leading brokers so you don’t need to hunt high and low for a budget-friendly contract.