PCP finance: how to work out how much you'll pay and avoid surprise bills

  • How to work out exactly what you’ll pay
  • Bear in mind deposit and monthly payments
  • Consider excess mileage charges and damage fees

Look into car finance and the figures you’ll see plastered everywhere are the monthly payments needed to put a shiny new car on your drive. However, this is only part of the picture of what you’ll have to pay with PCP finance.

Most PCP plans feature an initial deposit – though in some cases you don't have to pay anything upfront – followed by a regular monthly payment and then an optional final payment, which you must make if you want to buy the car at the end of the contract. 

PCP car finance

Meanwhile, if you plan to hand the car back, you'll have to stick to the preagreed mileage limit and keep the car in good condition to avoid additional fees, such as excess mileage charges

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PCP finance: how much will it cost me?

PCP schemes typically display costs in a table, which might look daunting, but there are several key figures to focus on. If you plan to hand the car back when the contract ends, the important numbers to bear in mind are the deposit, the monthly payments and the number of payments due.

Car showroom

First off, can you afford the deposit? If you can't spare that much upfront and you have to reduce the downpayment, you can expect the monthly payments to go up. Secondly, once you've established you have enough cash for the deposit, are the monthly payments within budget

Thirdly, is the contract length suitable for what you're planning for the car? The longer the contract, the lower your monthly payments, though the more you'll pay in total as you've had greater use of the car.

Car finance costs

Finally, is the mileage allowance sufficient for the type of driving you expect to do? The lower the limit, the lower your payments, but don't think you can simply choose the lowest mileage allowance for the smallest monthly payments and exceed this wildly without consequence.

Avoid additional charges by following the contract terms

Return a car that's over the mileage allowance you signed up for and you can expect to be issued with a bill for every mile over the limit. That could rack up to thousands.

Similarly, if you hand the car back with damaged wheels, scrapes on each corner and torn seats, you can expect a big charge to fix all of this damage.

Car handover

Remember, though, that fair wear and tear is allowed. So don't worry overly about a slightly worn seat bolster at the end of four-year contract or a small mark on the bumper.

PCP finance: how much will the car cost to run for the contract length and then trade in?

The best way to understand how much you'll pay to finance a car on PCP and then hand back is by calculating the total cost of the deposit, monthly payments and any other fees needed to sign up for that contract (these should be shown on your quote if there are any).

Honda Jazz

A car advertised at £200 per month on a 36-month PCP set-up with a £2,000 deposit will cost you £9,200 overall if you hand it back after three years. 

That's because you add the deposit to 35 instalments (the 36th payment would be the optional final payment if you decided to buy the car). Provided you haven't exceeded the agreed mileage limit and the car is within fair wear-and-tear limits, there should be nothing extra to pay.

  • Deposit: £2,000
  • Monthly payments: £200
  • Contract length: 35 months
  • Total amount payable by customer if returning car: £9,000

Bear in mind optional final payment if you want to buy the car when the contract ends

Should you plan to buy the car outright, several other figures come into play, including the optional final payment which allows you to take ownership of the car.

Mercedes C-Class

Simply add the deposit, total of the monthly payments as above and the optional final payment together plus any other 'finance facility' or 'option to purchase' fees shown on the paperwork.

This should be the total amount you will pay to purchase the car. As the car is yours at the end of the contract, no excess mileage charges or fines for damage will be issued if you make the optional final payment.

  • Deposit: £2,000
  • Monthly payments: £200
  • Contract length: 35 months
  • Optional final payment: £10,000
  • Total amount payable by customer if returning car: £19,000

PCP schemes display a 'total amount payable' figure, which should represent how much will be paid for the car overall. Do bear in mind, however, that these don't take into account deposit contribution discounts paid for by the manufacturer or dealer - unless referred to as 'total amount payable by customer'.

Therefore, if the offer you're looking at displays a total amount payable column and has a £5,000 deposit contribution, the amount you will pay in total is that figure minus the £5,000 paid by the company. On the other hand, if a total amount payable by customer figure is shown, that should be the amount you'll pay.

Car showroom

In some cases, the deposit contribution discount can actually outweigh the interest charged. That means that if you buy the car at the end of the contract you'll actually spend less overall than paying the list price upfront - offering you great value.

However, in other instances, there can be as much as a 20% premium for paying through a finance scheme, with interest accruing month by month and numerous finance charges added on top. Do your homework, though, and you can work out which is which, to make sure you get the best deal.

Make sure you know what you’re getting for the money

Finally, ask the dealer to tell you exactly what is included in the price – and be sure how many miles you can cover before being stung with excess mileage charges.

It’s nearly always better value to pay a little more for a higher mileage agreement than having to pay excess mileage costs – as these charges can vary wildly from less than 5p per mile to around 30p per mile. Therefore, it’s wise to play it on the safe side and agree a mileage limit that you won’t exceed.

Car finance shopping

Meanwhile, some offers include free servicing, insurance or maintenance. If there’s only a small premium to have these thrown in, it could prove a very good value option. If, however, you can get a servicing pack from the manufacturer and find your own insurance yourself for less than the additional charge, consider how much you’re willing to pay for the extra convenience.

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