What is an Advance Payment Plan?

  • Doesn’t feature monthly payments like other finance formats
  • Works for those with a large deposit but not enough to buy the car outright
  • Driver can buy the car or hand it back at the end of the contract

If you’re planning on financing your next car but don’t like the idea of having to make payments every month, an Advance Payment Plan (APP) could be for you.

Like most PCP deals you have to put down a deposit – around half of the value of the car in this case – and at the end of the contract you can choose to make a final payment or to buy the car or return it with nothing left to pay, assuming it's in good condition and within the mileage limit specified.

Drive a new car without monthly payments

Advance Payment Plans are available from a handful of manufacturers, but they do tend to come and go depending on what the latest deals are hot. So don't expect every manufacturer to offer an APP all of the time. The offers are generally available over 13 to 37 month contracts.

Audi Q3 Sportback

The benefit of an APP is that you have less to pay upfront than when buying the car outright, but don’t have to commit to regular monthly payments as you would with a PCP scheme. You still retain the choice to buy the car or hand it back until the contract ends, giving you plenty of time to decide whether you want to keep the car.

PCP deals can offer greater discounts

If you have a deposit of around 50-60% of the car’s value, you could still opt for a PCP deal, pay the smaller deposit and simply put the remaining money aside for monthly payments. As PCP plans are more established, a number of discounts are available.

Typical example PCP example

Cash price: £24,495
Contract length: 24 months
APR: 0%
Deposit: £4,455 (£1,500 deposit contribution)
Monthly payment: £199
Total cost (excluding balloon payment): £9,231

Typical example APP example

Cash price: £24,495
APP payment:
Contract length: 24 months
Total cost (excluding balloon payment): £12,497.50

The PCP deal comes with 0% APR plus a discount in the form of a deposit contribution. As a result, you’d have to pay £12,497.50 upfront as a deposit on a £24,995 car – making it much more expensive than PCP for a similarly priced version, whether you hand it back at the end of the contract or buy it outright.

Premium for APP over Hire Purchase

It’s a similar story comparing APP with Hire Purchase (HP) plans, as discounts like deposit contributions are available with the HP options.

Ford Fiesta front

Lower interest charges with Advance Payment Plans

One benefit of paying a large deposit upfront with APP schemes is that the size of loan that interest is applied to is reduced – although this doesn’t affect 0%APR schemes.

However, some manufacturers charge a higher APR for its APP offers compared with PCP and Hire Purchase equivalents, which more than counteracts any benefit.

Advance Payment Plans usually not the best value

Advance Payment Plans don’t offer the benefit of small upfront payments that PCP and PCH deals typically provide.

Nor can they match the low-interest, high-discount PCP deals for drivers who want to buy the car outright when the contract ends.

As a result, most drivers would be better served by putting aside money to cover monthly payments if they are concerned about budgeting.

Want to find out more about car finance? Take a look at the articles below:

>> Rent or keep?
>> Just add fuel explained
>> Listed: all of the car scrappage schemes
>> Best cars for £90 per month
>> Best cars for £100 per month
>> Best cars for £150 per month
>> Best cars for £200 per month
>> Best cars for £300 per month
>> Best cars for £500 per month
>> Top cash, finance and leasing offers: Deal Watch