If you have a credit score under 600, you may not be able to get a traditional personal loan from PCP finance. However, there are alternatives available to those with poor credit ratings, including secured and unsecured loans. Both types of loans are available from a number of reputable lenders online, and it is important to comparison shop for your next loan in order to ensure you get the best deal possible.
The main features of PCP finance are a fixed front-end consumer loan and a guaranteed final balloon payment. A personal contract purchase (PCP) is a loan where you make a down payment and make monthly repayments until the full amount has been paid off. Your payments are usually spread across several months and the term of the loan is typically up to twelve months. For those individuals who have a good credit rating, PCP finance can provide an alternative to personal loans with longer repayment terms.
In order to get the most from PCP finance, it is crucial that you have a good credit rating and have gathered enough money for your initial deposit. The lower your initial deposit, the smaller the amount that you need to borrow. The interest rates on the finance will usually be higher than the interest rate on a personal loan, but this should not put you off. Personal loans often have much higher repayment periods because of the additional amount required at the start. With PCP financing, the initial deposit is usually only a few hundred dollars which means that you will be paying back a small sum of money over the course of several months or years.
Another benefit of PCP finance deals is that you will usually have full legal responsibility for repaying the loan. This is often not the case with personal loans, where you may have no idea what you are repaying for. With PCP car finance deals, you will be fully responsible for repaying the loan if you choose not to, which can be very reassuring for those who are nervous about making monthly payments. If you are worried that you might end up defaulting on the loan, then PCP will legally make a lump sum payment into your account each month until the entire loan has been repaid.
However, there are some benefits of PCP financing that you should consider. First of all, you will have fixed monthly repayments for the life of the loan, as well as peace of mind that you will not have to worry about any finance or loan arrears. If you only want to drive your new car for a short while without investing in further maintenance or care for your vehicle, then this can provide peace of mind. If you want to use your car for a period of time and then trade it in or sell it, then you will also have peace of mind that you will not have to repay any outstanding amounts, as the total value of the loan will remain the same.
You will not need to use up any of the cash that you pay into the PCP monthly fund. The finance is usually for a period of three years, after which you will make a single monthly deposit to the fund, and you will be able to draw out the full amount at any time throughout that period. The amount of interest that you pay on your loan is generally determined by how much of the total value of the car you want to borrow. This means that your monthly repayments will depend on how much you use the vehicle, your usage and how long you take the car out each year. However, you can make a saving if you choose a fixed interest rate over a variable one, as this will keep your monthly repayments constant over the term of the contract. In addition, your deposit will be capitalized during the term of the contract, and then paid back in full when the three years is up.
If you choose to spread the cost of PCP finance over several years instead of making a single lump sum payment each month, then you can expect to pay considerably lower monthly repayments, and you will also have more leeway to make smaller payments if you need to. It is not uncommon for some people to pay thousands less a month in car ownership costs when they spread their payments over several years, and then have a separate reserve fund set aside each month to ensure that their car stays out of their owners’ garages. Once the three years has expired then the surplus cash can be withdrawn, and the payments can be made in line with how much you have saved. If you want to avoid this extra expense, you can always arrange your own monthly repayment plan, but it will mean that you have to have a lump sum of money saved at the start of the arrangement.
Another benefit of PCP finance is that you will have a much greater choice of vehicles to drive down the road. If you want to own a luxury saloon but do not have the finance available, you will be able to choose one on the basis of your individual needs and requirements, without having to wait for an open order from a dealer. Some vehicle manufacturers now supply cars with pre-approved credit builds, which make monthly payments even easier to budget for and allow you to choose the car you want to buy, and when you want to buy it. You can tailor the finance provider’s quote to your exact needs and circumstances and take out your car loan without any pressure or embarrassment.