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PCP Car Finance Rules: What Can I Do With My Car on PCP?

Many drivers in the UK choose Personal Contract Purchase car finance to get their dream cars. It’s a great way to drive an awesome car without having to pay the full price in cash. You only have to think about the deposit and monthly payments, as well as the balloon payment at the end of your contract if you want to own the car. If you’re thinking about getting a PCP deal, it’s important to know the PCP car finance rules that you need to follow. This way, you can avoid being charged fees and penalties when your contract with the car finance company ends. Let’s explore what you can and cannot do with a car under a PCP agreement. 

How to Get a PCP Deal?

Creditworthiness

Before you can finance a car with PCP, you first need to pass a creditworthiness evaluation which is typically comprised of two parts. The first one that the lender will consider is the affordability of the PCP monthly payments throughout the duration of your contract. They will look into your financial status to determine whether you can afford to make the payments each month. 

The second part is the credit risk assessment. In this phase, the lender will evaluate the possibility of you not being able to repay your PCP car finance loan. They’ll check your credit history to see if you’ve been a good payer in your previous loans or if you have any record of missed payments and loan defaults

Deposit and Monthly Payments

Before you can drive your new car home, you would have to pay a deposit upfront. The deposit for PCP car finance is typically 10% of the car’s value. After the deposit, the next payments you’ll make would be the monthly PCP payments. 

It is lower compared to the monthly repayment amount of Hire Purchase car finance because with PCP, you’re not paying for the full price of the car. Your payments go toward the predicted value that the car will lose throughout the duration of your PCP contract. 

Options at the End of Your PCP Contract

When the contract expires, you must decide whether to keep the car, return it, or use its worth as a deposit on a new PCP agreement. If you wish to keep the car, you need to make a final payment, sometimes known as a balloon payment. 

If you decide not to keep the car, you can return it without making any additional payments. You can also use the car's remaining equity as a deposit on a new PCP deal. You can upgrade your ride easily and smoothly this way. 

What Can I Do With a Car on PCP?

When you get a car through a PCP agreement, bear in mind that the car finance company owns it even if you’re the one using the vehicle. Ownership of the car will only be transferred to you once you’ve paid the final balloon payment.  Before taking out any car finance arrangement it's wise to be familiar with car finance rules UK and know exactly what you can and more importantly can't do if you are purchasing your car through finance - especially in the case of a PCP.

Know Your Mileage Limit

With a PCP deal, there’s going to be an annual mileage limit stated on your contract. Be sure to stick to the limit because you might end up paying a penalty for every mile you’ve exceeded. It’s important to know if you’ll be using the car often and driving it at long distances so you can get a contract with an appropriate mileage limit. 

Can I Sell a Car on PCP?

You can only sell a car if you own it. With a PCP agreement, the car isn’t yours until you pay off all the monthly repayments and also the final balloon payment. If you’re thinking about selling a car on PCP, remember that this is not legally allowed. If this is the route you want to take, you must first settle the balance you have with the car finance company and then pay the balloon payment so that the car will be yours and you can sell it. 

Can I Modify the Car?

Unfortunately, you cannot do any changes to the car under a PCP contract. The same goes if you have a Hire Purchase deal. As long as you are not yet the owner of the vehicle, modifications cannot be made to it. 

Even if the changes mean upgrading some parts of the car and you think those will raise its value, the lender will still not approve of it. To be safe, make sure that the car you might return to the car finance company (in the case of default or if you decide not to make the balloon payment at the end) has not been changed or damaged in any way except for the usual wear and tear

How About Minor Changes?

If you need to make minor changes to the car, make sure they are reversible adjustments. Some of the things you can add to a car on PCP are seat covers, phone mounts, sun shades, and other accessories that can easily be removed when it’s time to return the car to the lender.

If you make significant and irreversible changes to the car, the car finance company can cancel the agreement and you will most likely pay a substantial penalty. 

Takeaway

A car finance deal is a big financial commitment so be sure to read and understand your PCP contract terms and conditions. The agreement will let you know the specifics of what you can and cannot do with a car on PCP. If you have questions in mind about certain accessories you want to install in the car, don’t hesitate to ask the car finance company. It’s important that you’re sure you’re not breaking any PCP car finance rules so that you can avoid paying any penalty charges. 👍

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