PCP Car Finance Explained

What is PCP Finance – And Why You Should Always Shop Around Before Signing 

If you’re thinking about buying a car, there’s a good chance you’ve heard of PCP finance – but many people sign up for it without fully understanding how it works. 

PCP stands for Personal Contract Plan. It’s a type of car finance that’s often advertised by car dealers as a low monthly repayment option. While it can sound appealing, it’s important to understand what you’re agreeing to – and whether it’s the best option for you. 

PCP in Plain English 

With PCP, you’re not really buying the car outright. Instead, you make monthly payments for a set period (usually 3 years), but you’re only paying off part of the car’s cost. There is usually a deposit due at the start of the agreement, which ranges from 10% to 30% of the cost of the car. 

 Then, at the end of the agreement term, you generally have three options: 

1. Pay a large final lump sum (called a “balloon payment”) if you want to keep the car. 
2. Hand the car back with nothing more to pay – if it’s in good condition and within agreed mileage. 
3. Start another PCP deal and keep making payments on a new car. 

So, while the monthly repayments may seem affordable, you’re not building ownership in the same way you would with a traditional loan. The initial deposit can be considerable, and the final payment can come as a shock. 

Why It’s Important to Shop Around 

Many people assume that PCP is the only option – or that it’s automatically the cheapest, especially when buying a new car, but that’s not always the case. 

PCP deals often come with strict conditions around mileage and car condition. If you go over the agreed mileage limit or the car gets damaged in any way, you could face hefty penalties. This means it’s more important to stay fully up to date on servicing and maintenance, which may also mean these costs would be a little higher than usual. The cost of insurance can also be higher as some PCP contracts require you to take out a fully comprehensive insurance policy. 

Also, some dealerships may try to run a credit check before you’ve expressed a specific interest in a PCP agreement. These credit checks show up on your record and could raise a flag if you try to get finance elsewhere. If you’re not interested in PCP, make this clear to the dealership upfront, and ask questions before any credit checks are run. Don’t let yourself be rushed into signing anything on the spot. 

There Are Alternatives 

At Mountmellick Credit Union, we believe in clear, straightforward finance. We offer two types of car loans – our standard Car Loan, and our Green Car Loan for electric or hybrid vehicles. Both loans can be used to purchased new or used vehicles. And with both of our car loans, you know exactly what you’re paying, and you own the car from day one. 

We’re not here to pressure you into a deal – we’re here to help you make a decision that suits your needs and your budget. 

A Final Word 

PCP isn’t necessarily a bad option – but it’s not the right fit for everyone. Before signing any finance agreement (including ours!), take your time, read the small print, and compare your options. 

And remember – if you ever want to chat through your choices, we’re here to help. 

👉 Explore Our Car Loan Options 

👉 Explore Our Green Car Loan 

Additional Information

Mileage & Condition Penalties in PCP Deals 

• CCPC (Competition & Consumer Protection Commission) clearly states that if you exceed the agreed mileage when handing the car back, you “may have to pay a financial penalty.” This warning is included in their official PCP guidance. https://www.ccpc.ie/consumers/money/loans/paying-for-your-car/pcp/ 

• Skoda Ireland’s PCP FAQ (within the last year) confirms average excess mileage charges are around €0.06 per km – a small sounding fee that can add up quickly. https://www.skoda.ie/finance/pcp-faq  

• BMW Financial Services Ireland, updated recently, states that at the end of a PCP, charges may be applied for both excess mileage and vehicle condition, according to their “Fair Wear and Tear Guidelines”.  https://www.bmw.ie/en/topics/owners/for-owners/bmw-financial-services/financing-your-bmw/bmw-select--pcp--finance.html 

Maintenance & Insurance 

• Citizens Information – last updated 9 months ago – highlights that PCP agreements require adhering to usage and maintenance rules such as mileage limits and servicing obligations. https://www.citizensinformation.ie/en/money-and-tax/personal-finance/loans-and-credit/hire-purchase/