I’m a car expert – here’s how knowing your PCP mileage limit could help you save hundreds of pounds
DRIVERS with a Personal Contract Purchas have been warned to fully understand the rules in order to avoid huge surcharges.
A PCP is when motorists pay a deposit and monthly instalments over a fixed period.
At the end of the contract, drivers either pay a lump sum to keep the car or hand it back and pay nothing.
But according to roadside assistance company RAC, the plans can quickly get costly when mile limits aren’t adhered to.
“If your PCP car finance scheme covers you for 9,000 miles a year and you actually cover 10,000 miles a year, you face excess mileage surcharges at the end of it,” the company said.
“These can be punitive, but even a minor-sounding 0.06p per mile surcharge adds up to a £180 bill if you go 3,000 miles over.
WHAT IS A PERSONAL CONTRACT PURCHASE?
A PCP, Personal Contract Purchase, is when a driver makes monthly payments for a set term of typically three to five years.
After this period, if you want to own the car you will need to make a large payment to the finance company, called a balloon payment.
Alternatively, the driver can hand back the keys and take a plan on a new car.
“Often, it would have been cheaper to factor this mileage into the PCP deal in the first place.”
The word of warning comes after the rising cost of living has caused drivers to end their car finance contract early without a fee.
Voluntary termination allows a personal contract purchase (PCP) car finance agreement to end at any time – with certain conditions.
The clause is enshrined in the Consumer Credit Act.
At least half the total repayable amount needs to have been paid, including interest.
The car also needs to be in a reasonable condition, without any damage, and no payments can have been missed to activate the clause.
A main difference between PCP and leasing is that consumers can’t buy a car outright at the end of a leasing deal.
Earlier this year, it was revealed complaints about car finance plans have been on the rise.
This resulted in almost 3,000 complaints about hire-purchase plans between October and December 2022, according to the Financial Ombudsman Service (FOS).