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What are Personal Contract Plans (PCPs)?

Buying a new car nowadays can be an expensive affair, so much so, that there are various options to purchase the vehicle by different car finance deals, to spread the cost of the car by paying a small amount per month. These finance options often seem good deals, especially when the monthly payments can be low, however, on many occasions, these finance options are actually mis-sold to customers; in some cases, customers also pay over 50% more on their car finance packages than they should be.

The two most common forms of car finance deals are hire-purchase and Personal Contract Plans (or PCPs). A PCP is similar to a person loan, in that a pre-agreed amount is paid back over a set period of time (usually 2-4 years for cars). The loan amount is calculated by the anticipated depreciation value of the car. Once the loan period is over, the customer can opt to make a single payment- a sum that’s equal to the estimated worth of the car at that point- to enable them to own the car outright.

One common misconception with PCPs is that you are paying off the value of the vehicle per month, as part of the loan amount. In reality, the monthly payments are actually paying off the difference in the car’s value, from when you purchase it, to when the contract actually finishes. For example, if the car’s value goes down by £4,000 over the contract period, that is what you will pay in total, through the monthly payments. Even after the monthly payments, you still do not own the vehicle.

At the end of the contract, you can either give the car back, or pay lump sum to keep (and therefore own) the vehicle. This is known as a balloon payment. PCPs are popular, as it enables people to afford a brand-new car. To give you some idea; back in 2012, the total amount of car loans taken on by consumers was £28 billion. In 2016, just four years later, that figure had risen to £58 billion. Unsurprisingly, motor finance is second only to the mortgage market when it comes to loans

Claiming against PCPs:

The FCA have found that some dealerships and finance companies have been overcharging customers by over £1,000 per deal. As PCPs are essentially interest-only loans, the interest charges can be more expensive than anticipated especially if the process wasn’t clearly explained to you when you agreed to the deal. Customers have reported that ‘Car payments are ruining out lives’, with the newspaper, the Sun, reporting that ‘millions could be owed compensation for unaffordable and expensive car finance deals’.

Mis-Selling PCP examples:

Here are some examples of circumstances where you might have been mis-sold a car finance package:

  • The salesperson didn’t properly explain the finance deal to you. Did you understand completely what you were agreeing to, that you would not own at the car at the end of the PCP contract, in addition to understanding and being fully aware of the terms and conditions.
  • You were told it was the best deal, when it wasn’t.  With PCPs, you will pay more in interest than you would another loan, loan for example a hire-purchase contract.
  • You were not presented with a range of options
  • It wasn’t made clear who is responsible financially for repairs to the vehicle
  • The dealership didn’t outline who actually owns the vehicle (in some cases, this is a third-party hire purchase business, not the car dealership)
  • The salesperson failed to outline the interest charges properly
  • You were offered an add-on that you didn’t need. Some dealers offer additional products (such as insurance) to customers, that are often of no real benefit, and are only sold to customers to generate additional profit for the dealership.

If any of the above statements apply to your experience with your Personal Contract Plan (PCP), you could be eligible to claim compensation. Start your claim or get in touch with the experienced team who will guide you through the process. We are here to help.


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