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When you enter into the PCP agreement, there is a "guaranteed future value" assigned to the car. This basically allows you to walk away at the end of the term without having to worry about settling up the balance of the finance. Assuming that you haven't trashed the car or exceeded the agreed milage.
The monthly payments are set so that the loan balance at the end is not greater than the guaranteed future value of the car. You could choose to pay a bit more each month which should result in having some "equity " in the car at the end of the term, to put towards the deposit on the next car.
Most people choose the lowest possible monthly payments instead.
ChasnotRobert-
That’s great. Thanks. I will have to give it a look. The limited mileage thing, I believe you can get it up to 12,000 per year. Less would be a worry.
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Definitely wouldn't recommend overpaying to "build equity" - put it in your savings instead.
My wife has a Mini Cooper Clubman which is currently £5,000 in negative equity a year before the contract ends - I'm not bothered, we'll hand it back and walk away.
PCP is great because the risk is on the finance company rather than you - even if the car is worth less than the GMFV (balloon / guaranteed minimum future value) at the end, as long as the vehicle is in a condition commensurate with the age and mileage it's not your problem
...this is also the reason why there are some used car bargains out there for a "cash buyer" as the manufacturers are propping up the new car market.
@TGR companies will do up to 30k a year, just pick what will suit you as best you can, but don't stress too much - the penalty for going over is usually about 7p a mile so even if you went 10k over on mileage you're only looking at a penalty of £700
TGR
hudsoncjnr
Thanks for that. I’ve looked at the Skoda but I’m not sure about styling.
Re. The end of PCP, I didn’t know that either. I had it in my head you used the current car as some form of deposit for the next one.