First-Time Buyer's Guide: Purchasing your First Car

Personal Contract Purchase (PCP) is one of the most popular payment methods for first-time buyers. PCP agreements typically last for 24-49 months. PCP can be broken down into three sections: Deposit, Monthly Payments and Optional Final Payment.

• Deposit: the first payment (a small percentage of the car's full price) upon confirming your financial agreement
• Monthly Payments: the difference between the original price of your new car minus the deposit, and the optional final payment, paid monthly over the term of your agreement
• Optional Final Payment: the remaining payment once all of the monthly instalments have been paid, giving you full ownership of the vehicle

What does an example PCP payment look like?

Imagine you have signed up for a three year PCP agreement. The car costs £15,000 and after three years, the finance company calculate it will be worth £7,000.

Step 1

You pay a 10% deposit of £1,500, leaving £13,500.

Step 2

You owe £13,500. Except, it's been agreed the car will be worth £7,000 at the end of the three years. Therefore, you only need to repay £6,500 over the three year period (plus interest on the original £13,500).

Step 3

At the end of the agreement, you can either pay the remaining £6,500 and keep the car, give the car back* or part-exchange for a new vehicle.

Other options include Buying, where you pay the full vehicle cost in one payment. Examples of this include cash payments and HP.

Hire Purchase (HP) allows you to make a large deposit on your vehicle and pay the remaining amount in instalments. You can choose how many months you would like to make payments over, and once all payments have been made per your finance agreement, the vehicle is yours to keep.

Another popular option for first-time buyers is PCH.

Personal Contract Hire (PCH) allows you to rent a vehicle for a specified amount of time, as stated in your finance agreement. After one initial rental payment, the rest of your contracted payments will be made monthly for the length of your agreement. At the end of your agreement, the car is returned to the finance company**.