Spread the cost: Is PCP right for you?

05th January 2018 | Dan Trudgian

In recent years the popularity of PCP or Personal Contract Purchase has sky rocketed for those who are buying new cars. But interestingly, PCP has only recently been introduced to the leisure vehicle industry.

In this article, I will guide you through what PCP is, its benefits and any pitfalls worth considering when using this as a funding option. This is not financial advice but information about various funding options.

PCP was introduced to the caravan industry in September 2016, it had previously been available for those purchasing a motorhome, but for caravans this was a new concept. OK, so what exactly is PCP? how does it work and are there any pitfalls?

PCP is like Hire Purchase (HP) with one significant difference. A significant bulk of the credit is deferred to the end of the agreement. This keeps the monthly payments low. Like HP you don’t own the caravan until the final payment is made and, because there is a large balloon payment at the end of the term you are unlikely to opt for this option. More on this later. In fact, to be clear, you are renting the caravan from the finance company in a “use not own” concept.

Like HP you can make an upfront payment. A deposit. Then over an agreed timescale you make regular fixed payments. At the end of the contract you have three options:

You can return the caravan and simply walk away, and make no further payments.
You can make a final ‘balloon’ payment to pay off the outstanding finance and gain ownership of the caravan.
You return the caravan and part exchange it for a brand-new caravan and continue with a new PCP plan, using equity in the caravan as a deposit.

PCP monthly payments are calculated by the size of the deposit and length of the contract. The final balloon payment is calculated by the deposit, monthly payments and the predicted value of the caravan at the end of the agreement.

For example:

A Brand new 4 berth Bailey Pursuit 550-4

DEPOSIT = £5,000

60 months payments of £139.08

Final payment of £6,490

Or a new Bailey Pursuit 550-4 at £16,699

PCP is a great way to ‘use and not own’ a brand-new caravan. It is a great way to have a new caravan every few years and PCP is flexible because of what happens at the end of the contract. It is ideally suited to those who are not sure what to do at the end of the finance. Sounds almost too good to be true, right?

There are a few things to be aware of however. PCP is currently only available for brand-new caravans; also, Caravans must be fully insured and must be annually serviced by NCC approved workshops to ensure the condition and running order of the caravan is in good order. If you are likely to want to keep the caravan at the end of the agreement PCP will require you to make a balloon payment. You will need to pay this.

If you do decide to return the caravan at the end of the agreement, the caravan must be returned in a ‘Good Condition’ a full explanation of what is regarded as good condition can be found on the Black Horse good condition guide here.

PCP sounds good but don’t dismiss Hire Purchase. HP in some cases can be cheaper than PCP, especially as you can agree on HP terms of 1 – 10 years. Hire Purchase can also be obtained for second hand caravans and at the end of the agreement you will own the caravan outright with no balloon payment to make.

As I mentioned this isn’t financial advice, but if you are interested in PCP you can find out more information on Personal Contract Purchase, how it works and for some quotations from your local licensed credit broker dealership. Also, you can head on over to the Black Horse Finance website, where examples and other funding options are compared. You can also watch this video from Black Horse below:

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