MG Car Finance explained

What is PCP car finance?

Personal Contract Purchase (PCP) finance allows you to pay for a selection of a vehicle’s cost over a fixed term, but then settle the balance and own the car once that contract ends. If this is not something you’d like to do, then you can also return the car back to us and have nothing more to pay.

As a result, PCP financing offers much greater flexibility than a Conditional Sale, also known as a Hire Purchase, in which the total cost of the vehicle is split, and you own the car once the deal ends.

How does PCP finance work?

You first pay a deposit on your chosen MG vehicle. Next you agree the length of your payment plan – typically, the longer the plan, the less expensive the payments.

An Optional Final Payment is also agreed. This is the amount it will cost you to own your vehicle outright once the payment plan ends and based on a forecast of the car’s worth once the agreed number of years have passed.

The Optional Final Payment is deducted from the car’s cost when assessing monthly repayment pricing. PCP, therefore, is often likely to be a more cost-effective finance option than a Hire Purchase, as the payments are not designed to cover the full cost of the car.

PCP Advantages:

• Lower monthly payments- PCP is a great cost-effective option for those looking for a new car because you are only paying for the depreciation cost of the vehicle plus interest, rather than paying for the full value of the car. There are also a range of plans available such as zero deposit agreements so that you can find a deal for all budgets.
• Access to newer cars- You can drive the latest cars without paying the large upfront costs of owning a new car. You can also change your car regularly so that you can have the latest model.
• Accessible to most drivers- You don't need any savings to get approved for PCP finance. It's available to anymore with a good credit rating and proof of income, so even those who don't want or can't get a loan from their bank can still take advantage of this type of financing deal.

PCP Disadvantages:

• Large balloon payment- the good news is that you have the option to buy the car after your agreement ends, but the bad news is that this could be costly. You will need to make a large payment upfront to purchase the car, which may not be an option if entered a PCP agreement to avoid a lump sum in the first place. 
• Mileage limits- Most PCP agreements come with an annual mileage limit. If you exceed this mileage allowance, then you may be hit with additional costs. If you are someone who frequently drives long distances, then you need to ensure you are aware of your mileage allowance before signing up.
• You need to keep up with payments- As you don't own the car you need to ensure you are keeping up with the monthly payments otherwise the car can be taken from you by the finance company, which could leave you without a vehicle at short notice.

What is Hire Purchase (HP)?

Hire Purchase is a way to finance buying a new or used car. You will normally pay an initial deposit and will pay off the entire value of the car in monthly instalments. When all the payments are made, the Hire Purchase agreement ends, and you own the car outright. ​

What are the advantages of HP?

• Flexibility in the amount of your initial rental fee
• Flexibility in the length of your rental agreement
• Your monthly rental payments are fixed in advance
• Just return the car when your PCH agreement ends
• No worries about depreciation or selling the car

How does HP work?

Most people know a bit about Hire Purchase, as it’s been around for some time. HP could well be the best finance type for you, if you prefer to have no restrictions on how many miles you do. It also has the advantage that you own the car at the end of the HP agreement.

A Hire Purchase agreement requires you to pay an initial deposit, but you can then decide on how long you want the HP agreement to last, usually a term of between one year and five years. The length of the agreement determines the level of your monthly payments; the longer the agreement, the less you’ll need to pay each month. When the agreement ends, you’ll own the car outright with nothing else to pay. That means you can continue to drive, pass it on to another family member or use it as a trade-in against a newer car.