Question of the week: Is it better to put down a large deposit with a PCP?
Dear Honest John,
"When buying a car on PCP is it better to put a larger deposit down to reduce monthly payments, or a lower deposit and higher monthly payments? I'm unsure what to do."
- HL
Dear HL,
On a basic level, if you put a larger deposit down upfront then your monthly payment is lower, which also means you are paying less interest, so in that sense there is a saving to be made with a larger deposit.
However, it is important to consider what you plan to do with the car at the end of your term, as you will only own it outright if you pay the balloon payment.
If you want to buy the car at the end of the term (rather than return it or start a new deal on a new car) you may get a better deal by getting a personal loan at a more competitive interest rate or buying on hire purchase.
If you have a particular car in mind and want to own it outright, look at all the available finance options and consider them alongside your financial situation in order to get the best arrangement to suit you. Whatever you do, don't rush in - doing your homework first is key.
Ask HJ
Can I get PCP payment protection?
If my partner is half way through a PCP agreement and dies, what is the legal/financial position? Is it possible to insure against such a scenario eg payment protection?
If you have a personal contract purchase (PCP), hire purchase (HP), personal loan or any other kind of borrowing to finance your car, that debt remains payable even in the event of your death.
If you have a guarantor, they will become responsible for the finance agreement, just as they would if you were unable to make your monthly payments. If you took out a joint agreement then the other person becomes fully responsible for paying off the debt. In most other cases, your debt will become part of your overall estate after your death. If you have a will, your nominated executor is responsible for managing your financial affairs, including your car finance debt. If you do not have a will, an administrator will be appointed – usually a next of kin.
For whoever is in charge of the estate, the process for settling the debt will become part of managing all the expenses of the estate — just like your mortgage and other debts. If they want to keep the car, this can usually be arranged if they agree to take over the contract and payments.
The finance company offering the PCP may be able to supply insurance that would settle the debt in the event of a death, or you could source insurance to cover this eventuality yourself.
Answered by David Ross
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