AM Online

Is PCP dead? A guest opinion

Andy Alderson

The days of owning a car are numbered. Renting and leasing assets is becoming the norm as people apply a subscription model to increasing aspects of their lives, from phones to razorblades. It’s not about ownership anymore – it’s about usership. 

Car usership could be about to have its ‘Big Bang’ moment when the Financial Conduct Authority (FCA) releases the results of its investigation into the selling of PCP (personal contract purchase) finance. 

Consumers are going to have it made clear that PCP may not be the best way for them to finance a car.

PCP is already being discussed in the same tones as the PPI (payment protection insurance) scandal that forced banks across the UK to put aside billions of pounds to pay back the money their customers felt had been duped out of them.

The fact is that PPI helped some people if they lost their jobs or got ill, but because it wasn’t explained or sold correctly in some cases at the point of sale, the scandal erupted. The same risk applies to PCP.

Consumers need the facts

Owning a car is less important, but getting around is still a necessity, and people will always want to drive the latest models and have reliable vehicles rather than old, wearing, second-hand cars.

To get the car they want, customers are left with two real options: PCP or leasing.

83% of newly-registered cars are being financed by PCP deals, but that’s on borrowed time.

Especially when you consider the information that’s being handed to consumers from the industry itself.

I read an article about the pros and cons of PCP and the leasing contract type Personal Contract Hire (PCH) in this very publication where a member of the industry said: “More and more brokers are using PCH to get the price low and to avoid the T&Cs that PCP requires from regulators.”

This is false – PCH falls under same FCA regulations as PCP and, in most cases, the brokers will be operating under the FCA’s Full Permission status, whereas most dealers will be operating under Limited Permission status. 

Another industry commentator said in the same article: “PCH for customers has one big disadvantage – the early termination clauses.

“Typically, 90% or 95% of outstanding rentals have to be paid plus handing back the asset worth more than originally planned.”

Again, another falsehood when you discover that most PCH leasing contracts have a maximum of 50% of outstanding rental charges.

There’s even a moment in this article where PCP is held aloft for offering consumers more flexibility because it has three-year change cycles.

It seems odd to hold this up as a reason to celebrate PCP’s flexibility when PCH deals start at just 24-month agreements right the way up to 60 months, and anything in between.

Last year, the BVLRA revealed how the PCH sector grew by 36% year-on-year.

In fact, the reason we launched was to get people to stop ‘buying’ cars on PCP deals and start leasing them on PCH agreements – it’s transparent, offers drivers lower initial deposits, and often lower monthly rentals with no nasty surprises or huge balloon payments at contract-end.

The popularity of leasing will increase massively over the coming years, especially when you consider that research shows 51% of our target market would be happier leasing a car – rather than owning it – if it meant they could afford a better one.

PCH or PCP? Behavioural matches

While there are far more ‘PCP drivers’ than there are ‘PCH drivers’ right now, the actual behaviours of both groups are similar.

We recently carried out some independent research that revealed 56% of the general car-driving population who opted for a PCP contract either handed the vehicle back without paying the final balloon payment to own it or chose a new car and set up a new PCP deal.

But this is leasing behaviour – at the end of a PCH leasing contract, the driver hands the vehicle back to the funder, often choosing a new car and beginning a new PCH deal.

So, if drivers are already handing back the vehicles at the end of PCP deals anyway, why aren’t they leasing on PCH contracts and saving themselves money on the up-front initial rentals?

Further analysis also showed a huge difference in the sizes of initial deposits between manufacturer PCP finance deals and our leasing deals – with PCP initial deposits sometimes £7,000 higher.

We worked out that on average, a PCP customer could have saved £4,424 if they’d leased instead.

So, why aren’t more people saving money by leasing?

The answer to this question is down to a lack of understanding around PCP and PCH contracts in general – one letter really can make all the difference in finance, as previously mentioned in the article.

In fact, the research we carried out showed 53% of homeowners don’t know what the abbreviation ‘PCP’ stands for.

Perhaps more worrying, of the 47% of respondents who claimed they did know what ‘PCP’ stood for, 56% got it wrong when asked.

Google the phrase “advice on PCP negative equity” and look at the volume of comments and questions from people currently on PCP deals to see how much confusion surrounds it – this state of confusion can only be compounded by the fact that customers are not confident they even understand what the abbreviation ‘PCP’ stands for.

The finance providers in cases of negative equity at the end of a PCP contract will say those customers can just hand the vehicles back at the end of the agreement, but it’s surely the huge amounts of money those customers already stumped up at the beginning that are the real cause for concern?

That’s why it’s important that governing bodies like the FCA, and companies such as, make sure consumers know there are far better, more transparent options out there than the status quo of PCP which is just about to run out of road.

Author: Andy Alderson, founder and chief executive of Vanarama and Motorama

Click here for finance and insurance best practice and procurement insight

If you are not a registered user your comment will go to AM for approval before publishing. To avoid this requirement please register or login.

Login to comment


  • barber - 02/11/2018 15:55

    To answer the question, no, PCP isn't dead, and anyone working in a new or nearly new retail environment knows that. I have no bones with PCH, in fact at times I think it is a better way for the right person to buy a car, but this is clearly an advertisement article towards the way that the author's company sell cars. He states that 53% of people asked didn't know what PCP meant. How many knew what PCH meant? Does he understand how a PCP works when he refers the GFV or OFP as a balloon. A balloon suggests a lump sum. OFP means it's optional. If there is equity it's yours, if there's not you return it. Dig a little deeper into the comment "that most PCH leasing contracts have a maximum of 50% of outstanding rental charges" rather than the 90%-95% that most contract hire companies tell the dealer. This alone means that say on a four year deal at £250 a month, for example, after two years you can "get out of it" for only £3000. That doesn't sound so great when a number is attached to it. I was told to not knock your competitors business but to sell the benefits of yours.