Are my maths on PCP payments right?

Why are final payments on PCP contracts so high? For every brand I look at, if I calculate the deposit plus finance cost plus final payment it seems I end up paying about nine or ten thousand more than the car is worth!

Daniel Henderson (Cork)

Apr 2015 Filed under: finance

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Expert answer

Hi Daniel,

Not sure how your maths is working out there. PCP is supposed to work like this: pay a deposit and then finance the balance, minus the agreed minimum value. That should add up to the total purchase price of the car, plus any interest payable on the amount financed.

The theory then is that the car's residual value at the end of the finance period is sufficient to pay off the final 'bubble' payment and leave some left over to act as the deposit for a new car.

If you're adding that all and coming up with more than the new purchase price then either (a) your calculator needs new batteries or (b) you're not allowing for the interest payable.

Further reading:

The CompleteCar.ie guide to car finance

Neil Briscoe - Complete Car Adviser
@neilmbriscoe