Personal Contract Purchase (PCP)

Personal contract purchase (PCP) car finance helps you to spread the cost of a car into two parts – deposit and monthly repayments for a fixed period. In PCP, you have the choice to return the car at the end of the contract or purchase it at the end by making a final payment (Balloon payment). This is where PCP is different when compared to Hire Purchase. In hire purchase, you have to buy the car at the end of your contract, but in PCP you can return, exchange or purchase it.

In PCP, the amount of your monthly payment depends on how much of a deposit you are paying. Usually, lenders charge 10% of the car’s value as a deposit, but you can pay a higher amount to reduce your monthly repayments. It also depends on how long you want to keep your car and how many miles you are likely to travel by car. The PCP agreement usually runs for a period of 2 to 5 years depending on your need.

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Working of Personal Contract Purchase (PCP)

First of all, you need to do is pick a car for which you need a PCP finance. After doing that you need to agree on the length of your contract and mileage allowance with the lender. When you give them this data, the lender will make an estimation of how much the car would be worth at the end of your contract. This value is called as  Guaranteed Minimum Future Value (GMFV).

If unintentionally you exceed the mileage allowance limit or return the car in damaged condition, the lender or dealer may charge you with extra fees to cover the damaged cost.However, if you plan to keep the car you won’t be needed to pay the charges, you would just need to make the final balloon payment.

Remember that you won’t be the legal owner of the car during your PCP contract. You can only get the ownership at the end of the contract when you buy the car.

What Options Do I Have at the End of My Personal Contract Purchase (PCP) Agreement?

At the end of your PCP agreement, you have three options

Return the car – You can return the car after your PCP contract is over. You don’t have to make any settlement payment, however, if there is any damage to the car you may have to pay extra charges.

Exchange the car – You can also exchange the car for another model with a new PCP agreement.

Purchase the car – If you decide to buy the car at the end of your contract you would be need to make a final settlement payment to get the legal ownership of the car.

Read more:
What Is Hire Purchase?