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What Is PCP or Personal Contract Purchase?

What is a Personal Contract Purchase Finance Agreement (PCP)?

Personal Contract Purchase is a way to buy a vehicle by spreading the costs by paying in monthly instalments. After paying an initial deposit, you only need to pay the Contract Agent the amount of depreciation on your car, rather than paying for entire value of the whole car. At the end of the contract the car can be bought either by paying the rest of the final value, handed back or part exchanged.

What are the features of Personal Contract Purchase Finance Agreement?

Like Personal Contract Hire, with Personal Contract Purchase drivers pay in regular instalments over a fixed period after an initial deposit  based on the current value of the car. At this time, a Guaranteed Future Value (GFV) is also calculated. This is what the car is expected to be worth at the end of the contract after depreciation and will be the amount you need to pay if you wish to keep the vehicle.

In simple terms, the payments only pay off the difference between the purchase price of the car and the estimated resale value at the end of the contract. Typically this means lower monthly payments compared to other methods of financing, depending on mileage, usage and type of car.

After the end of the contract and when all monthly payments have finished you will have three choices. You can:

·         Purchase the car by paying the GFV, also known as the “balloon payment”

·         Give the car back; no further action is needed as you have already paid off the depreciation

·         Start a new PCP contract and part exchange your car


What are the advantages of Personal Contract Purchase Finance Agreement?

·         PCP is great for drivers on a budget. Monthly fees are fixed, meaning you’ll know exactly how much you need to pay towards the car each month

·         PCP payments are usually a lot lower than PCH due to the balloon payment

·         Personal Contract Purchase offers a large amount of flexibility. Drivers are not obliged to purchase the car after the contract period

·         Maintenance cover including servicing, MOT and spare parts costs can be included on PCP agreements

·         With PCP, drivers needn’t be concerned the hassle of resale. Once a contract is finished drivers can return the car for the GFV agreed at the start of the contract

·         If your car is worth more than the GFV figure, you can still sell it and keep the difference.

·         Personal Contract Purchases allow you to access to vehicles that may be viewed as unaffordable, due to their low cost deposit and monthly payments

·         Easier to obtain than other financing options as the car is used as collateral, remaining the property of the finance company until the final payments are made

What should I consider before taking out a Personal Contract Purchase Finance Agreement?

·         As the car is owned by the Contract Agent until the final balloon payment is made, it can be repossessed, although this should not leave you in negative equity

·         If you don’t think you can afford to pay the GFV payment at the end of the contract, you won’t be able to take ownership of the vehicle

·         There may be a mileage limit on the car per year, excess costs can be incurred if this is exceeded

·         The vehicle must be returned in a good condition and properly maintained according to the service schedule of the manufacturer