Personal Contract Purchase (Pcp)
Personal Contract Purchase (PCP) is extremely popular. Similar to a HP agreement as you will usually pay an initial deposit, followed by monthly installments but what makes PCP different is that your monthly installments are only paying off the depreciation of the vehicle, rather than the entire value.
In simple terms this means that the money you're actually borrowing and repaying is the difference between what the car is worth now, and what it will be worth at the end of your contract (the depreciation). You'll pay this difference in monthly installments. This type of finance is appealing as it results in lower monthly payments at the end of the initial agreement you will be left with a final balance (the Guaranteed Future Value) which you'll need to pay or re-finance if you want to own the car outright. Your monthly payments will also vary depending on the annual mileage you do, which you will set before taking the agreement. It's important that you don't exceed the agreed mileage on the contract if you plan on giving the car back, or you could be liable for additional charges at the end of the agreement on a per mile basis.
Once your monthly payments are finished, you’ll have three options:
- Buy the car by paying the optional final payment (the Guaranteed Future Value or balloon payment)
- Hand the car back. Your finance company has already predicted the Guaranteed Future Value of the car, so handing the car back will settle the deal, but you must ensure you have stuck to your agreed mileage allowance, or you could be liable for additional charges.
- Part-exchange for a new car
- Cost effective - lower monthly payments
- Sizable deposit contributions are often offered on PCP contracts
- Allows you to change cars more often
- You will have to make a decision at the end of the contract as to whether you wish to sell the vehicle, return it or keep it
- A charge will be made for excess mileage if the contract mileage is exceeded
- You must have fully comprehensive vehicle insurance