Personal contract purchase (PCP) is a form of car finance similar in principle to hire purchase (HP). Instead of paying off the entire value of the car during the term of the agreement, you only pay off the difference between the car’s current value and what it will be worth at the end of your contract (the depreciation).
PCP is available only to individuals, it cannot be used to finance business vehicles. At the outset you choose your likely annual mileage and preferred term then based on this a guaranteed future value (GFV) is set for your car. This is the car’s expected value when your contract ends.
Typical repayment periods are two, three or four years depending on the age of the vehicle. At the end of the agreement you have the following three options:
- Pay the GFV and own the car outright.
- Hand back the car with nothing more to pay subject to condition and mileage.
- Part exchange the car and use any equity as a deposit on your next car.
What are the benefits of personal contract purchase?
- Lower monthly payments – monthly payments will be lower than traditional HP agreements over the same term.
- Easy to budget – your financial commitment and monthly repayments are clearly defined from the outset.
- Fixed costs – the interest rate is fixed for the duration of the agreement.
- Low risk – there is no risk of negative equity as the final value is guaranteed by the lender.
- Flexibility – option to own the car at the end of the contract or return the car and take out a new agreement.
- Hassle free – drive a newer car avoiding the more expensive maintenance costs associated with older vehicles.
To find out how we can help with your personal contract purchase requirements please call us today.Contact us for a quote