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Personal Contract Purchase (PCP)

Personal Contract Purchase (PCP)

What is it?

Personal Contract Purchase (PCP) is a finance agreement secured against the car. It is made up of fixed monthly repayments and an optional Final Payment which is deferred until the end of the agreement. Instead of paying for the whole car, your monthly payments are based on part of its value. Then at the end of the agreement you have a few options to choose from.

How does it work?

The finance company guarantees what they believe the car will be worth at the end of the agreement. This is known as the Guaranteed Minimum Future Value (GMFV). Your monthly payments are then based on the length of your agreement (usually between 2 and 4 years), the size of your initial payment, the number of miles you intend to drive and the GMFV (plus any interest). At the end of the agreement you have a few options; you can choose to own the car, part exchange or sell it, or hand it back to the finance company. If you choose to own the car, you should know that there is a Final Payment which you must pay before you can become the legal owner. This Final Payment (otherwise known as a Balloon Payment) is made up of the GMFV and an Option to Purchase Fee.

What are the advantages?

Lower monthly payments than a Hire Purchase (HP) as there is an optional Final Payment that is deferred to the end of the agreement. 

At the end of agreement you can choose to own the car, part exchange or sell it, or hand it back. 

If the final value is greater than the GMFV value, you’ll have equity in the car that you can put towards your next one. 

New or nearly new cars are usually covered by the manufacturer’s warranty. But be sure to check the terms, as depending on the age of the vehicle it may expire before the end of your contract.

What you need to be aware of.

You will only own the car at the end of the agreement if you have made all payments, including the Final Payment. 

If the predicted GMFV is very close to the actual value of the car at the end of agreement, you may not have any equity to put towards another one. 

If you go over your agreed mileage you’ll be charged a set pence per mile for the excess.

You can’t sell or modify the car before you become the legal owner. 

The GMFV is based on you handing back the car in good condition and not exceeding your mileage allowance. If anything beyond normal wear and tear needs fixing, you’ll have to pay for it.

If you fail to make your repayments, the finance company can repossess the car.

Initial Payment:
Fees
An initial payment may be required.Finance agreement arrangement fees can be paid upfront or spread over the term of the agreement. If you want to keep the car, there is the Final Payment (GMFV and an Option to Purchase fee).

Restrictions

You’ll need to keep the car in good condition and maintained according to the manufacturer’s recommendations. • If you go over your agreed mileage you’ll be charged a set pence per mile for the excess.

Ending the agreement

At the end of the agreement, you have three options:

Hand it backBuy the car outrightPart exchange or sell
If the car is worth less than the GMFV, you can return it to the finance company after all your payments have been made (subject to mileage and condition).Once you’ve made all your payments, if you’d like to own the car, you can make the Final Payment and you’ll become the new legal ownerYou can part exchange or sell the car. If the value of the car is greater than the GMFV, you can use the difference as an initial payment for your next finance agreement or sell the car privately and settle the GMFV.

Watch our video guide 

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