PCP Personal Contract Purchase

PCP, or a Personal Contract Purchase is fast becoming one of the most popular ways of financing the new car of your choice, simply due to its flexibility. You choose the car, the deposit (typically between 10%-30%), how long you want the contract to run for and the mileage you intend to do and in return you get fixed cost motoring for the term of the contract. At the end of the contract you have a choice to either buy the car outright for an agreed lump sum (the GFV or final balloon payment), or hand the vehicle back to the lender and walk away with absolutely no further obligation.

Why are the monthly costs lower?

When you take out a PCP (Personal Contract Purchase), the car that you have chosen will be given a guaranteed future value or GFV. This is a calculation made by the lenders that is set for the period of the contract. The GFV plus any deposit you have made will be deducted from the cash price of the new car and your monthly payments will be calculated based on the outstanding balance, plus interest on the balance and the GFV, meaning that in essence you are only financing the depreciation of the new car.

What are my options at the end of the contract?

This all depends on your own personal circumstances, however you will have four different options:

• If you want to keep your car it's quite simple, all you need to do is pay off or refinance the GFV payment.
• Use your car as a part exchange for a new car. As long as the trade in value is higher than the GFV, the difference can be used towards a deposit for your next contract.
• If you look to part exchange your car and the value for some reason is not more than the GFV then you have the right to return the car to the finance company. Subject to you not having exceeded your total agreed mileage and the car being in good condition you can hand the car back to the lender and walk away with nothing extra to pay.

What happens if I exceed the total mileage agreed?

When you agree to the PCP contract, you decide the total mileage for the period of the contract. If you are wishing to hand the car back to the lender and you have exceeded the mileage you agreed upon, you will be charged a fixed amount (fixed at the start of the contract or can be as a pence per mile charge) for each mile over and above your contracted total mileage. If you are keeping the car and wish to pay the GFV there is no penalty for exceeding the total mileage.

What about natural wear and tear on the new car?

To put it simply, normal wear and tear means that for the age and mileage of the car it is in fair working order, repair and condition. However, as with any car purchase when it comes to the time when you want to sell the vehicle, the better condition your car is in, the more money it will be worth, so it is definitely in your own interest to keep the cars “wear and tear” to a minimum and try not to exceed the agreed mileage. The better the overall condition of your car, the higher the chance of your vehicle being worth more than the GFV, giving you the opportunity to recoup as much money as possible. A detailed set of terms and conditions will be supplied by the lender to you at the beginning of your contract.

Benefits of a PCP (Personal Contract Purchase)

• Little initial deposit (normally between 10% - 30%)
• Reduced monthly repayments due to the deferred GFV
• No risk of negative equity - GFV guaranteed by the lender
• An option to own the car at the end of the contract - just pay the GFV
• New and nearly new cars available on this contract