Personal Contract Purchase (Commonly Known as PCP)
Personal Contract Purchase (PCP) is similar to a Hire Purchase agreement as you will usually pay an initial deposit, followed by monthly instalments.
PCP, How does it work?
- Pay initial deposit
- Pay monthly payments for the duration of your agreement. e.g.24 months, 36 months. These payments effectively cover the vehicles depreciation
- Decide whether you wish to keep or return the vehicle.
At the start of your PCP contract, a Guaranteed Future Value (GFV) of the car is set by the finance Provider. This is the car's expected value when your contract ends. This means that the repayments are the difference between what the car is worth now and what it will be worth at the end of your contract plus interest, which is calculated on the full value of the vehicle.
It is important to remember that YOU are still liable for the full amount of the vehicle (including Interest on the finance) if anything happens to the car or if you settle early.
If you wish to keep the vehicle at the end of the contract you will need to pay the GFV (also known as a balloon).
Advantages
- Low initial payment
- Fixed monthly payment
- Fixed balloon payment/Guaranteed future value – which you may be able to refinance at the end
- Ownership of the vehicle at the end . Can be used to finance a new vehicle
- Option to have maintenance and servicing included
Disadvantages
- If you return the vehicle, the condition of the vehicle must comply with the BVRLA’s fair wear & tear guidelines, if it doesn’t “penalty charges” will apply. https://www.bvrla.co.uk/service/fair-wear-and-tear-guide
- If you return the vehicle excess mileage charges will apply as per your original contract
- You cannot sell the vehicle until all monthly repayments & Balloon is settled.
- You must keep the vehicle maintained in accordance with the manufacturers guidelines until the vehicle is returned or the final payment is made.
- RFL (Road Fund Licence) for 1st 12 months of agreement only
What happens at the end of the contract?
At the end of the contract you have a few options. You can either:
- Hand the vehicle back to the Finance/Leasing company;
- Pay the balloon payment and take ownership of the vehicle. Some companies may offer you the opportunity to refinance the balloon payment;
- Trade in or sell the vehicle. If the trade-in value is greater than the Optional Final Payment you can use this profit towards a deposit on a new vehicle, however you must be aware that the GFV which is set at the start of the contract may be more than the current worth of the vehicle, therefore you could end up losing money if you pay the balloon off.
Applied Leasing Ltd can assist in sourcing any make or model for your next vehicle.
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