Personal Contract Purchase (PCP)
- What is Personal Contract Purchase
Personal Contract Purchase Finance (PCP) Explained
If you like to change your car regularly but want low monthly payments to fit your budget, personal contract purchase may be for you. The name might sound confusing but this flexible deal could save you a lot of hassle.
PCP can help you get behind the wheel of a newer or more expensive car than you may be able to afford using traditional hire purchase finance (HP) as the monthly repayments are less.
You don’t need to worry about the future trade-in or resale value of the car, as the lender guarantees your car will be worth a minimum sum at the end of the deal.
It's flexible. You've several options at the end of it.
We can even include the cost of the servicing & maintenance, vehicle warranty and other vehicle protection so you can get your total cost of motoring down to one payment each month. (Ask our team for more information on the packages available).
A PCP may let you buy a more expensive car than you might otherwise be able to afford but with monthly payments to suit your budget.
Here’s a guide to breaking down the basics, and help you to decide whether personal contract purchase (PCP) is the right car finance for you.
Frequently Asked Questions
- What is personal contract purchase (PCP)?
A PCP agreement is basically a loan to help you get a car. However, unlike a normal personal loan, you won’t be paying off the full value of the car and you won’t own it at the end of the term (unless you choose to).
- Do I have to put down a deposit?
You are not required to pay a deposit (subject to credit acceptance). However, if you wish to put down a deposit to further reduce the monthly payments then you may do so.
- How do monthly payments differ from that of traditional Hire Purchase finance?
Your monthly payments are dictated by your deposit (if you choose to pay one), the length of time you decide to spread the cost over, the annual mileage allowance you agree to and the value the finance company predict your vehicle will be worth at the end of the agreement. You’ll pay the outstanding amount off during the agreement, plus interest. So you’re not paying off the full value of the car. This is why the monthly payments are lower.
- What is the mileage allowance?
You agree your annual mileage allowance upfront at the beginning of the agreement with the finance company, which we arrange on your behalf. It is important to request an accurate mileage allowance as this will impact on your monthly payments. We can advise you on this.
- What is the the balloon payment?
Also often referred to as the Guaranteed Future Value (GFV), this is how much the finance company guarantees your car to be worth after your finance agreement ends. It's agreed at the start of your agreement. You don’t have to pay this, as you get a choice of what to do at the end of the agreement. But it is the sum you’ll pay if you want to keep the car.
- How does it work?
Imagine you sign up for a PCP over three years. The car costs £20,000 and the finance company calculates that the car will be worth at least £8,000 after three years. Here's how that would look...
- You pay a deposit, eg, £2,000 with a loan for the rest, so £18,000.
- You then owe £18,000. Though, as it's been agreed that the car will be worth £8,000 at the end (This is the GFV guaranteed future value), you only repay £10,000 (Plus the agreed amount of interest) over the three-year period.
- At the end of the agreement, you have 3 options (See below)
- What happens at the end of the (PCP) finance agreement?
Example option 1 - Pay the final £8,000 to keep the car.
Example option 2 - You can choose to hand the car back and walk away without further charges (as long as the car is in good condition and you have not exceeded the agreed mileage allowance).
Example option 3 - Buy another car - You can bring the vehicle back to us and part exchange it for your next car.
- What is the best thing about PCP?
You don’t have to worry about the car being worth less than the balloon payment (Final Payment or GFV). So, if the car depreciates more than expected at the start of the agreement you have the protection that the finance company have guaranteed the value at the end of the term. This means that you are guaranteed at the end of the finance period not to owe more than the vehicle is worth, providing you with peace of mind. If the car is worth less than the outstanding balloon amount at the end of the period then you can simply hand the car back and walk away, meaning the finance company take the loss and not you.
- How quickly can I have the car if I’m using PCP?
All our finance options are extremely simple and efficient to process. Our trained team of experts can process your application in as little as 10 minutes, usually giving you an instant decision and if we have processed your finance application and have a decision from the finance company before 3 pm, then in most cases you can drive your car away the very same day.
You can also apply on our website by following the on-screen instructions.
- Why choose PCP over traditional Hire Purchase (HP) finance?
- Generally lower monthly repayments than a typical Hire Purchase agreement
- Flexible repayment terms to help suit your monthly budget
- No minimum deposit, so you can have more control over the amount of finance required
- Fixed interest rates, so you know exactly what you’re paying every month for the length of the term
- At the end of the agreement, you can purchase the vehicle outright, return the vehicle to the lender, use it as part exchange for your next vehicle or refinance the balloon payment into a new HP agreement, subject to finance approval
- No need to worry about the vehicle being worth less than the outstanding amount owing to the finance company at the end of the agreement as you are protected by the (GFV) Guaranteed future value set by the finance company.