Personal Contract Purchase (PCP) 

Personal Contract Purchase, or PCP, is a variation of a Hire Purchase agreement. The key difference is that the value of the car at the end of the contract is calculated at the start of the agreement and this value is deferred. This deferred sum is usually referred to as the Guaranteed Minimum Future Value (GMFV) and is based on a number of factors including how old the car will be at the end of the agreement and how many miles it is expected to have covered. The future value of the car is guaranteed by the lender so will not fluctuate. Deferring the GMFV to the end of the agreement in this way means that your regular monthly payments are lower than those on a comparable HP agreement over the same term.

 

A PCP agreement also gives you the flexibility to decide whether you would like to own the car outright at the end of the agreement by paying the deferred value (GMFV), or returning the car to the lender and entering into a new car finance agreement.

At the Beginning of the Agreement

Under a PCP agreement, you agree with the dealer the amount you want to borrow, less any deposit payment and the value of any car you are part-exchanging. 

During the agreement, you pay the full price of the car plus interest, minus the guaranteed future value of the car. This means that the monthly payments are usually less than they would be under a comparable HP agreement over the same term.

At the end of the agreement

 

You will have three options:

  • You can either pay the guaranteed future value in full and own the car outright

  • Hand back the keys and walk away

  • Trade the car in by using any existing equity (if the guaranteed future value is actually lower than the current market value of the car) as a deposit for a new finance agreement.

 

If you want to hand the car back but have exceeded the forecast mileage you agreed at the start of the contract, you will need to pay an excess millage charge.

You can partially or fully settle a PCP agreement at any time, but should check the terms and conditions of the agreement as each finance company has its own procedures on how to do this.

 

Advantages of Personal Contract Purchase

  • Lower monthly payments than Hire Purchase for a comparable car and term.

  • A low deposit at the start of the agreement.

  • Unless you opt out, your agreement will be regulated which means you have certain legal rights and protections.

  • Flexibility at the end of the agreement on what you would like to do with the car.

  • Fixed monthly payments throughout the term of the agreement.

 

Things to remember

  • PCPs could work out more expensive overall than a Hire Purchase agreement for an equivalent car, especially if you decide to enter into a second finance agreement to pay the deferred future value of the car at the end of the initial PCP agreement.

  • Be careful how you estimate your annual mileage as you’ll be charged for each additional mile.

  • If you return the car, it has to be in good condition and any damage will be charged to you.

To speak to our team about Personal Contract Purchase (PCP) please click here.

If you want a finance product with more flexibility, a Personal Contract Plan (PCP) may be just what you are looking for, enabling you to keep, exchange or return the vehicle at the end of the agreement.

One of the most economical ways of owning your next vehicle. Hire Purchase (HP) allows you to pay off the whole capital balance over a set period of time.

If you want lower monthly payments then Lease Purchase (LP) is certainly worth considering. Similar to HP but with a non- guaranteed balloon deferred till the end of the term. 

  • LinkedIn - White Circle
  • Facebook - White Circle
  • Twitter - White Circle
  • Instagram - White Circle

Norwood Finance Ltd  is an Appointed Representative of AFS Compliance Limited which is Authorised and Regulated by the Financial Conduct Authority No. 625035. Norwood Finance Ltd  is an independent asset finance brokerage not a lender, as such we can introduce you to a wide range of finance providers depending on your requirements and circumstances. We are not independent financial advisors and so are unable to provide you with independent financial advice. Norwood Finance Ltd may receive payment(s) or other benefit from the finance provider if you decide to enter into an agreement with them.

 

Norwood Finance Ltd aims to provide our customers with the highest standards of service. If our service fails to meet your requirements we will endeavour to find a solution. View our complaints procedure