Personal Contract Purchase (PCP) Explained
What is PCP?
PCP is similar to Lease Purchase, with a fixed interest rate and lending periods usually between 12 and 48 months. A deposit of 10% is normally required as a minimum,with monthly repayments and a final ‘balloon’ payment. The size of the balloon, or what’s known as the guaranteed future value (GFV) of the car, is based on the length of the loan and anticipated mileage. PCP contracts offer the opportunity to hand the vehicle back at the end of the agreement, provided the terms have been adhered to. How PCP works
Your monthly payments will be determined by your anticipated annual mileage, the guaranteed future value applied by the lender and of course the vehicle you wish to purchase and deposit payment. You are able to settle the agreement at any time. The interest rate, and payments are fixed for the term of the agreement. The main difference between PCP and Lease purchase is that PCP offers an option to return the vehicle at the end of the contract, whereas with Lease Purchase you are liable to settle the final balloon payment. PCP tends to be a slightly more expensive in terms of the interest rates applied compared to Lease Purchase.
What happens at the end of a PCP contract
- Make the final balloon payment and take full title (ownership) of the vehicle.
- Hand the vehicle back to the finance company (If you have exceeded the contracted mileage allowance, an excess mileage charge will be payable, as per the terms on your agreement at the end of the contract).
- Part Exchange the vehicle and use any equity towards another vehicle.
A PCP is a popular financing method for private users. Monthly payments are lower than with Hire Purchase or Personal Loan, and the guaranteed future value offers protection from excessive depreciation. PCP contracts can be settled at any time.
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