Personal Contract Purchase
Personal contract purchase is the most popular choice for car finance. You have to pay a deposit amount at the start, this is then followed by monthly payments for an agreed term to pay off the part of the loan. When your contract is over, you have the option to either buy the car, return it back or exchange it for any other car that you want.
A Personal Contract Purchase has lower payments than any other car finance alternative.
What Is a Personal Contract Purchase (PCP)?
Personal Contract Purchase (PCP) is car finance available to you if you need to use a new car. There’s no need to pay the whole value of the car as you are going to return it back when your contract. The whole value is to be paid only if you want to keep the car, and that to at the end of the contract in the form of a balloon payment.
This type of car finance is arranged by the dealer or the car manufacturer. You need to pay a deposit upfront (10% of car value), however, there are PCPs which do not require any deposits. If you pay more than 10% of deposit, your monthly payments can be lowered accordingly.
Personal contract purchase can be good for people who want to change their cars every 2 years. This car finance can be used for new cars and used cars, but mostly they are used for new cars.
With PCP you don’t pay the whole value of the car. You just have to pay back the difference between the car’s sale price when it was new and its value at the end of the contract. This difference value is known as Guaranteed Minimum Future Value.
When your PCP contract ends, you can either;
- Return the car to the dealer without any extra payments
- Buy the car by making a final settlement payment (Balloon payment)
- Exchange your current car for a new one with a different PCP contract/deal
Advantages of Personal Contract Purchase
- You can use different cars every 2 or 3 years
- You can choose from a wide range of cars, even expensive cars which you cannot get from other car finance options
- The monthly instalment amount is fixed
- Some of the finance company offer low APRs, even 0% in some cases
- Some PCP contract also include maintenance and servicing of the car
Disadvantages of Personal Contract Purchase
- You don’t get to own the car until you make a final payment
- You have to pay extra charges if you exceed your mileage allowance
- If there is any damage to the car, you are the one who has to pay for his repairs to the dealer
- If you want to own a car at the end, other car finance options might be cheaper than this
How much is my car worth?