Personal Contract Purchase (PCP)
Personal Contract Purchase (PCP) is a car finance in which you can hire a car from the lender or the dealer. For that, you have to make an initial deposit of 10% of the car’s value, only after making the deposit you can get the car from the dealer or lender. The rest of the car’s value you can pay by selecting a time period of 2 to 5 years. Make sure you choose a term which suits you and whose repayments you can afford. In PCP you won’t be the rightful owner of the car during your repayment period
The amount that you will have to pay monthly will be agreed upfront with the lender or the car dealer. Remember that you won’t be paying the full cost of the car like you do in hire purchase car finance. You will be paying lower payments than hire purchase if you want to hire the car and not purchase it.
Options At the End of the Contract
At the end of the personal contract purchase (PCP) agreement, you are left with 3 options from which you can select any one.
Exchange the car for a brand new model
Most people go for PCP because of this option. If you choose to exchange at the end of your contract be sure that your car is in good condition. If the condition of your car is good, the dealer will accept that instead of a deposit amount for your new car.
Return the car back
At the end of the contract, you can return your car to the dealer. When you do that the car is inspected by them to see if there’s any damage. If there is you would be needed to pay for those damages. Also, they could charge you extra if you have exceeded your mileage allowance.
Purchase the car
If you decide to purchase the car, you would be needed to make a final payment. This payment is known as a balloon payment and is decided at the time of your agreement. This amount is basically your car’s worth at the end of your contract.
Pros and Cons of Personal Contract Purchase (PCP)
Low monthly payment – The monthly repayment is lower compared to HP as the repayment is decided on the car’s value over time and not the purchase price.
Protection from any loss in value of the car – You are guaranteed a certain amount of what your car’s worth will be at the end of your contract. If it turns out to be low, you can return the car without making any further payments.
You can change the car in every 2 to 3 years – If you want to use a different car and not settle for just one car throughout your life, PCP is the right choice for you.
Not legal owner – You don’t get to own the car until you make the final balloon payment
Mileage allowance – There is a certain mileage allowance that is provided in your contract. If you exceed the allowance you could be charged with a penalty unless you own the car at the end of your contract.
What Is Hire Purchase?