Personal Contract Purchase (PCP) Explained

What is Personal Contract Purchase?

A Personal Contract Purchase (PCP) is a loan secured against the vehicle, where repayments are based on part of the value of the vehicle.

The finance company guarantees the minimum the vehicle will be worth at the end of the agreement known as the Guaranteed Minimum Future Value (GMFV) or Optional Final Payment (OFP). This is offset until the end of the agreement. PCP's can run from 2 to 4 years and repayments are determined by the size of the deposit, how many miles the customer intends to do and the length of the agreement.

Summary

Initial Payment / Deposit You may be asked to pay an initial payment / deposit
Fees An arrangement fee charged by the lender that can be paid at the start of the agreement or spread over the term of the agreement. There is also an Option to Purchase Fee to pay if you want to keep the vehicle at the end of the agreement.
Restrictions The vehicle must be kept in good condition and serviced and maintained according to vehicle manufacturer's recommendations. Mileage restrictions may also apply. There may be excess mileage charges.
Ending the Agreement At the end of the PCP agreement you have three options:
Hand it back: If it is worth less than the GMFV, you can return the car and walk away – subject to mileage and condition.
Pay it off or refinance: You can pay the GMFV (plus any Option to Purchase fee) and keep the vehicle. You will become the legal owner.
Part exchange or sell: If the part-exchange value is greater than the GMFV, it can be used as a deposit for the next finance agreement or 'cash-back'. You could sell the vehicle privately once legal title is gained and settle the GMFV.

Advantages of Personal Contract Purchase

  • 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 have several options at the end of it - you can even buy the car if you like.
  • Most cars are covered under manufactures warranty (please note this may expire before the end of the contract), as PCP deals are usually only offered on new or nearly-new cars.

Disadvantages of Personal Contract Purchase

  • You will only own the car at the end of the contract agreement if you pay off the GMFV/OFP.
  • If the predicted GMFV/OFP is set very close to the actual value of the car you will have little equity to roll onto another deal.
  • Extra charges of 6-20p per mile if you go over the agreed set mileage.
  • The GMFV/OFP is based on keeping the car in a good condition. You will be charged extra to put right anything that’s not down to normal wear and tear.
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