Personal Contract Purchase (PCP) Guide

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What is Personal Contract Purchase (PCP)?

Personal Contract Hire (PCP) is a type of car finance that consists of paying an initial deposit, followed by monthly payments over a set period of usually 2 – 4 years.

PCP is different to Hire Purchase because with PCP the monthly payments are only paying for the depreciation of the car, whereas with Hire Purchase Car Finance the monthly payment goes towards paying for the ownership of the car at the end of the agreement.

How it works?

Deposit & Payment

You select what you are willing to pay towards the car. The greater the deposit; the lower the monthly payments are during the term.

Annual Mileage

You specific the miles you think you will do each year during the the term. The lower the mileage the lower the monthly payment. However, its important to not set this too low because if you go over the mileage you are required to pay a set rate per mile usually in pence.

Guaranteed Minimum Future Value (GMFV) or Balloon Payment

This is what the dealership estimates the car will be worth at the end of the term and the amount you will have to pay if you decide to keep the vehicle. If the vehicle is worth more than estimated then you can refinance for a new vehicle using the additional value as a deposit or if you buy the car then you could sell it for a profit.

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HP finance benefits and risks

Benefits

Deposit Tailored To What You Can Afford

Fixed Monthly Payment Tailored to What You Can Afford and Reduced By A Higher Deposit.

Guaranteed Future Value Protecting You From Market Depreciation

Flexibility To Either Purchase The Vehicle or Start A New Agreement on a New Car

Ability to Change Your Car More Quickly. Potentially Every 2 to 3 Years.

Risks

The loan is secured against the vehicle, therefore if you miss payments on the loan the vehicle may be repossessed

There is a Pence Per Mile Charge If You Exceed The Annual Mileage At The End Of The Contract.

The Car Has To Be Returned In A Saleable Condition. You’ll likely be asked to pay to put right any large scratches or dents in the bodywork.

Access to Premium Car Brands

PCP is a great way to owning a premium vehicle. It is a great way to spread the cost of your vehicle over a fixed period of time whilst staying within a set budget. Knowing at the end of the contract that you can either buy the vehicle or swap it for a brand new premium car.

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