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Personal Contract Purchase - How It Works

PCP is particularly useful if you are a company car driver opting out of the company car scheme (Cash for Car), because you can use your company car allowance or mileage reclaims to fund your monthly PCP payments and avoid paying excessive company car taxes.

Monthly payments are fixed for the repayment period, which is normally two or three years. The flexibility of PCP allows for your individual needs giving you three options at the end of the agreement:

Option 1
If you think the vehicle is worth less than the GMFV you can simply return it to the finance company. As long as the vehicle is in good condition and has not exceeded the agreed mileage set at the beginning of the contract, you have nothing more to pay, the finance company guaranteed this future value and they will absorb any loss.

Option 2
If you want to keep the vehicle, you simply pay off the outstanding GMFV to the finance company.

Option 3
You can part exchange the vehicle with a motor dealer for your next new vehicle. If the trade-in value is greater than the GMFV, this sum can be used as a deposit for your next new vehicle finance.

Alternatively, you can sell the vehicle privately and keep any profit over and above the GMFV.

Benefits of Personal Contract Purchase (PCP)

Ownership
Low initial deposit
Flexible deposit term
Fixed repayments
Guaranteed final payment
Low monthly payments
Guaranteed equity available

PCP - Personal Contract Purchase plan provides the benefits of driving a higher specification vehicle for a lower monthly payment. Unlike the traditional purchase plan, this is achieved by deferring a percentage of the total cost of the vehicle to the end of the contract.

GMFV - This percentage is known as the Guaranteed Minimum Future Value (GMFV) and is the key difference between PCP and traditional forms of financing such as Hire Purchase. The GMFV plus your deposit is subtracted from the selling price of the vehicle and your monthly payments are based on the balance (plus interest on the balance and the GMFV). Effectively, you will make lower payments than traditional financing simply because you are only funding the depreciation.

Excess Mileage - At the beginning of the agreement, you decide on the total mileage you expect to do. If, at the end of the agreement, having chosen to hand your vehicle back to the finance company, your mileage exceeds the agreed level, you simply pay a fixed amount for every extra mile.

Wear & Tear - It is in your interest to minimise the vehicle's 'wear and tear' and not exceed the agreed mileage. When the agreement has finished, the vehicle may well be worth more than the GMFV, providing you with extra value, In simple terms 'normal wear and tear' means that for its age and mileage, the vehicle is in fair working order, condition and repair. A detailed guide will be provided to you by the finance company at the start of your agreement.

Best Rates - Car-Finance.net offer some of the best rates around for vehicle finance and Personal Contract Purchase (PCP) please use one of our calculators if you wish to get a quote. We have several lenders offering superb rates and terms together with payment protection products at very competitive prices, whether you require finance for a new, nearly new or used vehicle we have a product to suit.

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www.protect-your-payments.co.uk
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www.a-great-car-deal.co.uk
www.a-personal-contract-purchase.co.uk
www.cashformycar.co.uk