Personal Contract Purchase (PCP) is one of the most popular forms of car finance in the UK. It offers a flexible way to finance a vehicle with lower monthly payments compared to other options like Hire Purchase. With PCP, you essentially lease the car for a period of time and have several options at the end of the agreement: you can purchase the vehicle, return it, or trade it in for a new one.
PCP Finance is structured to give you the freedom to decide what you want to do with the car at the end of the contract. Here’s how it works:
Initial Deposit: Like most car finance agreements, you begin with an upfront deposit. This reduces the amount you’ll need to finance, lowering your monthly payments.
Monthly Payments: The monthly payments are calculated based on the difference between the car's initial value and its expected value at the end of the agreement (known as the Guaranteed Future Value, or GFV). These payments are usually lower compared to options like Lease Purchase because you’re not financing the entire value of the car.
Final Payment (GFV): At the end of the term, you have the option to make a final payment to buy the car outright. This payment is the pre-agreed GFV, reflecting the anticipated value of the car after depreciation.
One of the key benefits of PCP Finance is the flexibility it offers at the end of the agreement. You can choose from the following options:
PCP agreements include mileage limits and conditions on wear and tear. This is because the lender needs to ensure the car retains its expected value at the end of the term:
Mileage Limits: You’ll agree on a mileage limit at the start of the contract. If you exceed this limit, you’ll be charged extra per mile when returning the car. It’s essential to set a realistic limit based on your driving habits.
Wear & Tear: The vehicle must be returned in good condition, allowing for normal wear and tear. Excessive damage could lead to additional charges.
Yes, it’s possible to end a PCP agreement early, though it may involve additional costs. Here’s how it works:
Request a Settlement Figure: Contact your lender to obtain a settlement figure. This is the amount you’ll need to pay to end the agreement early, which includes the outstanding finance and potentially the GFV.
Sell or Trade-In the Vehicle: If the vehicle’s value exceeds the settlement figure, you could sell or trade it in. Any difference could be used as a deposit on your next vehicle or given as cashback.
Early Termination: If you’ve paid off at least 50% of the total amount payable, you may be able to voluntarily terminate the agreement by returning the car without paying any further finance (subject to meeting the conditions of the contract).
The main difference is in the structure of payments and ownership. With PCP, you have lower monthly payments because you’re only paying for the car’s depreciation and have the option to buy the car at the end by paying the GFV. With Hire Purchase, you’re paying off the full value of the car over the term, and ownership automatically transfers to you after the final payment.
Yes, there can be additional charges in PCP if you exceed your agreed mileage limit or if the car has excessive wear and tear when you return it. There’s also the final balloon payment (GFV) if you choose to purchase the car at the end of the agreement.
Yes, you can end a PCP agreement early by paying the settlement figure provided by your lender. If the car is worth more than the settlement figure, you can use the difference as a deposit on your next vehicle. Alternatively, if you’ve paid off at least 50% of the total amount payable, you might be able to return the car and walk away from the agreement.
The above rates and monthly payments are an example only. The actual rate you will be offered by lenders could be lower or higher depending on your circumstances
Representative example: borrowing £6,500 over 5 years with a representative APR of 19.9%, an annual interest rate of 19.9% (Fixed) and a deposit of £0.00, the amount payable would be £166.07 per month, with a total cost of credit of £3,464.37 and a total amount payable of £9,964.37.
*After completing the application, lenders will perform a "soft search" that will not affect your credit score. Should you get an offer of finance and wish to proceed, the lender will then perform a "hard search" of your credit file. Finance acceptance is not guaranteed, please click the following link for more information: Initial Disclosure Document
