Personal Contract Purchase
Everything you need to know about Personal Contract Purchase (PCP)
PERSONAL CONTRACT PURCHASE EXPLAINED
So, you’ve been looking to get a new vehicle and you’re looking for a flexible agreement? Don’t worry, at OSV we have you covered. Personal Contract Purchase (also known as PCP) is a purchase agreement for private individuals. If you are looking into Contract Purchase for your business there is an option available which you can see on our Business Contract Purchase page.
Put in simple terms, a PCP agreement allows for you to make fixed monthly payments for between 2 to 4 years with a representative APR of 5.5%, however, this may vary.
At the end of your agreement term you have 3 options:
- You can purchase the vehicle at the price agreed at the beginning of the contract
- You can hand the car back to the finance house with nothing further to pay, as long as you have kept within the boundaries of the agreement (mileage, wear and tear, etc)
- You can part exchange the car. Once the finance has been cleared, you can use any equity left towards the deposit of your next car.
THE PROS OF PERSONAL CONTRACT PURCHASE
- There’s a lot of flexibility – you can decide whether you buy, sell the car or hand it back at the end of the agreement (and you usually have until a month before the end of the contract to decide)
- The end payment is pre-agreed so you can budget it in if you decide to buy
- You can drive a better car for less money than you’d expect, as you’re not paying for the whole car in one go
- As long as you keep within the contracted mileage and conditions you can hand the car back at the end with nothing else to pay
- If you decide to sell the vehicle on at the end of the agreement, anything you make above the final payment is yours to keep
THE CONS OF PERSONAL CONTRACT PURCHASE
- It tends to be more expensive than Personal Contract Hire
- There tends to be a higher interest rate than Hire Purchase
- You’re responsible for taxing the vehicle
- The full cost of the vehicle is shown on your credit file, which may affect your credit score
- You’re still subject to mileage and wear and tear should you decide to hand the car back at the end
HOW IS A PERSONAL CONTRACT PURCHASE PRICE DETERMINED?
A PCP agreement can actually vary in cost, depending on what you decide you want from it.
At the start of the agreement a balloon payment is always set. This balloon is how much the Finance House believes the car will be worth at the end of your contract (generally 2-3 years), it tends to change depending on your agreed mileage. This amount will be your final payment should you decide to purchase the car.
From that, the balloon payment is deducted from the overall cost of the car. The deposit amount you choose to make (usually around £2-3,000) will be also be deducted and the rest will be split into however many months you take the contract out for (24-48 months). That price will be your monthly payments.
Anything additional to this, such as a maintenance package, will be added to the monthly cost.
Once you’ve made the final monthly payment, you have three options:
- You can make the pre-agreed balloon payment and keep the car
- You can hand the car back with nothing further to pay
- You can sell the car to a third party and keep anything you make once you’ve made the final balloon payment.