Personal Contract Purchase

Everything you need to know about a PCP agreement

What is Personal Contract Purchase (PCP)?

Personal Contract Purchase (PCP) Explained

PCP is for private individuals, although there is a business version 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 an example representative APR of 5.5%, however, this may vary. At the end, you have 3 options;

  1. The car can be purchased for the pre agreed value
  2. The car can be handed back to the finance house with nothing further to pay, so long as you have kept within the boundaries of the agreement
  3. 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.

PCP Pros

  • There’s a lot of flexibility – you can decide whether you buy, hand back or sell the car at the end of the agreement (and you usually have until a month before the end to decide)
  • The end payment is pre-agreed so you can budget it in if you decide to buy
  • As you’re not paying for the whole car in one go, you can drive a better car for less money than you’d expect
  • So long as you keep within the contracted mileage and conditions you can hand the car back at the end with nothing else to pay
  • Anything you make above the final payment is yours to keep if you sell the vehicle on

PCP Cons

  • It tends to be more expensive than a personal contract hire
  • There tends to be a higher interest rate than on a hire purchase
  • You’re responsible for taxing the vehicle
  • The full vehicle cost 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 PCP price determined?

A PCP agreement can actually vary in cost depending on what you decide you want from it.

A balloon payment is always set at the start of the agreement. This is how much the finance house believes the car will be worth at the end of your contract (generally 2-3 years) and tends to change depending on your agreed mileage. This 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 remaining cost will have whatever deposit you choose to make (usually £2-3,000) 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 maintenance packages, will be added to the monthly cost.

Once every monthly payment has been made, you can either; pay the balloon and keep the car, hand the car back with nothing else to pay, or sell the car to a 3rd party and keep anything you make above the final balloon payment.

If you want to know more about how personal contract purchase (PCP) works, download our pdf below for everything you need to know and watch the video to the right.

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