PCP Explained
Personal Contract Purchase

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PCP Explained
PCP (Personal Contract Purchase) finance schemes are relatively new and at first glance might seem little complicated, but in reality they are quite simple and can be a wise way to buy your new or nearly new car. To help you decided if a PCP is right for you we have listed and answered some of the more frequently asked questions.
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What is a PCP?

PCP, or a Personal Contract Purchase is fast becoming one of the most popular ways of financing the new car of your choice, simply due to its flexibility. You choose the car, the deposit, how long you want the contract to run for and the mileage you intend to do and in return you get fixed cost motoring for the term of the contract. At the end of the contract you have a choice to either buy the car outright for an agreed lump sum (the GFV or final balloon payment), or hand the vehicle back to the lender and walk away with absolutely no further obligation.

Why are the monthly costs lower?

When you take out a PCP (Personal Contract Purchase), the car that you have chosen will be given a guaranteed future value or GFV. This is a calculation made by the lenders that is set for the period of the contract. The GFV plus any deposit you have made will be deducted from the cash price of the new car and your monthly payments will be calculated based on the outstanding balance, plus interest on the balance and the GFV, meaning that in essence you are only financing the depreciation of the new car.

Do I need to use your sourcing for my new car?

We always try to negotiate strong discounts on all the new cars we supply and are happy to put together a package that includes supplying both the new car and the finance. However, if you find a car at your local dealer at a great price we are more than happy to broker a PCP finance deal to suit your exact needs.

Can I only use a PCP to buy a brand new car?

The simple answer is no. If you have found a nearly new car you can finance the purchase using a PCP, however there are a couple of things you need to remember, firstly the car must be supplied by a UK franchised dealership and secondly the car cannot exceed forty eight months old at the end of the contract. So if the car were six months old the maximum contract length would be 42 months, a 12-month-old car could only be financed over a thirty-six month period and so on to a maximum of twenty-four months old with a maximum mileage of 24,000 miles.

I’m opting out of my company car scheme (Cash for Car), is PCP suitable for me?

PCP is an extremely useful tool if you are a company car driver that has decided to opt out of your company car scheme (Cash for Car), this is because you can use your company car allowance or your mileage reclaim allowance to fund your monthly payments for your PCP contract and you avoid paying over the top company car taxes.

Is it possible to make the monthly cost even lower?

As with any large purchase there is no substitute for doing your homework. Because you are financing the depreciation of the new car, try and choose a car that holds its value well over the period of the contract. Look at financing the vehicle over the forty-eight month period, this can lower your monthly payments substantially. Increase your deposit (if possible) as this can also dramatically reduce your monthly payments. Finally calculate your annual mileage accurately, if you only do 5,000 miles per annum don’t leave the annual mileage figure at the preset 10000 miles, this will lower your GFV and you may end up paying more per month unnecessarily. If you can’t find your exact mileage on our PCP finance calculator, give us a call on 01773 512 806 and we will be happy to give you a live quotation to your exact specifications.

What are my options at the end of the contract?

This all depends on your own personal circumstances, however you will have four different options:
  • Return the car to the finance company. Subject to you not having exceeded your total agreed mileage and the car being in good condition you can hand the car back to the lender and walk away with nothing extra to pay.
  • If you want to keep your car it's quite simple, all you need to do is pay off or refinance the GFV or final balloon payment.
  • Use your car as a part exchange for a new contract. As long as the trade in value is higher than the GFV, the difference can be used towards a deposit for your next contract.
  • Prior to the end of your agreement you can apply to the lender to sell the car privately, any profit over and above the GFV can then be kept by you.

What happens if I exceed the total mileage agreed?

When you agree to the PCP contract, you decide the total mileage for the period of the contract. If you are wishing to hand the car back to the lender and you have exceeded the mileage you agreed upon, you will be charged a fixed amount (fixed at the start of the contract) for each mile over and above your contracted total mileage. If you are keeping the car and wish to pay the GFV there is no penalty for exceeding the total mileage.

What about natural wear and tear on the new car?

To put it simply, normal wear and tear means that for the age and mileage of the car it is in fair working order, repair and condition. However, as with any car purchase when it comes to the time when you want to sell the vehicle, the better condition your car is in, the more money it will be worth, so it is definitely in your own interest to keep the cars “wear and tear” to a minimum and try not to exceed the agreed mileage. The better the overall condition of your car, the higher the chance of your vehicle being worth more than the GFV, giving you the opportunity to recoup as much money as possible. A detailed set of terms and conditions will be supplied by the lender to you at the beginning of your contract.

Benefits of a PCP (Personal Contract Purchase)

  • Little or no initial deposit
  • Reduced monthly payments due to the deferred GFV
  • Fixed interest rates for the duration of the contract
  • Fixed cost motoring for the duration of the contract
  • No risk of negative equity – GFV guaranteed by lender
  • An option to own the car at the end of the contract – just pay the GFV
  • New and nearly new cars available on this contract
  • Fixed cost maintenance packages available
  • Gap insurance available
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