Personal contract purchase (PCP) is a vehicle finance agreement available to private individuals only. After an a initial payment and a series of monthly payments which effectively cover the vehicle’s depreciation, this type of agreement gives you the option to purchase the vehicle or return it to the finance company at the end of the agreement.
With PCP, the monthly finance payments are not subject to VAT, although if an optional service package is taken, VAT is payable on the service costs.
Will it work for you?
If you lease a car on a PCP basis, you will be required to pay an initial deposit payment, followed by monthly payments for the duration of your agreement ie: 24, 36 months etc. These monthly payments effectively cover the vehicle’s depreciation. As such, when your agreement comes to an end, there is still an outstanding amount of money due to be paid – known as the balloon payment. You can either choose to pay this amount and own the vehicle, or not pay it and return the vehicle to the lease company.
At the start of your contract, an agreement will be made as to what the car will be worth at the end of the contract, the annual mileage you will do is a large determining factor. The guaranteed future value (or GFV) – otherwise known as the balloon. The monthly payments are the cost of the vehicle after the GFV and the value of your inital deposit payment have been deducted.
Key features of Personal Contract Purchase:
- A guaranteed future value (GFV) – or balloon payment – is agreed at the start of the agreement.
- Fixed monthly payments cover the rental of the vehicle, plus any maintenance options if chosen, throughout the duration of the contract.
The monthly payments are calculated taking into consideration the following factors:
- The cost of the vehicle.
- The contract length.
- Agreed guaranteed residual value to be paid at the end of the agreement.
- Mileage allowance (as decided by you at the start of your agreement).
- Any additional options, such as a maintenance package.
- At the end of agreement, when all payments have been made, ownership passes to the you if you choose to pay the GFV and not return the car.
- Vehicle tax is provided for the first 12 months of the contract.
Key benefits of PCP:
- Low initial deposit payment.
- Fixed payments for the whole package, making budgeting easier.
- Flexible terms to meet your personal finance requirements.
- Maintenance of vehicles can be included in the monthly fees, spreading the cost.
- The finance company guarantees the guaranteed future value of the vehicle at the end of the agreement for a known and fixed amount – so no risk of negative equity.
- Ownership passes to you at the end of the agreement, once all payments have been made including the GFV.
- Allows you to drive the car of your choice without the risk – if you’re happy with the vehicle at the end of your contract, you can choose to keep it. If not you can simply hand the vehicle back.
Options at the end of the contract
At the end of the agreement, you have three options:
- Hand the vehicle back to the leasing company (and therefore do not pay the balloon payment/GFV).
- Pay the balloon payment (GFV) off and own the vehicle.
- Refinance the final balloon amount if applicable, subject to credit – that means pay the balloon payment in monthly instalments. At the end of these payments, you own the vehicle.
You do not need to decide which option is best for you until towards the end of your agreement.
The small print *
All offers are subject to change at any time, you must be 18 or over and finance is subject to status, vehicle availability and terms and conditions apply. We can introduce you to a limited number of finance companies, a commission may be received. Failure to maintain payments may result in termination of your agreement and the vehicle being returned, this could affect your credit rating and make it more difficult to obtain credit in the future.
Vehicles are inspected before collection and end-of contract charges occur when the vehicle, its equipment or accessories are not used, maintained or looked after as originally agreed at the start of the lease. The charges compensate the leasing company for the cost of rectifying damage or missing items such as keys or service history.
You are not charged at end of contract for any refurbishment that arises from normal wear and tear.
You should try and estimate the distance you will travel as accurately as possible to try and avoid excess mileage charges at the end of your contract.