PCP (Personal Contract Purchase) car finance, sometime called a lease for young drivers

Personal Contract Purchase deals (PCP) “leasing”

With Personal Contract Purchase deals you can drive a newer car than you might otherwise afford. Note: many people talk about “leasing” when they mean PCP

How does a Personal Contract Purchase deal work?

A Personal Contract Purchase (PCP) has lower monthly payments and deposit than an HP, and you pay the outstanding balance to own the car at the end of the contract.

  • Over the term of the PCP, you only pay for the amount the car will decrease.
  • You have the option at the end of the PCP to pay the GMFV (Guaranteed Minium Future Value) to own the vehicle, or you can hand back the keys.
  • The calculation of the GMFV takes into account the car age and mileage at the end of the PCP.

The car secures the finance, and the Lender will remain the owner of the vehicle until the end of the agreement.

You are the ‘registered keeper’ responsible for the insurance and maintenance on the car.

Buying a car on PCP finance

Personal Contract Purchase deals are available from car dealers and manufacturers, but taking out your PCP with a finance company will allow you to select a car from any dealer you choose.

PCP deals are between three and four years and require a deposit usually equal to three months payments.

Mileage limit: carefully consider the mileage limit, you will have to pay for any excess miles at the end of the PCP contract.

Once you have agreed on finance terms with your Lender, you can choose a car:

  • When you have found the car you and agreed on the price (less any deposit and value of any part exchange).
  • The dealer and finance company sort documentation and payments on your behalf. You drive the car away.

At the end of the PCP deal

When the PCP deal ends (after final payment) you have options:

  • Return the car with nothing further to pay.
  • Part-exchange the car and get a new Personal Contract Purchase deal.
  • Buy the car outright by paying the GMFV, sometimes called the balloon payment.

If you decide to return the car, you will have to pay for any excess mileage above that agreed in the contract. Also, if there is damage to the car, you will be charged for that as well.

Pros of Personal Contract Purchase deals

  • Lower monthly payments than with Hire Purchase for a like for like car and period.
  • A low deposit at the start of the deal.
  • Fixed monthly repayments throughout the period of the deal.
  • Options at the end of the PCP deal to keep or return the car.
  • Your agreement will be regulated which means you have certain legal rights and protections.

Cons of PCP deals

  • You are not allowed to sell the car without the Finance company’s permission.
  • The Lender can repossess the car if you fail to make your repayments, however, after an amount, stated in the contract, has been repaid the Owner will require a Court Order to take back the car.
  • With PCP deals, you are not the legal owner of the car.
  • Beware you will have to pay for excess mileage and damage to the car.

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