Personal Contract Purchase

Personal Contract Purchase [PCP] Explained

Car leasing has numerous advantages over purchasing a car, but it also has one major drawback – the car is never yours. Until PCP… 

What if you could combine the advantages of a car leasing deal, but have the option to own the vehicle ? Well you can, thanks to a process known as Personal Contract-Purchase (PCP). 

PCP is growing in popularity and is a straightforward method of car finance.

What is Personal-Contract-Purchase?

Broadly, pcp is the same as a personal contract hire agreement – but with one key difference. At the end of the contract, the leasee has the option to own the vehicle. The price is determined at the outset and allows the driver to keep the vehicle if they wish. However, it is not essential – on the contrary, as with a personal contract hire deal, you could choose to return the car to the leasing company and walk away – subject to fair wear and tear and mileage. 

Monthly payments are based on the difference between the retail value of the car and the residual value. The estimated future value of the vehicle after depreciation is taken into account. Therefore, the more the vehicle holds its value, the better your PCP deal will be as that will reduce your monthly payments. 

A mileage limit will apply to all contract purchase deals. The leasing company will use the mileage limit to determine the vehicle’s depreciation and residual value. So it’s important to be honest with the leasing company about how much travelling you are likely to do – exceeding the mileage limit will lead to financial penalties at the end of the agreement. 

PCP is seen as a cheaper alternative to the traditional Hire Purchase (HP) agreement and is subject to the protections set out in the Consumer Credit Act.

What are the pros and cons?

There are many advantages including:

• Fixed prices – You know exactly what you have to pay each month which makes for easy budgeting. 
• Initial down-payment – usually only a small deposit is required, typically lower than a HP agreement deposit. 
• Refinance – If you prefer, you can refinance the balloon payment at the end of the term. 
• Flexibility – for drivers looking to change vehicle every two to three years, PCP provides an easy way to do so. 
• Maintenance packages – Most personal c/purchase agreements can include maintenance packages that can range from basic servicing to total vehicle management.

Driving a new car has many benefits

• The newer the car the more fuel efficient it is and it will come with the latest safety features. 
• CO2 emissions are also likely to be lower the more modern the car. 
• No depreciation concerns – It’s not necessary to buy the car at the end of the term – its your choice. 
• Access to more ‘upmarket’ vehicles – A key elements of a PCP is access to previously not affordable vehicles due to the low deposit and low monthly payments.

Who is personal contract purchase right for?

Generally, pcp is seen as the ‘best of both worlds’. You can choose to walk away from a deal, or exercise the option to buy. Overall, PCP will generally be more expensive than contract hire but monthly payments remain low and affordable. 

If you travel fixed distances and have a stable lifestyle, the mileage issue should not be a problem. Consequently, PCP is well-suited to people who want to drive a car that would otherwise be out of reach. Those who like to regularly change their car, and who want to keep their options open with the right to buy.