A personal contract purchase finance deal – or PCP as it is also known – is a finance package where, like with hire purchase, monthly payments are made over a set period of time– typically two to four years.

Once payments are completed, you have various options open to you:

  • Return the car, ending the deal and all payments
  • Part-exchange the vehicle and commence a new PCP deal with the new vehicle
  • Buy the original vehicle outright by making what is often referred to as a “balloon” or Guaranteed Minimum Future Value payment. This final payment normally equates to the current (depreciated) value of the car.

Advantages:

  • Unlike HP, there is no commitment to keep a vehicle once payments have ended – the customer has the flexibility whether to keep the vehicle – thus it may suit someone who likes to change their vehicle on a regular basis
  • The scheme may be cheaper than other types of finance as the biggest payment (if made) is not made until the end of the agreement
  • Fixed monthly payments over a set period of time allows you to budget accordingly

Disadvantages:

  • Monthly payments will accrue interest on the full amount of the agreement including the final lump sum (but not the initial deposit)
  • If the vehicle is returned at the end of the agreement period, there may be extra charges for excessive mileage or damage to the vehicle
  • If the vehicle is retained at the end of the agreement period, you will need to find the extra, larger payment sum (the balloon payment). This amount will be the calculated market value of the vehicle at that time, a figure that will be calculated and provided to you when you sign the agreement.