» MORE: Personal contract purchase vs. hire-purchase A personal contract purchase (PCP) is a tripartite contract similar to hire-purchase. PCP offers are a great choice if you want flexibility at the end of your contract. Although this is called a personal contract purchase, you don`t have to own the car in the end. This is just one of three options. Keep in mind that interest is charged on the total amount you owe, including the lump sum payment, and not just on your monthly payments. Interest rates vary depending on creditworthiness and differ from provider to provider. On the other hand, brokers are able to provide financing through a variety of lenders. So even if you don`t have a good to excellent credit score, a broker could still find you a suitable financing contract for your car.

In addition, they will not be limited to offering cars from a single manufacturer, as a dealer would. You will be able to find PCP agreements for most manufacturers and models. The purchase of a personal contract, or PCP, is a variant of a hire-purchase agreement. The main difference is that the value of the car is calculated at the end of the contract at the beginning of the agreement and this value is deferred. This deferred sum is usually referred to as the Guaranteed Minimum Future Value (GMFV) and is based on a number of factors, including the age of the car at the end of the deal and the number of kilometers it should have driven. The future value of the car is guaranteed by the lender, so it does not fluctuate. If you defer the GMFV to the end of the agreement in this way, it means that your regular monthly payments will be lower than those of a comparable HP contract for the same duration. PCPs are perfect if you want to switch cars in a regular cycle and enjoy lower fixed monthly payments than a traditional hire purchase.

For the agreed term, you are the registered owner of the car and make monthly payments to the financier who legally owns the vehicle. Buying under personal contract, also known as PCP, is a popular method of financing a vehicle and is usually based on a hire purchase agreement (HP). The main difference is that the value of the vehicle is calculated at the end of the agreement at the beginning, and then deferred. This is called the Guaranteed Minimum Future Value (GMFV) and is based on various factors, including the starting mileage, the user`s expected annual mileage, and the age of the vehicle. A PCP may include the maintenance element for the duration of the contract, although this is the case in the minority of cases. In the UK, the majority of PCP agreements involve the payment of first-year car tax[3], but subsequent extensions are the responsibility of the customer. If you plan to own the car by your agreement, you will have to pay the final payment for the balloon. This is a celebration that your financier calculates at the beginning of your contract You also have the option to refinance the balloon payment (i.e.

take out a personal loan to cover the lump sum at the end). In the case of a personal contractual rent, the tenant pays VAT on the monthly payment. At the end of the HP program, you will have paid the full price of the vehicle, all interest due and any agreed additional purchase fees. The car is now yours. Check out our hire-purchase guide for a complete work example. As with other car financing transactions, you can terminate a PCP contract by “voluntary termination” if you have repaid 50% or more of the total amount of the financing. However, it should be noted that since the lump sum payment is included in the total loan amount, you probably won`t have repaid half of the entire loan through your monthly repayments if you`ve completed half the term of the contract. Hire purchase (HP) also requires an initial deposit and monthly repayments, but at the end of the set term, ownership of the car automatically passes to the borrower without the need for a lump sum payment. If you have a manufacturer in mind when choosing your next car, you can benefit from special discounts by opting for PCP dealer financing.

Since they are backed by their own financial poor, you can get exclusive offers like cash for your deposit and lower interest rates. Both can make monthly payments for the car more affordable. However, unlike HP, at the end of the PCP, you have not paid the full cost of the car. The GMFV will still be pending. If you want to own the car directly, you will have to pay an optional final payment, as it is usually called. Check out our Personal Contract Plan Guide for a complete work example. However, it would also mean that you will have to pay a larger balloon payment at the end of the contract if you want to keep the car. Instead, it may be agreed that the final payment of the balloon is mandatory according to the terms of the contract, but the owner then reserves the right to return the vehicle to the finance company instead of the payment of the balloon in the previously agreed amount (GMFV). [5] It is necessary to fully understand these aspects of a personal contract purchase before a contract is signed, as a loss may occur at this stage. This option, but not the obligation to buy the car after a period equal to a contractual lease, is therefore presented either as a (legally) option to purchase the car (a purchase option) at a “fixed” price, or as a right to sell the car (a “put” option) at a fixed price after ownership of the final “balloon payment” is fully realized. A personal contract purchase (PCP) is a complicated way to pay for a car. It`s like a long-term rental, so you can use the car until the end of the contract.

At the end of the contract, you can: If you want to return the car, but you have exceeded the mileage allowance agreed at the beginning of the contract, you will have to pay an autonomous driving fee. While traditional HP divides the total amount borrowed into equal monthly payments, usually over three or four years, PCP includes a series of smaller monthly payments with a larger payment at the end of the deal if you want to own the car directly. This final payment is sometimes referred to as a lump sum payment or Minimum Guaranteed Future Value (MGFV). PCP contracts usually last between two and four years. Yes. If you are self-employed and have an annual turnover below the VAT threshold, you can claim a certain proportion of the monthly payments as operating costs. There are bigger benefits for electric cars, and the exact tax rules can be complicated, so it`s worth talking to an accountant to make sure you get the best deductions. There is no fixed rule as to when purchase subsidies are offered. However, such offers seem to be less common among recently introduced models and are often very attractive if a model needs to be replaced soon. A personal purchase agreement is therefore a conditional purchase agreement, and under UK law, the buyer is protected by the Consumer Credit Act 1974 and the Financial Services Regulations 2004. [2] You can finance your car through a PCP agreement with a dealer of the manufacturer or through third-party suppliers such as banks and brokers.

Pcp financing is a little different because the amount borrowed is much lower compared to the cost of the car. As with an HP system, your initial deposit affects the balance that still needs to be paid – the difference is that this is offset by the value of the car at the end of the deal. Above all, this means that a monthly PCP payment for a new car is much lower than a typical HP payment for the same car. 3. Close a new PCP transaction. If the actual value of the car at the end of the contract is worth more than the GMFV, you can return the car to pay the outstanding balance and use the excess amount as a down payment for a new financing contract. However, you may need to stay with the same dealer if you choose to do so. The finance company guarantees the minimum that the vehicle is worth at the time of the end of the contract (depending on the mileage and condition).

This GMFV is determined on the basis of existing market information on vehicle evaluations, the expected mileage of customers over the duration of the financing contract and the duration of the agreement itself. The debtor/customer undertakes to make regular payments to the creditor. This form of contract purchase was originally used more by businesses than individuals, but in recent years its use by consumers has steadily increased in countries such as the United Kingdom. In 2016, 82% of personal new car financing transactions in the UK were PCPs. [7] You can enter into a PCP agreement in whole or in part at any time, but you should check the terms of the agreement, as each financial company has its own procedures for doing so. A personal contract purchase (PCP), often referred to as a personal contract plan, is a form of lease-purchase vehicle financing for individual buyers that has similarities to personal contract leasing and traditional hire-purchase (installment purchase). .