Personal contract purchase (PCP) is a vehicle finance agreement available to private individuals (i.e. not businesses). Personal Contract Purchase (PCP) is similar to a Hire Purchase agreement as you will usually pay an initial deposit, followed by monthly instalments.
With PCP, your monthly instalments are only paying off the depreciation of the car, rather than the entire value of the car.
What is Personal Contract Purchase ( PCP )?
After an a initial deposit and a number of monthly payments PCP allows 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.
How could it work for you?
At the start of your PCP contract, a Guaranteed Future Value (GFV) of the car is estimated. This is the car’s expected value when your contract ends.
This simply means that the money you’re actually borrowing and repaying is the depreciation . i.e. The difference between what the car is worth now, and what it will be worth at the end of your contract. You’ll pay this difference off in monthly instalments.
This means lower monthly payments, but if you want to buy the car, you will need to pay a final payment at the end – the Guaranteed Future Value
- Private individuals who do not qualify for a company car
- Private Use of a new vehicle with low deposit and payments
- Individules who would like fixed rentals for the whole package , making budget planning easier
- If you decide not to buy the car, you can simply walk away when you’ve made all the monthly payments.
- Similar to PCH, you can drive away a brand new car every three years without worrying about it running out of warranty, or selling it on.
- If your car is worth more than the Guaranteed Future Value then you can use that equity towards a deposit on a new car.
- Service and Maintenance can be included
- Fixed monthly payments cover the rental of the vehicle, plus any maintenance options if chosen, throughout the duration of the contract
- A minimum guaranteed future value (MGFV) – or balloon payment – is agreed at the start of the contract
- VAT included on rental
End of Contract
Once your monthly payments are finished, you’ll have three options:
- Buy the car by paying the final balloon payment – the Guaranteed Future Value
- Part exchange for a new car
- Hand the car back – your finance company has already predicted the Guaranteed Future Value of the car, so handing the car back will settle the deal.
- Buying power ensures consistently keen pricing
- Cars delivered FOC
- Servicing can be provided by client convenient agents
- Contracts can be regularly reviewed & amended to match mileage patterns
All information provided on this site is for guidance only. We recommend that you seek professional advice from your accountant and tax office before making any decisions. eco fleet uk Ltd accepts no legal liability for the information given as it has been provided for illustration only. It is your responsibility to check the validity of this with the relevant authorities.