Personal Contract Purchase (PCP) Finance Guide

A flexible way to buy a used car

PCP Car Finance Explained

What is PCP?

If you are considering buying a nearly new or used vehicle and are reviewing your options on how to finance it, one of your options is a Personal Contract Purchase (or plan), which can also be referred to as PCP.

With a PCP, your monthly payments are likely to be lower than a Hire Purchase plan or a personal loan because you are repaying the difference between the cost of your new vehicle and its predicted value at the end of the agreement, plus the interest. The predicted value is called a Guaranteed Future Value or GFV or sometimes referred to as an Optional Final Payment as it is set by the finance company. The GFV is effectively the final amount that would be due at the end of the agreement should you wish to own the car at that point. 

So, once you've selected your new vehicle, you agree a deposit amount, contract length and agreed mileage and they will confirm a 'guaranteed future value' (GFV) of your car at the end of the contract.
The remaining difference is then split into manageable monthly payments. 


What are the benefits of PCP?

Step 1:
Agree an initial deposit and term and decide how many miles you’ll travel each year.

Step 2:
The monthly repayments and the deferred optional final repayment (OFP) are then calculated. The OFP is based on the anticipated value of the vehicle at the end of the agreement.

Step 3:
At the end of your agreement, you can part exchange the vehicle, return the vehicle (return conditions apply) or pay the OFP should you wish to own the vehicle.

Step 4: After you’ve made all the repayments, the OFP, option to purchase fee and any interest applicable, you will become the owner of the vehicle.

Fixed interest rate & Monthly payments -
You’ll make equal monthly repayments with a fixed interest rate over your chosen period, typically between 24 and 49 months. 

Monthly repayments - You will pay lower repayments on PCP compared with a HP for the same loan amount, term & APR as a proportion of the amount you repay is deferred to the end as an optional final payments (OFP).

Interest - You will pay more interest on PCP than on HP for the same loan amount, term & APR, as you balance reduces more slowly.

Early settlement -
You can pay off agreement in full at any time. Settlements are calculated as per the Consumer Credit (Early Settlement) regulations 2004, meaning you maybe entitled to a rebate of some of the interest charged. The interest is added to the balance at the start of your agreement, Whilst you pay equal monthly repayments, the amount of interest you pay each month reduces over the term of the agreement so this will affect the level of rebate you receive.

End of agreement -
You have three options you can choose to either: 
1) Return - You could return the vehicle at the end of your agreement. You will incur charges if the vehicle is not returned in good repair and condition or you exceed the contracted mileage and within the permitted maximum mileage as agreed upfront on an annual basis.
2) Retain - Own the vehicle outright by paying the optional final repayment. An option to purchase fee of £10 is applicable.
3) Renew - Subject to paying off your existing agreement in full, you can part exchange your vehicle at the end of the term or any time during the agreement. Alternatively the vehicle could be worth less than the optional final repayment leaving you with a shortfall to pay before starting a new agreement. In such instances, you can exercise the RETURN option above and have no further liability (mileage and vehicle condition restrictions apply, as above).

Contact a member of the team at bravoauto to find out more.

Here are some other important factors you need to consider:

Affordability - You should carefully consider your ability to make the repayments without difficulty during the agreement. You should only proceed if you are satisfied that the repayments are affordable and you are NOT aware of or expect any significant changes to your income or expenditure during the length of this agreement.

Consequences of not keeping up with repayments - If you do not keep up with your repayments, late payment interest and other default charges may become payable. Any missed payments will be reported to credit reference agencies, which may make it more difficult and expensive for you to obtain credit in the future. If missed payments are not repaid, in some cases the lender may take legal action to recover these.

You must:

  • keep the vehicle in good repair & condition and service as per manufacturer’s recommendations  
  • keep the vehicle in your possession and control, and not sell it
  • insure the vehicle with full comprehensive cover

You must not:

  • take the vehicle abroad (except to the EU for a maximum of 30 continuous days / 60 days a year)
  • alter the vehicle or use it for racing
  • make the agreement on behalf of someone else
Credit Footprint – Like all applications for credit, applying for dealer finance will leave a record on your credit file. 

The right of withdrawal - 
For HP & PCP agreements, if you are a private individual, sole trader or small partnership borrowing no more than £60,260, you will have the right to withdraw during a period of 14 days starting the day after the day on which you sign the agreement. To withdraw, you must give the lender written or oral notice within the withdrawal period.