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Personal Contract Purchase (PCP) Finance Guide

One of the most flexible ways to buy a used car

PCP Car Finance Explained

What is PCP?



PCP stands for ‘Personal Contract Purchase’. With PCP, you pay lower monthly payments than a comparable Hire Purchase agreement because you are only paying the difference between the value of the car when you bought it and the value it'll be worth at the end of the finance agreement (the Guaranteed Future Value or GFV). Therefore, you don't pay the total value of the car, only it's predicted depreciation. 

Once you've selected your chosen vehicle, you'll agree a deposit amount, contract length, agreed mileage and the value the car at the end of the contract.

Once of the biggest benefits of PCP, is the flexibility it provides once the contract has ended. Why not watch our helpful video to find out more?

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What are the benefits of PCP?

PCP deals are not only flexible, but they can be a lot more convenient than a standard bank loan. By choosing PCP you will normally benefit from receiving an instant lending decision in the majority of cases. The application process is shorter, faster and less intrusive with a higher application acceptance level when compared to unsecured lending.

The Contract

A PCP contract is usually set from two to four years, giving you the flexibility to decide how long you would like to keep the car before you change it. When you reach the end of the contract you have three options:
Retain:
Pay the guaranteed future value and option to purchase fee - and then the car is yours
Return:
Give the car back with nothing to pay (subject to mileage and fair wear and tear)
Renew:
Part Exchange your car and use any equity available (if applicable) as a deposit on your next new car

Deposits

The recommended deposit amount for PCP deals are often set around 10% of the car's value. This will give you a good balance between your initial outlay of money and the subsequent monthly costs. It may also be possible to reduce your deposit down to almost zero, depending on the car. However, this will mean that your monthly payments are higher.

What else do I need to know?

Should you decide to take out a PCP contract, you should be aware of the following:

Excess Mileage

At the beginning of the agreement, you decide on the total mileage you expect to do. It is normal to pay a fixed amount for every additional mile over this agreed amount, so bear this in mind if you hand your vehicle back at the end of your contract.

Wear & Tear

It is in your interest to minimize the vehicle’s ‘wear and tear’ and not exceed the agreed mileage. In simple terms ‘normal wear and tear’ means that for its age and mileage, the vehicle is in fair working order, condition and repair.