Personal Contract Purchase (PCP) is a vehicle finance agreement available only to private individuals. This method of funding gives you the option to either purchase the vehicle, or return it to the finance company at the end of the agreement.
If you finance a car on a PCP basis, you will be required to pay an initial deposit, followed by a series of monthly payments for the duration of your agreement – this is normally between two and five years and monthly costs are based on your period, deposit and anticipated annual mileage. These monthly payments effectively cover the vehicle’s depreciation. As such, when your agreement comes to an end, there is usually a “Balloon Payment” or “Minimum Guaranteed Future Value” (MGFV). You can either choose to pay this amount and own the vehicle, or not pay it and return the vehicle to the finance company, as the future value is at the finance companies risk, rather than the individuals. Although there may be ancillary charges payable in the event of exceeding the contract mileage, and / or the vehicle being in a return condition outside of BVRLA “Reasonable Wear and Tear” guidance.
At the end of the contract, you have three options:
You do not need to decide which option is best for you until towards the end of your leasing contract.
This article provides general information to be used for your reference only and is not intended as a substitute for financial advice specifically directed at your business and taking account of the particularities of your situation.