What is personal contract purchase?
Personal contract purchase is one of the traditional ways to lease a car. PCP is largely the same as personal contract hire, but unlike PCH, PCP gives you the option of purchasing your car at the end of your lease.
What is the difference between personal contract purchase and hire purchase?
Personal contract purchase is a lease with the option to purchase at the end of the lease. With PCP, you pay an initial deposit then make payments toward the outstanding value of your car for the duration of your contract.
At the end of your contract, the dealer will assess the value of the car for its guaranteed minimum future value, or GMFV. If you want to own the car, you will then have to pay the GMFV in full. This large final payment is usually referred to as a ‘balloon payment’.
Hire purchase is a method of financing car ownership through monthly payments. Through hire purchase, you put down an initial deposit, then make monthly payments based on the remaining balance.
Once you’ve made all of your monthly hire purchase payments, you own your car outright.
How does personal contract purchase work?
If you use personal contract purchase to finance your new car, the process generally involves:
- An initial non-refundable deposit - at least 10% of the value of the vehicle.
- High monthly and overall payments - compared to other financing options like PCH and Hire Purchase.
- A large final ‘balloon payment’ - based on the car’s guaranteed minimum future value, usually thousands of pounds more than your monthly payments.
- Long-term commitment - usually three to five years.
Like personal contract hire, PCP agreements have a number of limitations. There are restrictions on the number of miles you can drive (with fees for excess mileage), penalties for ending contracts early, and no extras included.
If you finance a new electric vehicle through PCP, you’ll have to secure your own insurance, take care of your own maintenance, and pay for all of your own charging. Additionally, you’ll be responsible for the whole process when the time comes to sell it.