What is Personal Contract Purchase (PCP)?

The finance provider assures a minimum value for the vehicle at the agreement's conclusion, known as Guaranteed Minimum Future Value (GMFV) or Optional Final Payment (OFP). This value is deferred until the agreement's end.

PCP contracts typically span 2 to 4 years, with repayments contingent on the initial deposit, projected mileage, and contract duration.

Overview:

• Initial Payment/Deposit: An initial payment or deposit may be required.
• Fees: Lenders levy an arrangement fee, payable upfront or spread across the agreement term. An Option to Purchase Fee applies if you opt to keep the vehicle post-agreement.
• Conditions: Maintain the vehicle in good condition, adhering to the manufacturer's service recommendations. Mileage limitations and excess mileage charges may apply.
• Ending the Agreement: Upon PCP contract termination, three options exist:
• Hand it back: Return the vehicle if its value is less than the GMFV, subject to mileage and condition considerations.
• Pay off or refinance: Clear the GMFV (plus any Option to Purchase fee) to assume legal ownership of the vehicle.
• Part exchange or sell: Utilize any excess value above the GMFV for a new finance deal or receive 'cash-back'. Alternatively, sell the vehicle privately upon obtaining legal title and settle the GMFV.

Advantages of PCP:

Future trade-in or resale value concerns are mitigated as the lender ensures a minimum vehicle worth at the agreement's end.

Flexibility: Multiple end-of-term options are available, including vehicle purchase.

Warranty coverage: Most cars are under manufacturer warranty during the PCP period, though it may expire before contract completion.

Disadvantages of PCP:

Ownership is contingent upon paying off the GMFV/OFP by the agreement's end. If the predicted GMFV/OFP closely aligns with the actual car value, minimal equity is available for future deals.

Excess mileage incurs charges of pence per mile (price per mile will vary depending on vehicle and term).

Maintaining the car in good condition is crucial, as additional charges apply for non-standard wear and tear rectification.