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What is Personal Contract Purchase?

Personal Contract Purchase (PCP) is a finance agreement between an individual and a finance company. After an a initial payment and a series of monthly payments which effectively cover the vehicle's depreciation, this type of agreement gives you the option to purchase the vehicle or return it to the finance company at the end.

What are the benefits?

  • Fixed-rate, fixed-term finance — both the interest rate and the length of the agreement are fixed at the start, so you know exactly how much you will be paying each month.
  • Flexible — terms are arranged to meet your finance requirements and driving habits.
  • No depreciation worries — it is not necessary to buy the car at the end of the term and so you can still choose to walk away without re-sale concerns. The finance company guarantees the resale value of the vehicle at the end of the agreement for a known and fixed amount — no risk of negative equity.
  • Refinance — if you wish, you can refinance your final payment (balloon payment) at the end of the contract.
  • Vehicle Excise Duty (Road Tax) — this is provided for the first 12 months of the contract.

How does it work?

At the outset, you select the term and annual mileage, for example, 3 years and 10,000 miles per annum. This will give you a fixed monthly cost, which can help with budgeting and cash flow. If you wish, you can also choose to include maintenance, which will cover you for routine servicing, MOTs and replacement tyres, and allow you to further fix your motoring costs in advance.

At the end of the contract, you have three options:

  • Hand the vehicle back and walk away without paying the final payment (balloon).
  • Pay the final payment outright and own the vehicle.
  • Refinance the final payment amount and pay the balloon in installments over a further set term (subject to credit).
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