PERSONAL CONTRACT PURCHASE

Simple way for private individuals to finance a car purchase that's often more affordable and better value than loan financing.

Personal Contract Purchase (PCP), like contract hire is based on an agreed monthly payment which provides you with a new car to drive. It can include a comprehensive maintenance package covering things such as tyre replacement, regular services and breakdown recovery.

The length of a PCP is usually somewhere between 2 and 5 years. At the beginning of the contract you and the car leasing finance company agree a final price (known as the Guaranteed Future Value) for the car based on its residual value. The company remains the legal owner of the car throughout the contract until it comes to an end when there are 2 options available:

  1. You can now choose to buy the car at the Guaranteed Future Value (as well as paying the final monthly payment).
  2. If you think the car's value is actually less than the Guaranteed Future Value, you can return it to the finance company, thereby avoiding having to take it on yourself or having to find a way to dispose of it.

Is PCP just for me or can my employers be included too?

PCP is just for you as a private individual. Employers are not permitted to be involved in the arrangement in any way. You might be liable for Benefit-in-Kind tax if your employers were part of the arrangement.

Who owns the vehicle?

The vehicle is fully owned by the finance company, but the car will be registered in your name and you will be responsible for the Road Fund Licence (road tax) for each year of the agreement following the first.

What about VAT?

The only VAT due during the course of a PCP will be that accrued on any of the opted-for maintenance packages.

Will I need to pay a deposit?

Yes, in most cases you will be asked for around 3 months' payments up front.

What are the payment options?

There are typically 3 different payment options:

  1. Terminal Pause—if your PCP has been agreed over 3 years (36 months), 3 months will be due as a deposit as an initial outlay. There will then be 33 monthly payments which start immediately after the first payment. At the tail end of the contract, there will be 2 months with nothing to pay.
  2. Spread Rentals—this is the most common option. You still pay the 3 months in advance followed by another 35 payments. However, with this option the monthly payments are lower which helps to make them more manageable.
  3. Enhanced Deposit—the aim here is to lower your monthly payments. This can be achieved by paying a larger advance deposit or even trading in a vehicle as part exchange to contribute to the advance payment. Your advance payment should still equal or exceed the equivalent of 3 monthly rentals. This will be followed by 35 lower monthly payments.

What do optional maintenance packages include?

These typically include all routine services and maintenance, including tyres, batteries and exhausts, without limit. It's important to remember that all maintenance needs to be completed in line with the manufacturer's handbook.

Who is responsible for vehicle insurance?

All vehicle insurances are the sole responsibility of the driver.

What about mileage issues?

At the start of the contract, the predicted annual mileage is calculated and is a fundamental part of the PCP agreement. It contributes to the resale price (or Guaranteed Future Value) of the vehicle. If this estimated mileage is exceeded a charge will be due on every mile over the agreed amount.

The charge is calculated based on the extra depreciation of the vehicle caused by the excess mileage. If an optional maintenance package is included then the charge will also include an element to account for extra servicing (e.g. tyres and exhausts) that will have been required over and above the expected maintenance budget.

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