Personal contract purchase, or PCP for short, is a flexible car financing option that can offer lower monthly payments than a personal loan or hire purchase (HP) car finance agreement. It’s basically a loan to help you buy the car you want. But it differs from a normal personal loan because you don’t have to pay off the full value of the car. It could be a good option for you if you like to change your car regularly.
PCP finance gives you the choice of owning the car at the end of the contract by paying the balloon amount or trading it in. PCP splits the price of the car into affordable chunks; a deposit, monthly payments, and an optional final payment. You also have until the contract ends to decide whether you want to buy the car or not.
At the end of the PCP agreement you have three options:
Hand it back:If it is worth less than the GMFV, you can return the car and walk away – subject to mileage and condition.
Pay it off or refinance:You can pay the GMFV (plus any Option to Purchase fee) and keep the vehicle. You will become the legal owner.
Part exchange or sell:If the part-exchange value is greater than the GMFV, it can be used as a deposit for the next finance agreement or ‘cash-back’. You could sell the vehicle privately once legal title is gained and settle the GMFV.