Personal Contract Purchase (PCP)

What is PCP?

A PCP, like Hire Purchase, is a purchase arrangement. In a PCP, however, the customer must make a balloon payment, the value of which is fixed or guaranteed by the financing company when the agreement is established, in order to buy the car at the end of the arrangement. The Guaranteed Minimum Future Value (GMFV) or 'optional final payment' of a PCP balloon payment is based on the value the financing company thinks the car will be at the end of the agreement. Unlike Hire Purchase, a PCP allows the consumer to own the car, return it, or swap it in for another at the end of the contract.


The customer can keep the car if they pay the GMFV (plus any Option to Purchase fees that are part of the deal). The customer will receive title to the vehicle and become its legal owner at this moment. Many financial providers allow the GMFV to be refinanced so that the consumer does not need to come up with a huge sum of money.


If the car is worth less than the GMFV, the customer can return it and walk away - mileage and condition permitting. If all of the monthly payments have been made, the GMFV guarantees that the lender will take the car back from the consumer at the end of the agreement with no more payments needed. If the automobile isn't worth as much as the loan, the lender, GMFV, absorbs the loss. If the car has travelled more than the agreed-upon miles, the customer will be charged an additional fee based on a pence per mile charge plus VAT (the actual rate will have been specified at the commencement of the arrangement). In addition, if the vehicle has not been maintained or serviced according to the manufacturer's instructions, or if the condition is worse than 'fair wear and tear,' the lender will assess a fee to reimburse the consumer. All fees are detailed in the agreement's terms and conditions.

Part Exchange

The difference (also known as equity) between the dealer's part exchange value for the car and the GMFV might be utilised as part or all of the deposit on their replacement vehicle. Any difference that isn't used as a deposit is returned to the customer. Alternatively, the consumer can sell the vehicle privately, pay off the GMFV by paying the remaining balance to the finance company, and pocket any profit, however the dealer and lender should be informed.


PCP is a popular and flexible vehicle financing option.
The lender keeps title to the vehicle under a PCP deal, just like it does with a Hire Purchase agreement, until everything is paid off.
It enables the customer to determine the car's 'least amount' at the end of the contract (the Guaranteed Minimum Future Value or GMFV)
It necessitates the consumer agreeing to a mileage allotment depending on their anticipated usage, which has an impact on the GMFV. The bigger the allowed, the more miles the consumer is likely to travel, lowering the GMFV and increasing the size of the monthly payment. If the vehicle is worth less than the GMFV at the conclusion of the agreement (provided it has been maintained in excellent condition and has not exceeded the agreed mileage), the client can simply hand it back with no further obligations. At the end of the contract, PCP provides clients with a variety of options. Consumer credit legislation can regulate, exempt, or unregulate agreements. This is determined by the customer's type and the amount borrowed.

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