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Personal Contract Purchase (PCP) is a finance product that allows you the opportunity to buy a new or a used vehicle.
It is similar to a Hire Purchase agreement as you will usually pay an initial deposit, followed by monthly instalments over a term typically between 18 to 48 months.
What makes PCP different to Hire Purchase (HP) is that your monthly instalments are paying off the depreciation of the vehicle, and not its entire value, over the course of the term. Then, when you get to the end of your agreement, there is a final, balloon payment that must be made if you want to keep the vehicle. The balloon payment is often referred to also as the Guaranteed Future Value (GFV).
When you have chosen your vehicle, you will then agree your annual mileage and decide on the agreement term with one of our sales team.
We will then determine the Guaranteed Minimum Future Value (GMFV) of the vehicle at the end of the agreement and work out a deposit and monthly amount that works for you.
At the end of your agreement you will then have three options:
Return – Simply return the vehicle the back to us
Retain – Keep the vehicle by paying the optional final payment
Renew – Trade it in for another vehicle
For a quotation, help, or advice contact us and ask to speak to one of our sales team.
You can normally settle your agreement early by asking the finance company to provide you with a settlement figure. However, the finance company will require you to pay off the difference between what your vehicle is worth, and what you still owe and there may be a difference which is known as negative equity. On the other hand, you may find that at the end of your term your vehicle is worth more than the Guaranteed Future Value, which means you will have some positive equity to contribute towards your next vehicle.
Hire Purchase is a way to finance buying a new or used vehicle. You will normally pay an initial deposit and will pay off the entire value of the vehicle in monthly instalments. When all the payments are made, the Hire Purchase agreement ends, and you own the vehicle outright.
The short answer is yes, you can end your finance early. There are different provisions within each finance agreement that allows you to do just that. If you have got through two-thirds of the way through your finance agreement, the options to end the finance agreement early open up.
For a Hire Purchase agreement, there is an option of paying it off early through a settlement fee. A settlement fee covers the cost of any remaining unpaid instalments and interest payments remaining on the agreement. Once the settlement fee is paid, you take full ownership of the vehicle early.
Under a Personal Contract Purchase agreement, you can also pay a settlement fee for bringing the agreement to an end early. After that, you can choose to hand the vehicle back or you have a second option. Through a PCP agreement, you can take full ownership of the vehicle by paying off the remaining Guaranteed Minimum Future Value also known as a balloon payment.
What is Contract Hire (CH)?
Contract hire is a type of vehicle finance available to companies, sole traders, partnerships and individuals. It's a leasing agreement that lets you drive a car or a van - it's available as a business or personal contract hire. As a form of lease, using contract hire means you don't own the vehicle.
When you (or your fleet manager) hire a vehicle from a leasing company for a set amount of time, you pay a regular monthly fee.
From the beginning of the contract, you will be charged an initial rental fee. This can be a set amount or multiples of the monthly rental. Usually, it's three or six times your monthly rental cost. So, if the monthly payment is £100 and the initial rental is three times that - you pay £300.
You'll also need to agree on an average annual mileage. This is so the company can calculate how it affects the van's value by the end of your contract. Most companies are flexible and allow you to update your mileage agreement if your circumstances change.
Vehicle leasing is a type of a Contract hire available to businesses through Business Contract Hire, and individuals through Personal Contract Hire.
Leasing a vehicle, car or van, let's you hire instead of purchasing outright. That means you will not own the vehicle. This type of finance allows more flexibility and includes maintenance of the vehicle, MOT services for an extra fee.
