Personal contract purchase

WHAT IS PCP?

Using a Personal Contract Purchase (PCP) plan the customer will make an initial payment, followed by a series of monthly payments and a final large, but optional payment, called a GFV.

A PCP plan will enable the customer to purchase a new vehicle with lower monthly repayments by deferring a large amount of the total cost of the vehicle to the end of the contract - this amount is known as the Guaranteed Future Value (GFV), often referred to as the optional final balloon payment. The GFV is set by the finance company and is based on the chosen vehicle and the annual mileage stipulated by the customer. The annual mileage can be set between 6k and 30k per annum and will affect the figure given for the GFV.

"With PCP your monthly payments cover the loss in value of the car over time - you're basically paying the monthly depreciation of the car plus the interest on the outstanding balance. At the end of the contract you have the option to buy the car at a previously set price".

HOW ARE THE MONTHLY PAYMENTS CALCULATED?

The Guaranteed Future Value plus the customer's deposit is subtracted from the cash price of the vehicle and the monthly payments are based on the balance (plus interest on the balance and the GFV). At the end of the agreement the customer will have a choice of making a final lump sum payment in order to complete the agreement, or to simply return the car to the finance company without any further obligation.

By only repaying the difference between the cash price and the optional balloon payment you are only financing the depreciation of the car.

WHAT DO I DO AT THE END OF THE CONTRACT?

At the end of the contract you have four options:

1. Return the vehicle to the finance company. As long as you have not exceeded the agreed mileage, you will have nothing more to pay.
2. Keep the vehicle by paying off or refinance the outstanding balloon payment or GFV.
3. Trade-in your car for a new car. You can come back to Buyacar and part exchange your vehicle for the next new vehicle. If the trade-in value is greater than the GFV, the difference can be used towards a deposit on the next agreement.
4. Sell the vehicle privately and keep any profit over and above the GFV.

WANT TO LOWER YOUR MONTHLY PAYMENT?

Within a PCP quote there are some things you can do to lower your monthly payment.

• Consider financing the car over a longer contract period - perhaps a 48 or 60 month contract will make your car of choice more affordable.
• The amount of deposit you are able to put down will dramatically effect your monthly payments. Higher deposit means lower payments.
• It is worth calculating your annual mileage accurately rather than guessing. If you only do 6000 miles per year but have left your annual mileage figure at 10000 miles, your balloon payment will be lower and you will be paying more unnecessarily.

GET A PCP QUOTE FOR A NEW CAR NOW

You can get an online PCP quote for any new car directly from the details page for that new car. Simply click on the finance tab once you've found a car you're interested in, enter your details and click submit.

Author: Alex Davis
Date: 11th September 2008