Personal Contract Purchase - PCP

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Personal Contract Purchase (PCP)

Personal contract purchase (PCP) is a form of car finance that can suit some car finance seekers better than the alternatives.

Whether a personal contract purchase (PCP) plan suits you as an individual depends on the type of car you wish to buy, and how you wish to make repayments. New cars depreciate quickly, and personal contract purchase may avoid this better than other forms of car finance.

What is Personal Contract Purchase (PCP)?

Personal Contract Purchase is a personal contract for private individuals wishing to take out car finance.

Defined as a conditional sale agreement under Financial Services Regulations (2004), a PCP plan provides protection under the Consumer Credit Act of 1974.

Personal Contract Purchase sets up a contract term, and the plan holder makes monthly payments on the vehicle. When the term comes to an end, the plan-holder can either buy the vehicle or return it to the PCP provider.

How much do Personal Contract Purchase plans cost per month?

The provider of a Personal Contract Purchase plan takes a variety of factors into account when calculating monthly repayments. These generally include the overall cost of the new vehicle, the level of deposit that the buyer is putting down, the extent of the plan, and the intended mileage.

Also included are the finance rate, maintenance requirements and something called the GFMW – effectively the residual value of the vehicle at the end of the plan.

How long do Personal Contract Purchase plans run for?

Usually, depending on the vehicle and the provider, a PCP plan runs for between 24-42 months at a fixed rate. This rate will be decided upon depending on the variables listed above.

What is the Minimum Guaranteed Future Value?

One key aspect of personal contract purchase is the MGFW – minimum guaranteed future value. This is an amount agreed upon by the provider and the buyer of the vehicle. Sometimes, this figure is referred to as a balloon payment.