What is PCP?
Personal Contract Purchase (PCP) is a form of finance that allows you to loan a car from a finance company. In order to use PCP, you will be requested to pay an initial deposit, with monthly payments for a set period. Usually, the higher deposit you put down at the start of the agreement, the lower your payments are at the end of each month.
Most PCP car finance deals are available between 18 - 48 months, with 36 months being standard or the most common currently.
PCP deals determine the value of the car at the beginning of the agreement and this value is deferred until the end of the agreement.
Referred to as the Guaranteed Minimum Future Value (GMFV) it is estimated using a range of factors, including the age of the car at the end of the agreement and how many miles it is estimated to cover during that agreement lifespan.
What's important to take into account is that the future value of the car is guaranteed by the lender so will not be subject to change. The advantage is that by deferring the GMFV to the end of the agreement means the payments made every month will be smaller than those on a similar HP agreement. This is a great way to help with budgeting and planning. A PCP offers tremendous versatility.
At the end of the period the car can be owned outright - achieved by paying the deferred value (GMFV) - or simply returned and a new make and model chosen if preferred.
