A variation of a Hire Purchase agreement the Personal Contract Purchase, (or PCP) calculates the value of the car at the start of the agreement and this value is then deferred until the end of the agreed period. Usually referred to as the Guaranteed Minimum Future Value (GMFV) it is calculated using a number of factors. These include how old the car will be at the end of the agreement and how many miles it is expected to have covered.
What's important to note about this type of agreement is that the future value of the car is guaranteed by the lender so will not fluctuate. Deferring the GMFV to the end of the agreement in this way means that your regular monthly payments are smaller than those on a similar HP agreement so may help with budgeting.
There is in-built flexibility with a PCP plan. At the end of the agreed period you can decide whether you would like to own the car outright- which you can do by paying the deferred value (GMFV) - or returning the car to the lender and entering into a new car finance agreement. At this stage for instance you may wish to change car make and model.
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