Personal Contract Purchase

Personal Contract Purchase or PCP is simply a way for people to finance a vehicle. It is made easy in numerous ways and often proves to be more cost effective than other financial facilities, with more affordable monthly payments.

Just as with contract hire it is possible to also include a comprehensive maintenance package, which might cover things such as tyre replacement, regular services and breakdown recovery.

Again, in parallel with Contract Hire, there is a set monthly fee to pay which provides you with a new car to drive. The length of the PCP is usually somewhere in the region of 2 to 5 years. The finance company in question remains the legal owner of the car at all times during the contract. Once the contract reaches its conclusion there are 2 basic options available.

1. At the beginning of the contract, a price (based on the residual value of the vehicle) will have been agreed between both parties – at the end of the contract, you can now choose to buy the car at that price (known as the Guaranteed Future Value) in addition to the final payment due.

2. However, if you believe the car has now decreased in value to the point that it's worth less than the agreed price, you can return it to the finance company without either taking the vehicle on yourself or having to find a way to dispose of it.

Facts about Personal Contract Purchase

Is the PCP just for me or can my employers be included too?

The PCP is solely for you, the private individual. Employers are not permitted to be involved in the arrangement in any way. You may be liable for Benefit in Kind Tax if your employers have been part of the arrangement.

Ownership of the Vehicle in relation to the PCP

The vehicle is fully owned by the finance company. However, the car will be registered in the driver's name and the driver fully responsible for the Road Fund Licence for each year of the agreement after the first.

What about VAT?

The only VAT due during the course of the PCP will be that accrued on any of the opted for maintenance packages.

Will I need to pay a deposit?

Yes – in most cases you will be asked for around 3 months payments up front.

Are there different payment options?

Usually there are 3 different options:

Terminal Pause – If your PCP has been agreed over 3 years (36 months), 3 months will be due as a deposit as an initial outlay. There will then be 33 monthly payments which start immediately after the first payment. At the tail end of the contract, there will be 2 months with nothing to pay.

Spread Rentals – This is perhaps the most common option. You still pay the 3 months in advance followed by another 35 payments. However, with this option the monthly payments are lower and so perhaps more manageable.

Enhanced Deposit – The aim here is to lower your monthly payments. This can be achieved by paying a larger advanced deposit or even trading in a vehicle as part exchange to contribute to the advance payment. Your advanced payment should still equal or exceed the equivalent of 3 monthly rentals. This will be followed by 35 lower monthly payments.

What do the optional maintenance packages include?

This would typically include all routine services and maintenance, including tyres, batteries and exhausts. There is no limit on these. It is important to remember that all maintenance should be completed in line with the manufacturer's handbook.

Who is responsible for vehicle insurance?

All vehicle insurances are the sole responsibility of the driver.

What about mileage issues?

If at the end of the contract, the mileage quota has been exceeded, the driver will be fully liable for an excess charge.

The predicted annual mileage is calculated and is a fundamental part of the PCP agreement. It contributes to the resale price (or Guaranteed Future Value) of the vehicle in question. If estimated mileage has been exceeded a charge will be due on every mile over the agreed amount.

If an optional maintenance package is included, the PPM (Pence per Mile) amount is calculated using two factors.

Depreciation – It goes without saying that any additional mileage at the end of the PCP will have a direct effect on the future sale value of the vehicle. As with any car, the general rule is that the more miles there are on the clock, the less the car will be worth when sold.

Maintenance – If mileage has been exceeded, it is reasonable to expect that more services, such as more tyres and perhaps more exhausts will have been required, therefore increasing the amount of outlay over and above the agreed maintenance package budget.