When the Agreement Starts
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The amount you want to borrow, less any deposit payment and the value of any car you are part-exchanging is agreed upfront.
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Your application for finance is then submitted to the relevant motor finance company and, when you pass their checks, the lender will pay for the car on your behalf.
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During the term of the agreement, your monthly payments will cover the full price of the car plus interest, minus the guaranteed future value of the car.
When the Agreement Ends
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You can choose to pay the guaranteed future value in full and own the car outright
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Hand back the keys and walk away with no further obligation
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Use the car as a trade in by using any existing equity (if of course, the guaranteed future value is lower than the current market value of the car) as a deposit for a new finance agreement. You may choose a completely new brand of car at this stage.
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In the event that you wish to hand back the car, an excess charge will be applied if the forecast mileage (agreed at the start of the contract) has been exceeded.
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It should be possible to fully or partially settle a PCP agreement but the specifics of this should be verified with your lender as each finance company may have different operating procedures.
Advantages of Personal Contract Purchase
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Lower monthly payments than Hire Purchase (for a comparable car and term)
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A low deposit at the beginning of the term.
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Your agreement will be regulated which means there are legal obligations in place to protect your rights (assuming you don't opt out of the agreement)
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At the end of the agreement term, you have flexibility to decide what to do with the car.
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You will have a fixed monthly payment schedule which can help when budgeting.
Things to Remember
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It is best to be realistic about annual mileage as there will be a charge for each additional mile covered.
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When the car is returned it has to be in good condition. Any damage is normally charged to you.
