A PCP is more suited for those that wish to enjoy the benefits of upgrading their vehicle every two or three years. A Personal Contract Purchase is a variation of a hire purchase agreement which offers monthly payments that are lower than some traditional finance schemes by offsetting a larger repayment to the end of the agreement.
Instead of purchasing the vehicle over equal monthly instalments an Optional Final Payment, sometimes called Guaranteed Minimum Future Value, is deferred until the end of the term. Meaning that you are paying the difference between the vehicles sale value and its minimum worth at the end of the period. The final payment is calculated based upon your driving requirements and annual mileage. Exceeding the agreed annual mileage will result in a pence per mile charge, as the higher the mileage the less the vehicle is worth.
Your repayments are based upon the price of your vehicle less any deposit and the Optional Final Payment, plus interest charges and any fees.
It is important to note that due to market conditions your vehicle may not be worth more than the Guaranteed Minimum Future Value at the end of the agreement, thus affecting the deposit available to purchase you next vehicle and subsequent monthly repayments. Therefore, it is imperative that you ensure that you accurately predict your mileage over the term, as any additional mileage is subject to an excess mileage charge.
When you have chosen your vehicle, you will then agree your annual mileage and decide on the agreement term with one of our Business Managers.
We will then determine the Guaranteed Minimum Future Value (GMFV) of the vehicle at the end of the agreement and work out a deposit and monthly amount that works for you.
At the end of your agreement you will then have three options:
Return – Simply return the car the back to us
Retain – Keep the car by paying the optional final payment
Renew – Trade it in for another car
For a quotation, help, or advice contact us and ask to speak to one of our Business Managers.
You can normally settle your agreement early by asking the finance company to provide you with a settlement figure. However, the finance company will require you to pay off the difference between what your car is worth, and what you still owe and there may be a difference which is known as negative equity. On the other hand, you may find that at the end of your term your car is worth more than the Guaranteed Future Value, which means you will have some positive equity to contribute towards your next car.
A Conditional Sale agreement is the same as Hire Purchase, except that you will automatically own the car once the finance has been repaid in full without the requirement to pay an additional fee. If you wish to sell the vehicle you must repay the outstanding finance balance in full.
The deposit is paid on delivery of your new vehicle, leaving the balance plus interest paid over the agreed period in equal monthly instalments. At the end of the agreement, you take outright ownership of the vehicle.
Interest is calculated at the start and is added to the amount that you wish to fund, therefore it is fixed for the length of the agreement. This means that the amount you pay is unaffected by any future changes in interest rates, allowing you confidence that your payments will not alter.
The short answer is yes, you can end your finance early. There are different provisions within each finance agreement that allows you to do just that. If you have got through two-thirds of the way through your finance agreement, the options to end the finance agreement early open up.
For a Conditional Sale agreement, there is an option of paying it off early through a settlement fee. A settlement fee covers the cost of any remaining unpaid instalments and interest payments remaining on the agreement. Once the settlement fee is paid, you take full ownership of the car early.
Under a Personal Contract Purchase agreement, you can also pay a settlement fee for bringing the agreement to an end early. After that, you can choose to hand the car back or you have a second option. Through a PCP agreement, you can take full ownership of the car by paying off the remaining Guaranteed Minimum Future Value also known as a balloon payment.