What is Personal Contract Purchase (PCP)?
Personal Contract Purchase (“PCP”) allows you, subject to credit checks, to purchase your own car on a no deposit cost-effective basis using the cash allowance offered to you by your employer. Under the PCP scheme, you will be able to buy a fully-maintained vehicle with a guaranteed value at the end of the contract period (24, 36 or 48 months). At the end of the contract, you can decide to pay the final payment and keep the car, or hand it back and choose a new car as you would with a company car. As you own the car, you will be protected from the changes to the taxation of company cars that were introduced with effect from 6 April 2002. For many company car drivers, these changes are likely to result in a significant increase in the cost of driving a company car as the current tax incentives for driving over 2,500 and 18,000 miles on business will disappear.
Personal Contract Purchase is a personal contract for private individuals wishing to take out car finance. Defined as a conditional sale agreement under Financial Services Regulations (2004), a PCP plan provides protection under the Consumer Credit Act of 1974. Personal Contract Purchase sets up a contract term, and the plan holder makes monthly payments on the vehicle. When the term comes to an end, the plan-holder can either buy the vehicle or return it to the PCP provider.
Personal Contract Purchase is a highly attractive and increasingly popular way to own a New, nearly new or used car. It combines fixed monthly payments with exceptional flexibility at the end of the agreement. Your car’s guaranteed future value is calculated (based on a pre-agreed mileage per year and the age of the car) and is deferred as a final payment. At the end of your PCP agreement you have total control in deciding which of these choices suits you best; 1) Part-exchange your car, any equity after the final payment is taken care of is yours to use as deposit or take as cash-back. 2) Buy the car by paying an agreed minimum residual value 3) Or, subject to mileage and condition, return the car with nothing more to pay (i.e. If car prices fall substantially and you find you have negative equity you hand the car back with nothing to pay!
