Personal Contract Purchase Option

Personal Contract Purchase – Car contract hire or car leasing as it’s also known is becoming more popular in the UK because it has many benefits over conventional methods of car finance. Despite high interest rates and disappointing depreciation values, many stick to personal car loans or hire purchase deals because, ultimately, the car belongs to them. Personal contract purchase (PCP) changes the rules and makes car leasing deals even more appealing. Personal contract purchase (PCP) allows you all the benefits of car contract hire plus the added option of buying your car at the end of the contract term if you wish to do so.

Offering great flexibility

If by the end of your contract hire you don’t want to part with your vehicle, PCP gives you the option of making one balloon payment (option to purchase amount) to keep the vehicle. This payment will have already been agreed at the outset of the contract so you have plenty of time to decide whether you want to buy the vehicle outright or not. It’s entirely up to you. And that’s just one of many benefits of personal contract purchase.

The monthly payments work in exactly the same way as contract car leasing. They’re based on the difference between the purchase value of the car and the residual value plus interest So, in other words you’re paying a much more effectiveprice than you would with a standard car loan or hire purchase.

Making luxury cars more affordable

One key thing to consider when seeking the best out of your PCP deal is to go for a car that holds its value. The more the vehicle holds its value, the more you are going to save because a higher residual value will reduce your monthly payments. Again, do your homework. You can look at the logical website. Go to the compare section, put in two cars of your choice, look at their rentals and then look at the vehicle values listed on our technical page. Quite often, much higher cost and/or much better vehicles can have a lower monthly payment. You’ll find that the rate of depreciation depends on a number of factors including manufacturer’s reputation, condition of the car, fuel efficiency, desirability and, of course, mileage.

Knowing the average annual mileage you’re likely to do is important with PCP deals. This is because the car leasing company will set a mileage limit to work out how much the car is going to depreciate and what the residual value is likely to be at the end of the contract. It’s important to estimate the mileage accurately so the car leasing company can accurately work out what your balloon payment will be at the end should you choose to buy the car. If you exceed the contracted mileage, an excess mileage charge is made.

Summary of PCP benefits

• PCP requires a small deposit
• Fixed monthly payments to help you budget better
• Option to walk away if you don’t want to buy the car
• Additional car maintenance packages
• Allows you to afford a higher standard of car

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