Personal Contract Purchase or as it is most commonly called PCP is effectively a form of hir purchase.
You buy a vehicle pay on PCP and deposit followed by monthly payments for a fixed term at the end of which you have a number of options.
- With PCP you can part exchange the vehicle for another
- With PCP you can hand it back to the finance company
- With PCP you can pay or re-finance the balance and take full ownership.
With PCP you are enjoying a vehicle during the best years of its life.
PCP came about as a form of contract hire for private individuals. PCP is normally lost cost and above all in today’s economic climate it is safe. After all the beauty is that you committing to use a vehicle for a set period of time and then deciding at the end of the terms which option is best for you, based on market forces and your own circumstances.
The manufacture who has much more money than you or I takes all the risk after all if in three years time the PCP vehicle is not worth the optional final payment you can simply hand it back. If it is worth more then you can part exchange it and use any equity as a deposit statistically on another PCP vehicle.
The manufactures encourage PCP as your are statistically more likely to buy another vehicle from them. They also have more control in that they know exactly when you must make a decision about keeping or part exchanging. As such they often offer amazing low rate finance deals and packages when you buy using PCP.
PCP used correctly is 100 % the best way to fund a vehicle. Hope you noticed the used correctly. Ok so what did we mean by that. Lets pay devils advocate. Lets say that you part exchange your old vehicle and take out a new model on PCP.
It is £20,000 and your part exchange allowance means that your are now financing £15000. Your optional financial payment is £8800. Your monthly payments are £175.00
Three years later your return to the dealership to upgrade. Your vehicle is worth the optional final payment and your sales executive rush’s to gather figures on the new model which for illustration purposes is till £20,000.
Imagine your shock to find that your PCP payemtens are now over £100 more.
The problem is that £175 was never a realistic amount to pay for a £20,000 vehicle and you had used all of your equity from your old car to artificially lower them. This time you did not have a huge nearly £5,000 deposit and so could not lower them.
The safest way to think of PCP is that you ideally want to use as little deposit as possible.
This way if you vehicle is only worth the optional final payment you can simply pay another minim deposit, keep the PCP payments within the same region and upgrade / update to the latest model.