Understanding Personal Contract Purchase: Exploring its Meaning and Benefits
If you are considering purchasing a new car, you may have come across the term ‘personal contract purchase’ or ‘PCP’. PCPs are becoming an increasingly popular form of car finance in the UK, with many people opting for this option over other forms of credit. In this article, we’ll explain what PCP is, how it works, and the benefits that it offers.
What is Personal Contract Purchase?
Personal Contract Purchase (PCP) is a type of car finance that allows you to pay for a new car in a way that suits your budget. With a PCP, you’ll usually pay a deposit upfront, followed by a series of monthly payments. At the end of the agreement, you’ll have the option to either hand the car back, or pay a final balloon payment to purchase the vehicle outright.
How Does PCP Work?
PCP agreements are typically structured so that you pay a deposit and then a series of monthly payments over a set period of time – usually between three and five years. The monthly payments you make largely cover the depreciation of the car over this time period. At the end of the agreement, you’ll have three options:
1. Hand the car back and walk away – as long as the car is in good condition and you haven’t exceeded the agreed mileage limit, you can simply return the car and walk away. Of course, you’ll need to start the process of finding a new vehicle to replace the one you’re returning.
2. Keep the car by paying the final balloon payment – this is the lump sum of money that you’ll need to pay in order to own the car outright. It’s set at the beginning of the agreement and will be based on factors such as the car’s depreciation and the agreed mileage limit.
3. Part-exchange the car – you can also use the car as part-payment towards a new PCP agreement. The dealer will value the car and determine how much it can be used towards the deposit on your new car.
Benefits of PCP
PCP agreements offer several benefits, including:
- Lower monthly payments: Because you’re only paying for the depreciation of the car over the term of the agreement, rather than the full cost of the car, your monthly payments are likely to be lower than they would be with other forms of credit.
- Flexibility: PCP agreements can be tailored to suit your individual needs. You can choose how long you’d like the agreement to last, and the size of the deposit you want to pay.
- Chance to drive a new car: With a PCP, you can drive a new car every few years, which means you’ll always have access to the latest features and technology.
- No need to worry about depreciation: With a PCP, you aren’t responsible for the car’s value at the end of the agreement, so you don’t need to worry about depreciation and selling it for less than you owe.
Conclusion
Personal Contract Purchase (PCP) is a flexible form of car finance that can be tailored to meet your individual needs. It offers a range of benefits, including lower monthly payments, chance to drive a new car every few years, and no need to worry about depreciation. If you’re considering purchasing a new car, it’s definitely worth considering a PCP agreement as an option.
