Suitability Explanation - A Customer-Friendly Guide to your Personal Contract Purchase
What is Personal Contract Purchase (PCP)?
Funding a vehicle through Personal Contract Purchase (PCP) means you're spreading the cost of the vehicle with a fixed rate of interest over a fixed term, usually between 2 and 5 years and have an option to own the vehicle when all of the payments are made. It has a larger final optional payment usually referred to a Guaranteed Minimum End Value (GMEV) which is the amount that the funder guarantees that the vehicle will be worth at that point based on the mileage that you determine at the start of the agreement and the age of the vehicle. When you reach this point, you can choose to make the final payment to own the vehicle or hand it back to the finance company.
Is PCP Right for You?
Yes, if you want the opportunity to own the car but want to protect yourself against the risk of the residual value, but it won’t be a good fit if
Predicting your mileage is a challenge as it’s based on a pre-determined mileage which you choose
You want to use it abroad extensively as there are restrictions
Benefits of PCP:
There’s lots of good plus points to PCP
Low initial cost and lower monthly payments compared to traditional HP due to the large optional final payment
You can obtain ownership by making all of the payments or by early settlement
You choose the term of the agreement (2-5 years) and mileage
Optional service, maintenance and repair plans for easy budgeting and you can reclaim 100% of the vat
Road tax at the current rate is included for the initial 12 months
No concerns about depreciation and disposal values as you have got the option to return the vehicle if it’s worth less than the GMEV
Responsibilities and Care:
Comprehensive insurance is a must
Prompt payment of fines and charges as if the bill lands with the funder, they’ll make an additional charge for their administration
Service and maintain the vehicle according to the Manufacturer’s recommendations and keep it roadworthy. Use of genuine Manufacturer parts is a must and some funders require you to service and maintain at a main franchised dealer. Please check the terms and conditions of your finance agreement. If you fail to properly service and maintain the vehicle and choose to return the vehicle to the funder rather than paying the GMEV to obtain ownership, the funder will make a charge as this will affect its value. It’s worth exploring a cost effective service, maintenance and repair package for predictable costs but do bear in mind that the maintenance provider may decline to settle any charges if the total contract mileage is exceeded
If you return the vehicle, it must be in a condition that’s in line with the BVRLA's Fair Wear and Tear guidelines or you’ll face a charge for reconditioning
If you return the vehicle, you’ll face extra charges for exceeding mileage or missing items, such as both sets of keys, at return
Non-payment may lead to contract termination and vehicle repossession
Important Reminder:
Only commit to a PCP if you’re comfortable with the financial terms
Make sure that you fully understand the agreement before entering into it
In a nutshell, PCP is a great product if you want the option of ownership but don’t want the risk of residual as you have the option to return the car, but it comes with responsibilities.
Failure to make payments in full and on time may result in the contract being terminated and the vehicle repossessed. Only enter in to an agreement if you are comfortable with the financial commitment and terms.
