Personal Contract Purchase (PCP) is an increasingly popular choice for car finance. It offers the best in flexibility at the end of the agreement, together with low, fixed monthly payments.
PCP is perfect if you are opting out of your company car scheme. Your company car allowance can fund your monthly payments, but there is no company car tax to pay.
At the beginning of the agreement, your car's guaranteed future value is calculated, based on an agreed mileage and age. This is deferred as a final 'balloon' payment.
With PCP you don't have to commit to buying the car at the outset. You use it for an agreed period of time (24-48 months) and then decide at the end of this period what you would like to do. Choosing to pay for your vehicle this way often means you can drive a higher-specification vehicle for a lower monthly payment.
- You have four options:
- Buy the car by paying an agreed minimum residual value
- Part-exchange the vehicle for another
- Sell the vehicle privately (settling the balloon)
- Or, subject to mileage and condition, return the car with nothing more to pay (e.g. if depreciation resulted in negative equity)
The benefits of Personal Contract Purchase
- Low risk - A minimum future value is guaranteed
- Low deposit - keeps valuable personal or business cash available
- Low fixed monthly payments - perfect for budgeting
- Choice - Buy the car, part-exchange it or just return it
- A better car - lower payments can help you choose a higher-specification car
- Tax advantage - the cash alternative when you opt out of a company car scheme is not subject to company car tax
- VAT free - no VAT on your payments