What is Personal Contract Purchase Finance?

Personal Contract Purchase is one of the most popular ways to broker a finance agreement on a vehicle. Not only is it cost effective with a flexible deposit, but it also gives users three options to choose from (keep, trade, or return) at the end of the contract.

Introduced in the late 90s, Personal Contract Purchase has become one of the most chosen methods for leasing a vehicle. Built upon a traditional Hire Purchase (HP) agreement, the biggest difference between both finance options is the value of the vehicle, which is decided at the start of the initial contract and then deferred until the end.

This value, also known as the Guaranteed Minimum Future Value (GMFV), is determined by a list of criteria: such as the starting mileage, an annual mileage limit as projected by the user, and the car’s age.

It’s important to remember that unless you choose to pay this GMFV at the end of your finance deal – the car is not yours.

PCP car finance works as a form of leasing, so making any changes or exceeding the limits outlined in your contract may have financial repercussions.

At the start of a PCP finance agreement, you will be expected to pay a starting deposit. This is normally a figure between 10 to 30% as standard, before starting to pay off your balance in fixed monthly payments over a pre-agreed period of time.

What happens to my car on a PCP finance agreement and what are the risks?

At 24 to 48 months into your payment period, customers have three choices available.

You might decide to hand the car back after your payment period ends and walk away with nothing more to pay. It’s important to note that the car must still be in excellent condition and within the agreed mileage limit – otherwise, you could face further penalties, such as excess mileage charges. If essential maintenance has been neglected, you could also be responsible for the cost of repairs.

But if you are keen to keep the keys, all you have to do is pay off the remaining GMFV and drive away — the vehicle is now yours. However, if you want to change your vehicle, you can simply part-exchange your existing vehicle.

As with all products within the industry, it is still important to be mindful when taking out a Personal Contract Purchase (PCP) finance agreement.

Despite its obvious benefits in terms of flexibility and lower rates, there can be some situations where a PCP agreement might become more expensive in the long run when compared to a Hire Purchase plan.

Opting for a smaller deposit at the beginning of your agreement might seem like a sensible choice, but it can also cause issues should you exceed the limits.

Financial penalties such as excess mileage charges will not only hit your wallet; they are also liable to put you at risk of negative equity too, which is a frequent mistake made by people navigating this part of their finance journey.

At Magnitude Finance, we’re here to help. Our experienced and discerning financial experts will be able to offer you tailored advice and offer support on car finance options where needed, ensuring that everything is handled to the very best standards.

You can find out more about PCP finance by heading over to our Car Finance Academy. Compiled by our team of in-house experts, this comprehensive guide is your one-stop roadmap when it comes to the world of car finance.

How can Magnitude Finance help you with your bespoke Personal Contract Purchase package?

Whether you have a set goal for your car in the future or simply wish to find out more about the car finance options available to you, we’re on hand whenever and wherever you need us.

Our customers trust Magnitude Finance to obtain the very best finance solutions.

We know your time is precious, which is why clients old and new can always get in touch with our team of dedicated car finance experts. From face-to-face meetings to easily accessible quotes from our industry-leading calculators, simple online contact forms, or a good old-fashioned phone call, we pride ourselves on providing a cohesive, convenient service.

As well as being fiercely independent, we’re proud of the proven track record we have in helping clients get behind the wheel of their dream cars. A large number of our team are self-confessed petrol heads, who love nothing more than rising to the challenge of tailoring the ultimate bespoke PCP finance packages for all our clients.

With decades of experience in car finance, we know how stressful and time-consuming the financing process can be. That’s why our finance specialists handle the research, negotiation and sourcing – so you can spend your valuable time on what matters.

When it comes to the end of your PCP finance deal, we can also offer further assistance should you wish to continue your journey with us. From refinancing to choosing another finance product, we can fuel the funding for whichever powerful purchase comes next.