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How does Personal Contract Purchase (PCP) work?

Personal Contract Purchase explained

What is PCP?

Personal Contract Purchase, also known as PCP, is a vehicle finance arrangement where you will usually pay an initial deposit followed by monthly instalments. Once your agreed contract term has finished you will stop paying monthly instalments and you will have the option of buying the car if you want to.

PCP can be broken down into three main parts:

1. The deposit. At Wilsons, our PCP deals do not have a minimum deposit amount, but you can choose to put down a deposit of any size which would mean you'll have to borrow less.

2. The amount you borrow. This is determined by how much the finance company predicts the car will depreciate in value over the term of the deal minus the deposit you've put down. You will pay this amount off during your deal's term plus interest, so you're not paying off the full value of the car.

3. The balloon payment. If you want to keep the car, you will have to pay the amount often referred to as the Guaranteed Minimum Future Value) This is how much the car is expected to be worth after your finance deal ends and is agreed at the start of your deal. You do not have to pay this, but it is the sum you do have to pay if you want to keep the car.

With any PCP agreement that you take out with Wilsons, you must have fully comprehensive insurance. At the beginning of the contract, our helpful team will help you to choose a deposit to suit your budget, the length of your payment plan which is between 24 and 48 months and the estimated mileage you are likely to incur. We understand that everyone has different needs and we offer flexible finance packages to suit you.

Couple signed a personal contract purchase deal

PCP Explained

At the beginning of your PCP contract, a GMFV is estimated for the car. This is the car's expected value when your contract ends. This simply means that the money you're actually borrowing and repaying is the difference between what the car is currently worth and what the car will be worth at the end of your contract. This difference will be paid off in monthly instalments.​

To fully explain how PCP works let's imagine that you sign up for a PCP deal over three years to buy a car worth £18,000. You put a deposit of £2,000 down and the finance company estimates that the car will be worth at least £8,000 after the three years. The PCP deal would look like this:

To 'borrow' the car you pay:

Deposit: £2,000

Loan: £8,000 (£10,000 - £2,000) plus interest


Total: £10,000 plus interest

To buy the car you pay:

​Deposit: £2,000

Loan: £8,000 (£10,000 - £2,000) plus interest

Balloon payment: £8,000

​Total: £18,000 plus interest

What happens once the PCP deal has finished?

Once you have come to the end of your monthly payments you will have three options:

1. Buy the car by paying the balloon payment. The balloon payment will be the GMFV agreed at the beginning of the deal. If you decide to pay this then you will own the car outright.

2. Hand the car back and walk away. The finance company has already predicted the GMFV, so handing the car back will settle the deal. This means that you have nothing more to pay, subject to any additional charges (see below for more information).

3. Get a new car. Part exchange the car subject to settlement of your existing finance agreement and start a new deal on a new car which is subject to status.

What charges could I face if I decide not to buy the car?

You could face charges if you decide to hand the car back, whether that is part exchanging it, or just handing it back and walking away:

Over-mileage charges - When agreeing a PCP deal, at the start you will specify how far the car will be driven each year so that the car's worth can be assessed at the end of the deal to set the balloon payment. ​A car that has done tens of thousands of miles will be worth a lot less than a car that has been used more infrequently. It is important to be as accurate as possible because if you exceed the agreed mileage limit you will be subject to a charge of 7p-10p for every mile that you are over. Although this sounds negligible, 1,000 miles over is equivalent to £100 at 10p a mile at the end of the deal. 

​Damage charges​ - Similar to when you rent a car, the finance company will check it for any damages when you go to hand it back. While normal wear and tear is acceptable, the car needs to be in a sale-able condition. This means that you will likely be asked to pay to put right any large scratches or dinks in the bodywork.

Personal Contract Purchase Pros

1. You're able to afford a new car for a lower fixed monthly payment than a personal loan or Hire Purchase

2. Guaranteed future value eliminates risk of negative equity and protects against depreciation

3. Flexible options at the end of the agreement to fit in with your personal circumstances

4. You could be able to drive a more expensive car than you might otherwise be able to afford

Personal Contract Purchase Cons

1. You won't own the car during the contract period and it is at risk of reposession if you do not maintain your contractual payments

2. You will only own the car at the end of the agreement if you pay the balloon payment

3. Additional charges if you go over the agreed set mileage

4. The future value is based on keeping the car in good condition and you will be charged extra for any damages deemed not normal wear and tear

How To Find Out More

Please get in touch with Wilsons to select a new vehicle and to learn more about the PCP options available at our dealership. As PCP agreements can only be chosen from dealers, and aren't on price comparison websites, you won't find these offers anywhere else.

Call 01372 736 000 for more information about Personal Contract Purchase

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