Personal Contract Purchase (PCP)
Description
A Personal Contract Plan is a method of obtaining goods e.g. a car, motorcycle or van through a pre-agreed fixed term finance agreement with part of the cost deferred until the end of the agreement which may give the benefit of lower monthly repayments or a shorter period of repayment. Once all of the repayments, including the deferred payment and any fees, are paid the goods become your property.
Instead of purchasing the vehicle over equal monthly instalments an Optional Final Payment, sometimes called Guaranteed Future Value, is deferred until the end of the term. Meaning that you are paying the difference between the vehicle's sale value and its minimum worth at the end of the period. The final payment is calculated based upon your driving requirements and annual mileage.
Your repayments are based upon the price of your vehicle less any deposit and the Optional Final Payment, plus interest charges and any fees.
It is important to note that due to market conditions your vehicle may not be worth more than the Optional Final Payment at the end of the agreement, thus affecting the deposit available to purchase your next vehicle and subsequent monthly repayments. Therefore, it is imperative that you ensure that you accurately predict your mileage over the term, as any additional mileage is subject to an excess mileage charge.
Your options at the end of the agreement:
Renew – you can part exchange your vehicle at a dealership and start over again. If the vehicle is worth more than the Final Optional Payment, you can use the difference as a deposit.
Retain Ownership – You may prefer to keep the vehicle, to do this you are required to pay the Optional Final Payment in full. Some finance providers will allow this value to be refinanced at the prevailing interest rate.
Return – If your needs or requirements have changed you can hand the car back to the dealer with nothing more to pay. (subject to mileage and condition. Excess mileage charges may apply)
Benefits
- Fixed regular payments
- You have the option of ownership of the vehicle at the end of the agreement
- Variable deposits and periods available, usually between 2 and 3 years
- Once you have paid a half of the total amount payable you are able to exercise your legal rights and voluntary terminate the finance agreement by handing the vehicle back to the finance company (maybe subject to fair wear and tear)
- Satisfactory quality rights under the Consumer Credit Act are provided, meaning the credit provider may be liable for putting things right providing the cash price was less than £30,000
- The ability to repay additional amounts in-to the agreement and have the interest recalculated, meaning that you could lower your monthly repayment amount
Risks
- A significant proportion of the credit is deferred until the end of the period which will need repaying should you decide to own the vehicle
- The interest on the final payment is calculated differently to the body of the credit as no capital is reducing
- The vehicles resale value may not be worth more than the final payment, meaning that your deposit may be reduced for your next vehicle. Therefore, you should be prepared for higher repayments
- A ‘Fair Wear & Tear’ clause will apply if the vehicle is returned at the end of the agreement and may apply in the event of Voluntary Termination
- You do not own the vehicle outright until the final payment is made
- Your vehicle is at risk of repossession if you do not maintain the contractual repayments
- Agreed mileage limits are imposed at inception
- Excess mileage charges apply
- You must maintain fully comprehensive insurance throughout the term of the agreement
- You must not sub lease or rent the vehicle to a third party
- There may be restrictions on usage of the vehicle during the term of the agreement
- Charges may apply for late payments or to alter the repayment date (these are detailed in the SECCI)
- Any outstanding finance must be settled if the goods are sold
Hire Purchase
Hire Purchase/Conditional Sale is a method of obtaining goods e.g. a car, motorcycle or van. You pay for the use of those goods over a pre- agreed period and at the end of that period, once an Option to Purchase Fee has been paid, the goods become your property.
Hire Purchase/Conditional Sale enables you to simply choose how much deposit you wish to pay upfront, including any part exchange and the period in which you wish to repay the balance, typically up to 5 years.
The deposit is paid on delivery of your new vehicle, leaving the balance plus interest to be paid over the agreed period in equal monthly instalments. At the end of the agreement, subject to a nominal option to purchase fee, you take outright ownership of the vehicle.
Interest is calculated at the start and is added to the amount that you wish to fund, therefore it is fixed for the length of the agreement. This means that the amount you pay is unaffected by any future changes in interest rates, allowing you confidence that your payments will not alter.
Benefits
- Fixed regular payments
- You are the ‘registered keeper’ of the vehicle with ownership of the vehicle transferred to you at the end of the agreement once the option to purchase fee has been paid (not applicable for Conditional Sale Agreement)
- Variable deposits and periods available, usually in monthly increments from 12 to 60
- Once you have paid a half of the total amount payable you are able to exercise your legal rights and voluntary terminate the finance agreement by handing the vehicle back to the finance company (may be subject to fair wear and tear)
- Satisfactory quality rights under the Consumer Credit Act are provided, meaning the credit provider may be liable for putting things right providing the cash price was less than £30,000
- The ability to repay additional amounts into agreement and have the interest recalculated, meaning that you could either lower your monthly repayment amount of shorten the term
Risks
- A ‘Fair Wear & Tear’ clause may apply in the event of Voluntary Termination
- You do not own the vehicle outright until the final payment is made
- Your vehicle is at risk of repossession if you do not maintain the contractual repayments
- You must maintain fully comprehensive insurance throughout the term of the agreement
- You must not sub lease or rent the vehicle to a third party
- Charges may apply for late payments or to alter the repayment date (these are detailed in the SECCI)
- Any outstanding finance must be settled if the goods are sold
Purchase
Lease Purchase is a method of obtaining goods e.g. a car, motorcycle or van, you pay for the use of those goods over a pre-agreed period and at the end of that period, the goods become your property.
You benefit from vehicle usage, whilst the finance company retains ownership until the last payment.
The advance rentals are paid on delivery of the vehicle, leaving the balance plus interest and any fees to be paid over the agreed period. Title passes when the final payment is made.
Many lease purchase agreements offset a larger final payment, thus reducing the monthly repayments. However, unlike a Personal Contract Plan, this final payment must be paid.
For a business user the vehicle is treated as a cash purchase both for VAT and Business TAX purposes, thus allowing ‘Written Down Allowances’ of deprecation. Interest charges can be offset and taxable profits annually. Where applicable VAT is reclaimable.
Benefits
- Fixed regular payments
- Ownership of the vehicle at the end of the agreement
- Variable advance rentals and periods available, usually between 2 to 4 years
- Once you have paid a half of the total amount payable you are able to exercise your legal rights and voluntary terminate the finance agreement by handing the vehicle back to the finance company (maybe subject to fair wear and tear)
- Satisfactory quality rights under the Consumer Credit Act meaning the credit provider may be liable for putting things right providing the cash price was less than £30,000
- The ability to repay additional amounts in-to the agreement and have the interest recalculated, meaning that you could lower your monthly repayment amount
Risks
- A significant proportion of the credit is deferred until the end of the period which will need repaying
- The interest on the final payment is calculated differently to the body of the credit as no capital is reducing
- The vehicles resale value may not be worth more than the final payment, meaning that your deposit may be reduced for your next vehicle. Therefore, you should be prepared for higher repayments
- A ‘Fair Wear & Tear’ clause will apply if the vehicle is returned at the end of the agreement and may apply in the event of Voluntary Termination
- You do not own the vehicle outright until the final payment is made
- Your vehicle is at risk of repossession if you do not maintain the contractual repayments
- You must maintain fully comprehensive insurance throughout the term of the agreement
- You must not sub lease or rent the vehicle to a third party
- Charges may apply for late payments or to alter the repayment date (these are detailed in the SECCI)
- Any outstanding finance must be settled if the goods are sold