Personal Contract Purchase (PCP) Finance is a popular and flexible way of financing a new car.
If you opt for a PCP finance plan, you pay a deposit and monthly instalments just as you would if you took out a loan however, these amounts are often smaller than other methods of finance. This is because the PCP deal requires a final sum or 'balloon payment' to be paid at the end of the agreement before the car becomes yours.
However, you don't necessarily have to pay the balloon payment in your PCP deal, as there are a number of options available to you. Once you've completed all the monthly payments (you'll have paid off approximately a third of the cost of the car) and you have three options.
PCP gives a lot of flexibility and it is more like leasing a car but with the option to own at the end.
When setting up a PCP deal the dealership will give you a 'Guaranteed Minimum Future Value' for the car. This is the minimum amount the car will be worth at the end of the agreement. A GMFV protects you should the car unexpectedly drop in value, or if the car is worth more you can use the equity as a deposit for your next PCP deal.
It puts you in the driving seat - purchase the car, part-exchange it or simply return it, the choice is all yours!
Manageable Monthly payments - perfect for budgeting
Guaranteed Value - the lender guarantees a minimum future value for your car
Tax breaks - If you're opting out of a company scheme, your cash alternative isn't subject to company car tax
VAT free - no VAT on payments.