Personal Contract Purchase Explained

It used to be that the most common and popular way of acquiring a car was to purchase one outright and take ownership of the vehicle. In today’s current financial climate however, it’s much more beneficial to simply lease a car and make monthly payments. Out of all of the leasing options available – Personal Contract Purchase (PCP) is one of the most popular.

One of the most important steps in looking into PCP is to first acquire a quote. This can help you research the prices that you’ll have to pay as well as let you view the details of the contract you’ll be entering into. Points that are worth considering when negotiating your contract are:

– Contract length

– Annual mileage estimate

– Deposit value

– Finance amount

All of these factors contribute towards the interest rate that will be supplied by the finance provider. The finance provider will also estimate a guaranteed future value (GFV) – this GFV takes into account a variety of details that they can use to figure out how much the vehicle will eventually be worth. To do this the details they use include:

– Age of the car at end of term

– Depreciation

– Estimated annual mileage

If you’re satisfied with the PCP contract that you’re entering into then a small deposit is required, after that monthly payments are made. At the end of your contract there are two options for you to take. You can take ownership of the vehicle by making a lump sum payment (equivalent to the projected future value), or use the difference between the actual cars value and the GFV to actually acquire a new car.

PCP is an immensely beneficial deal and hopefully after reading this you feel a little more confident on the subject, as well as knowing if it’s the right option for you.

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