A Personal Contract Purchase (PCP) plan is an alternative to Hire Purchase and can offer a lower monthly repayments. This is achieved is by deferring an amount of the total cost of the vehicle to the end of the contract. This amount is known as the Guaranteed Minimum Future Value or GMFV.
The Guaranteed Minimum Future Value plus your deposit is subtracted from the cash price of the vehicle and your monthly payments are based on the balance (plus interest on the balance and the GMFV).
By only repaying the difference between the cash price and the optional balloon payment you are only effectively financing the depreciation of the vehicle.
At the end of the contract you have the following 3 options
Return the vehicle to the finance company and if you have not exceeded the agreed mileage, there is nothing more to pay.
You may keep the vehicle and simply pay off or refinance the outstanding Guaranteed Minimum Future Value [GMFV] payment.
You can part-exchange your vehicle and if the trade-in value is greater than the GMFV, the difference is yours to keep.
Lease Purchase Payment Plan is a similar structure to PCP as it too defers a lump sum to the end of the agreement. The deferred lump sum is a percentage of the total cost of the vehicle and this amount is calculated at the start of the agreement, this amount is known as the Residual Value (RV).
It is the customers responsibility to settle the final payment either though additional finance, cash or settlement by part-exchange.
The Lease Purchase Payment Plan has no tie to a mileage contract. Repayment periods are typically taken over 2, 3 or 4 years and settlement can be made at any stage of the agreement, which some people prefer as it offers more flexibility.
We would recommend that you select a realistic Residual Value for the vehicle you intend to purchase to give some equity. At the end of the agreement you have three options:
