PCP or Lease Purchase - What's Best For Me?

Guide to PCP Car Finance

PERSONAL CONTRACT PURCHASE

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

Option 1

Return the vehicle to the finance company and if you have not exceeded the agreed mileage, there is nothing more to pay.

Option 2

You may keep the vehicle and simply pay off or refinance the outstanding Guaranteed Minimum Future Value [GMFV] payment.

Option 3

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

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).

However Lease Purchase is slightly different to PCP as it’s the customers responsibility to settle the final payment [RV] as there is no Guaranteed buy back at the end of the agreement. Customers can raise funds either with a cash settlement or settlement by part-exchange and this can be done at any time throughout the agreement period.

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 choose a realistic Residual Value for the vehicle you intend to purchase in order to generate some equity to be used as deposit on the next agreement. At the end of the agreement period you have three options:

f you want to keep the vehicle, you can simply pay off or refinance the outstanding balloon
You part exchange your vehicle with a motor dealer and if the trade-in value is greater than the RV, the difference can be used towards a deposit on the next agreement or vehicle purchase.
You can sell the vehicle privately and keep any profit over and above the RV.

Capital Car Finance Ltd are fully authorised and regulated by the Financial Conduct Authority for consumer credit activity (FCA Registration Number 685925) We are a credit broker and not a lender, which means we act independently as an intermediary for a number of different finance providers.

We will receive a commission payment from our finance provider should you decide to enter into an agreement with them, typically this is either a fixed fee or a fixed percentage of the amount you borrow. The payment we receive may vary between different finance providers and product types. However, the payment received does not impact the finance rate offered. Details of the amount of commission we receive will be provided for you prior to completion. All finance applications are subject to status, terms and conditions apply, UK residents only, 18’s or over, Guarantees may be required.

Registered in England & Wales 6041030 FCA Authorised [Full Permission] No. 685925 :: Data Protection DPA No. Z1023210 :: VAT Registration No 904 00 3481 :: Registered Office: 10 Alvaston Business Park, Middlewich Road, Nantwich, Cheshire, CW5 6PF, Telephone 01925 589020

This website and all its content are copyright of Capital Car Finance Limited © 2022. All rights reserved. Any unauthorised copying, duplication, or reproduction of part or all its contents in any form is prohibited and will constitute an infringe-ment of copyright. Phone calls may be recorded for training and monitoring purposes.