A Personal Contract Purchase Agreement Is

PCP always defers part of the cost of capital in the form of a balloon payment (which is more than a single monthly payment) at the end of the agreement. This amount is set by the financial company before the debitor concludes the agreement. The payment of the balloon due under a PCP agreement is called a “guaranteed minimum value for the future” (GMFV) or optional final payment (OFP). Another determining factor in the amount you pay each month is your annual mileage allowance. At the beginning of your contract, you will decide how many miles you travel each year. The average is about 10,000 miles, but it may be higher or lower as needed. The lower the mileage, the less you pay monthly and vice versa. Because the more miles you travel, the more the value falls from the car. In a PCP agreement, you only pay for the depreciation of the car for the duration of the rental.

Make sure you stay within your mile limit. A fee is charged if you exceed your limit. Be especially careful not to damage it, as you may be charged at the end of the contract. If you think you can go beyond the allowed mileage, it may be worth getting a deal with more mileage. Leasing (HP) also requires a first down payment and monthly repayments, but at the end of the fixed term, ownership of the car automatically transfers to the borrower without the need to pay a balloon. With Personal Contract Purchase (PCP), you can purchase your vehicle with a down payment, monthly payments and, if you want to own the vehicle at the end, a hot air balloon payment (also known as guaranteed future value). Since you only have to pay for part of the car after the end of the contract, you get additional flexibility. Much like conditional selling, the PCP is a simple agreement if you are looking for easy-to-honour payments and a short-term agreement. PCP allows you to budget effectively with multiple options at the end of your contract. This allows for flexibility, especially if you are not sure what you want to do with your vehicle at the end of your contract, or if you are asking for monthly payments lower than a standard lease-sale. Before you sign up for a PCP agreement, you must go through a credit assessment that consists of two factors.

First of all, the affordability of PCP payments over the life of the contract is based on your finances – think about how difficult it is for you to maintain your repayments. The second is credit risk, which is the probability that you will not restock your PCP credit from the loan company. At the end of the agreement, you have three options to choose what you can do with your car. PCP agreements offer great flexibility that allows you to own the car by making a balloon payment. You can return the car at no extra cost or you can exchange it for an upgrade. You could better pay a billing figure to the financial company, which would be a last major payment to terminate the agreement. You can then keep or sell the car. Renting, or HP, is often an easier solution if you want to buy a car directly, because the total cost of the car is divided between the deposit and the monthly payment series.

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