PCP, or Personal Contract Purchase, is a type of car finance that allows you to spread the cost of a vehicle over a fixed term. With PCP, you make monthly payments covering the depreciation of the car’s value during the agreement. At the end of the term, you have three options: you can return the car, buy it outright by paying the Guaranteed Minimum Future Value (GMFV), or use any equity towards a new PCP agreement.
The monthly payment in a PCP finance agreement is determined by the initial deposit, the estimated depreciation of the vehicle over the term, and the Guaranteed Minimum Future Value (GMFV). The higher the deposit, the lower the monthly payments are likely to be. GMFV is essentially the predicted value of the car at the end of the contract, and your monthly payments cover the difference between the car’s initial value and its expected future value.
At the end of a PCP agreement, you have several options. You can choose to return the car to the finance company and walk away, provided the car meets certain mileage and condition criteria. Alternatively, you can opt to purchase the vehicle outright by paying the GMFV. If the car’s market value is higher than the GMFV, you may use the equity towards a new PCP agreement or receive a cash payment. Lastly, you can explore refinancing options or start a new PCP agreement with a different vehicle.
The choice of car finance depends on individual preferences, financial situations, and long-term plans. Each option has its own advantages and considerations, so it’s essential for buyers to thoroughly research and understand the terms of the finance agreement before making a decision.
If you are interested in purchasing a car through finance but you are unsure about costs, limits and options, speak to one of our friendly experts here at Enjoy Finance.