Structure

A Personal Contract Purchase (PCP) is a tripartite agreement similar to hire purchase.

PCP is one of the most popular forms of vehicle financing because it gives the customer flexibility at the end of the agreement and initially a lower monthly payment to alternative products like hire purchase. It is available to both private and business customers.

PCP is different from hire purchase because of its payment profile and structure. The customer's repayments are determined by the size of the deposit, the predicted mileage and the length of the agreement.

PCP always defers some of the capital costs to the end of the agreement in the form of a balloon payment (which is bigger than a single monthly instalment). This amount is set by the finance company before the customer enters into the agreement. The balloon payment due under a PCP agreement is known as a ‘Guaranteed Minimum Future Value' (GMFV) or Optional Final Payment (OFP).

The agreement can be regulated, exempt or unregulated under consumer credit regulation. This all depends on the type of customer, the amount borrowed and the purpose of the lending.