PCP versus HP Agreements

That's right!

A PCP is a purchase agreement like Hire Purchase. However, under a PCP, for the customer to own the vehicle at the end of the agreement they must make a balloon payment, the value of which is fixed or guaranteed by the finance company when the agreement is made.

A PCP balloon payment is therefore referred to as the Guaranteed Minimum Future Value (GMFV) or 'optional final payment' and is based on the value the finance company predicts the vehicle to be at the end of the agreement.

Unlike Hire Purchase a PCP offers the customer the option to own, hand back or trade the vehicle in for another at the end of the agreement.

Not quite

A Personal Contract Purchase is in essence a purchase agreement. However, a predicted minimum future value (balloon payment) is offset until the end of the agreement - this is called a Guaranteed Minimum Future Value (GMFV). This is set and guaranteed by the manufacturer or finance company and allows the customer to know the least amount the guarantee will be worth at a point in the future.