This topic covered Personal Contract Purchases (PCP)

  • PCP is a very popular and flexible way of purchasing a vehicle.
  • Like a Hire Purchase agreement, title to the vehicle under a PCP agreement is kept by the lender until everything is paid off.
  • It allows the customer to know the ‘least amount' the car will be worth at the end of the agreement (the Guaranteed Minimum Future Value or GMFV).
  • It requires the customer to agree a mileage allowance based on their usage which affects the GMFV.  The higher the allowance is set to the more miles the customer is expected to drive, which serves to lower the GMFV and increase the size of the monthly payment.
  • If the vehicle is worth less than the GMFV at the end of the agreement (assuming it has been kept in good condition and hasn't exceeded the agreed mileage), the customer can simply hand the vehicle back with nothing more to pay.
  • PCP offers customers flexible options at the end of the agreement.
  • Agreements can be regulated, exempt or unregulated. This all depends on the type of customer and the amount borrowed.