Personal contract purchase (PCP)
When you buy a car with personal contract purchase (PCP) the finance provider still owns the car.
The agreement is normally over three years. At the start you agree a ‘guaranteed future value’ with the dealer, based on the car type and your estimated mileage. The repayments you make cover the drop in the value of the car over the duration of the PCP agreement.
For example, if a car is worth £20,000 and the dealership estimates it’ll be worth £15,000 in three years, the amount you’ll pay back in three years is £5,000 plus interest. If you were buying the same car outright, you’d probably pay the full £20,000 over something like five years. This means PCP can be a much cheaper way to drive a new car.
At the end of the three years, you can hand back the car and as long as you’ve not exceeded the mileage or damaged it, there’ll be nothing more to pay. Alternatively you could buy the car by paying the remaining amount owing.
You can’t sell a car on PCP because it doesn’t belong to you. If you fall behind with payments, the finance company can repossess it. You may be able to hand the car back early if you find you can’t afford payments, but you could still have something to pay if you do this.