Personal Contract Purchase Finance Explained
PCP, or a Personal Contract Purchase is fast becoming one of the most popular ways of financing the new car of your choice, simply due to its flexibility. You choose the car, the deposit, how long you want the contract to run for and the mileage you intend to do and in return you get fixed cost motoring for the term of the contract. At the end of the contract you have a choice to either buy the car outright for an agreed lump sum (the GFV or final balloon payment), or hand the vehicle back to the lender and walk away with absolutely no further obligation.
When you take out a PCP (Personal Contract Purchase), the car that you have chosen will be given a guaranteed future value or GFV. This is a calculation made by the lenders that is set for the period of the contract. The GFV plus any deposit you have made will be deducted from the cash price of the new car and your monthly payments will be calculated based on the outstanding balance, plus interest on the balance and the GFV, meaning that in essence you are only financing the depreciation of the new car.
Below is a short video which explains how PCP finance works.