The Benefits PCP is one of the best ways to purchase a new or used car today, it allows customers to purchase a car of their choice at a very attractive fixed monthly finance payment, with the benefit of a low initial deposit outlay and a Guaranteed Minimum Future Value (GMFV) at the end of the agreement. Personal Contract Purchase provides the benefits of driving a higher specification vehicle for a lower monthly payment. Unlike the traditional car purchase plan, this is achieved by deferring a percentage of the total cost of the vehicle until the end of the contract which is known as the GMFV, then at the end of the agreement the customer has three options:
Option 1 - If you think the vehicle is worth less than the GMFV you can simply return it to the finance company. As long as the vehicle is in good condition and has not exceeded the agreed mileage, you have nothing more to pay. The finance company Guaranteed this future value and they will absorb the loss.
Option 2 - If you want to keep the vehicle, you simply pay off the outstanding GMFV to the finance company.
Option 3 - Thirdly, you can part exchange the vehicle with a motor dealer for your next new vehicle. If the trade-in value is greater than the GMFV, this sum can be used towards a deposit on the new agreement. Alternatively, you can sell the vehicle privately and keep any profit over and above the GMFV.
Excess Mileage - At the beginning of the agreement, you decide on the total mileage for the contract period and if you decide to hand your vehicle back to the finance company and your mileage exceeds the agreed mileage, you simply pay a fixed amount for every extra mile.
Wear & Tear - It is in your interest to minimize the vehicle's 'wear and tear' and not exceed the agreed mileage. When the agreement has finished, the vehicle may well be worth more than the GMFV, providing you with extra value. In simple terms 'normal wear and tear' means that for its age and mileage, the vehicle is in fair working order, condition and repair. A detailed guide will be provided to you by the finance company at the start of your agreement.
Conditional Sale (CS) is very similar to borrowing a sum of money from a bank and paying it back over a fixed period of time, with interest. Conditional Sale is a type of secured loan which are often preferred over alternative (unsecured) loans because they allow a greater borrowing limit. The term "secured loan" means exactly that, a loan that the lender can secure against an asset (in this case, the vehicle). CS gives you additional rights over those of a personal loan and is only available through dealers that have passed the stringent approval process of the finance companies.
Contract Hire and Leasing is basically a long-term rental agreement and can include service and maintenance, breakdown cover and a replacement vehicle and in most cases, includes the road fund licence for the duration. Your monthly payments will be subject to VAT though as its a rental product, if you are a VAT registered business you can reclaim this back from HMRC on your VAT return (100% for commercial vehicles and 50% for cars).
The monthly rental is calculated from the length of contract and the estimated miles driven. At the end of the period the vehicle is returned to the contract hire company as the leasing company always owns the vehicle. It is treated as "off balance sheet funding" in a company's accounts.
This is a completely risk free package for our customers and almost always works out cheaper than outright purchase of a vehicle. This is due to the extra discounts and support received from manufacturers, which are passed on to the hirer in the monthly rental.