Personal Contract Purchase

Personal Contract Purchase is similar to a Hire Purchase agreement as you will usually pay an initial deposit, followed by monthly instalments.

What's different with Personal Contract Purchase is that your monthly instalments are only paying off the depreciation of the car, rather than the entire value of the car.

How does Personal Contract Purchase work?

At the start of your Personal Contract Purchase contract a Guaranteed Future Value (GFV) of the car is estimated. This is the cars expected value when your contract ends.

For you, this simply means that the money you are actually borrowing and repaying is the difference between what the car is worth now, and what it will be worth at the end of your contract (the depreciation). You'll pay this difference off in monthly instalments.

This means lower monthly payments for you, but you will need to pay a final payment at the end (the Guaranteed Future Value) if you want to buy the car.

Am I eligable?

Yes! Any individual over 18 with full UK licence is eligible for Personal Contract Hire (subject to credit checks).

What happens at the end of the contract?

Once your monthly payments are finished you will have three options:

1. Return the car to the manufacturer

This option will cost you nothing unless you've have exceeded the agreed mileage, not serviced the car as specified in your agreement, or damaged the car outside fair wear and tear standards - all of which will incur additional charges. If these do not apply, you simply hand the keys back. You will walk away with no capital though, as you will have effectively leased the car over the past three years.

2. Buy the car

The Guaranteed Future Value given when you took out your Personal Contract Purchase deal becomes the final balloon payment at the end of the term. Pay this and you become the legal owner of the car and it's your asset to do what you want with.

3. Trade the car for a new one

This is the option which manufacturers will be keen for you to take as they get repeat business.

Any equity in the car (e.g. the resale value being higher than its given Guaranteed Future Value) will be yours to use towards the deposit on a new Personal Contract Purchase deal. Be aware that the value could also go down - especially if you have gone over the specified mileage - which could leave you out of pocket.

Benefits

• Monthly payments on a car financed by Personal Contract Hire are usually lower than if your car is financed by a Hire Purchase agreement.
• If you decide not to buy the car, you can simply walk away when you have finished your monthly payments.
• Similar to Personal Contract Hire, you can drive away a brand new car every three years without worrying about it running out of warranty, or selling it on.
• If your car is worth more than the Guaranteed Future Value then you can use that equity towards a deposit on a new car.

Considerations

• If you want to buy the car you will need to pay your final balloon payment (the Guaranteed Future Value).
• Similar to Personal Contract Hire, you will need to agree on an approximate mileage estimate at the beginning of your contract.

Please note: The above information is for guidance purposes only. As a responsible lender Associated Credits Limited recommends prior to entering into any form of legal contract companies and individuals seek the guidance of an accountant or suitably qualified independent professional advisor.