What are the benefits of PCP (Personal Contract Purchase)?

What are the benefits of PCP (Personal Contract Purchase)?

PCP is very similar to car leasing. However you have the right to buy the car at the end of the finance period (which is typically 2, 3 or 4 years) for a price that you agreed with the finance company when you obtained the car. The advantages of PCP are similar to car leasing and they are:

  1. Lower, Fixed Monthly Payments - You only pay for the 2, 3 or 4 years that you use the car (i.e. not the entire cost of the car), so your monthly payments are often much lower than other finance options for the same car and same term.
  2. More Car, More Often – With lower monthly payments, you can afford a better car for the same money and keep swapping for a new one at the end of your finance period, every 2, 3, 4 or 5 years.
  3. Fewer Maintenance Headaches  If you are smart with your timings, you can always be the driver of a car which is under warranty.  To do this, you need the finance period of your car to end at the same time as the manufacturer’s warranty.  When the period ends, you swap to a brand new car, taken with a PCP agreement, with a new warranty and the cycle starts again.
  4. Lower Upfront Cash Outlay - Depending on your credit rating, PCP requires a smaller deposit than car loans, which frees up your cash for other things. For people with a good credit rating this is 3 months payment upfront.
  5. Lower VAT Charge - Instead of paying VAT on the entire cost of the car (e.g. £2,000 on top of a £10,000 car) you only pay VAT on the portion of the car that you will use. For example, if the period is 3 years you will only pay VAT on the value of the car for those three years  so if a car costs £10,000 and the value of the car over 3 years (36 months) is £4,000, then you will only pay 20% of £4,000 = £800.  This is then spread over the 36 months instead of £2,000 upfront.
  6. No Used-Car Hassles - PCP removes the headache of part exchange when you want a new car. When your PCP period ends, you can simply return the old vehicle to the finance company and walk away.   Alternatively, you can choose to pay the final Guaranteed Future Value, and retain the vehicle.

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