Personal Contract Purchase (PCP)

With Personal Contract Purchase (PCP), you pay a fixed monthly fee to obtain and drive a new car for a typical period of between two to four years. Legal ownership is retained by the finance company that provides you with your car until you come to the end of the contract period where you have two options - (i) purchase the vehicle for the price that you agreed with the finance company at the start of the contract, or, (ii) if you think the vehicle is worth less than the pre-agreed price, return it to the finance company.  See below for advantages and pitfalls of PCP, how flexible it is or compare PCP with hire purchase. 

Advantages of Personal Contract Purchase (PCP)

Depending on your priorities, paying monthly to obtain a new car using PCP could be more attractive than buying with a loan, using hire purchase or using a company car scheme because:

1. with personal contract purchase you can drive a new and often prestigious vehicle with a small upfront payment (typically 3 months) and most often it is significantly less each month (as much as 60%) than you would need to spend on a loan or ‘hire purchase’ (you get a ‘bigger bang for your buck’);
2. with PCP you are also exposed to less financial risk, as the contract that you sign is for a monthly payment across a lease contract term of 2, 3 or 4 years – not the cost of the entire car and the final purchase is optional;
3. there is a smaller initial deposit payment required than for Hire Purchase or a loan, normally equivalent to three months payments, followed by 35 more for a three year contract;
4. with PCP you don’t need to arrange or negotiate to sell your existing PCP car when you want a new car;
5. with PCP you can avoid paying excessive company car taxes by opting out of your company car scheme and taking a company car allowance. Then, you can combine this with the reclaimed mileage to fund your PCP monthly payments;
6. with PCP depreciation does not affect your investment in a car but rather the investment by the finance company from whom you are leasing.

The key difference and advantage of PCP over personal contract hire is that if you are considering retaining the car at the end of the contract for an extended period you will have a predictable final payment to fund this purchase.

Disadvantages of Personal Contract Purchase (PCP)

Depending on your preferences the potential pitfalls of PCP are:

1. the car is legally owned by the finance company and not you until the final payment is made so you may feel a lack of ‘ownership’ if that is important to you;
2. you will be limited to the annual mileage you choose upfront, over and above which you must consider excess mileage fees if you decide not to purchase the car at the end of the contract;
3. if you wish to cancel your contract and return the car then there is likely to be a penalty fee that will vary depending on your agreement;
4. you cannot modify the car without permission from the finance company and if you do so without permission you will face a penalty if you choose not to buy it at the end of the contract.

If you are considering PCP vs personal contract hire (PCH), the disadvantage of PCP is the higher monthly payments.