Lakeland Fleet Management

PCP Car Finance Explained

This page explains how PCP car financing works and will help you decide on its suitability for you.

Love blue BMW? Personal Contract Purchase - PCP-Finance could be the way to get it.

Personal Contract Purchase (PCP) is a type of vehicle finance agreement for personal customers looking to fund a new or used vehicle in a manageable way. These plans are set up as fixed term and fixed mileage based agreements which give you the option to purchase the vehicle at the end of the term.

When car leasing by personal contract purchase, you will pay an initial payment followed by an agreed number of fixed monthly payments. This is optionally followed by a final payment known as a GMEV (Guaranteed Minimum End Value). Previously this was known as the GFV (Guaranteed Future Value).

This optional final payment is set at the start of the agreement and is based on anticipated value of the vehicle taking into account its age and mileage. When you reach this point, you have the option to pay the GMEV and obtain ownership of the vehicle or return the vehicle to the finance company.

Disadvantages of PCP Car Finance

Personal Contract Purchase may not be suitable for you in certain circumstances, for example:

  • You will have to make a decision at the end of the contract as to whether you wish to sell the vehicle, return it or keep it – this is often seen as an advantage to most people.
  • You must have fully comprehensive vehicle insurance
  • Could prove expensive if your annual mileage is difficult to predict.
  • There are business type restrictions, e.g. vehicles to be used as Taxis or for Driving Schools.
  • If you plan to export the vehicle or use abroad for extended periods this can make the arrangement uneconomical.
  • Road tax is only included for the first year

Benefits of Private PCP Car Finance

A personal car finance pcp type of lease deal is a cash flow friendly way to buy a car

  • Low initial payment.
  • Fixed monthly payments.
  • You may be able to refinance the balloon payment.
  • No depreciation concerns if you wish to walk away at the end.
  • For peace of mind motoring optional maintenance plans are available, for an additional fixed monthly fee.
  • Fixed balloon or guaranteed future value to purchase payment when you first take out the contract.
  • Option to simply return the vehicle at the end of agreement, removing concerns about disposal values and depreciation .
  • Cost effective.
  • Can be used to finance new or used vehicles.
  • Ability to own the vehicle by making all payments due under the contract or by early settlement.
  • Pay the end value and keep the vehicle.
  • Your contract will be regulated by the Consumer Credit Act 1974.

PCP Car Leasing & Taking Care Of The Vehicle

When you lease a car under a PCP deal, you must ensure that the vehicle is always comprehensively insured. You accept responsibility for any additional charges that you incur.

For example a parking fine or congestion charge will have to be paid on time by you. If you don’t carry out that duty, the cost and/or fine will be issued to the finance company. They will invoice this to you together with an administration charge that they will levy.

It is your responsibility to have the vehicle serviced and maintained by a main franchised dealer in accordance with the manufacturer’s recommendations. Part of the agreement is that you will keep it roadworthy and in good condition. If you do not service and maintain the vehicle, the funder will make a charge when the vehicle is returned as this will affect its value.

You may add a cost-effective maintenance package to the basic cost of personal contract purchase car leasing. This will cover routine servicing, maintenance costs and tyres, subject to fair wear and tear. Most will add breakdown assistance to enable easy budgeting and give you fixed cost motoring. If you include a maintenance package please note the funder may decline to settle any charges if the total mileage on the agreement is exceeded.

At the end of the agreement you can return the vehicle to the finance company. The vehicle condition will be assessed based on standards set by the British Vehicle Rental and Leasing Association’s fair wear and tear guide. Refurbishment charges may apply if the condition is not satisfactory.

If at the end of the agreement you return the vehicle to the finance company and have exceeded the total contract mileage you will be charged at the pence per mile as detailed in your agreement for the over mileage.

At the end of the agreement, which will commonly be over 48 months, you can choose to return the vehicle to the finance company. It must have all items that were present when it was delivered to you. All keys, the locking wheelnuts and anything that was on the original inventory have to be present. If any items are missing, you will be charged for the replacement.

Failure to make payments in full and on time may result in the contract being terminated and the vehicle being repossesed. Only enter in to an agreement if you are comfortable with the total amount of the financial commitment and the terms including any credit checks that the finance company may make.. are authorised and regulated by the Financial Conduct Authority in the UK.