With Personal Contract Purchase (PCP) agreements, you can borrow money for a car and repay it over time in manageable monthly instalments. You have three options with PCP agreements, return the car, trade it in for a different model, or pay the remaining balance in full to take ownership of the vehicle.

What to Be Aware of With PCP Agreements 

Purchasing a car through a PCP agreement allows you to borrow money to make the purchase. At the end of the agreement, you have the option to either return the car, upgrade or make one last payment (Optional Final Payment) to become the owner. 

You repay the money borrowed each month. Until the agreement to purchase expires and the “Optional Final Payment” is received, you will not be the owner of the vehicle.

Below is a breakdown of the steps involved in Personal Contract Purchase:

Deposit

The deposit, which is the sum you pay upfront at the beginning of the agreement, will establish how much you must borrow. The deposit might be anything from 0% to 35% of the car’s purchase price. Your monthly payments will be lower and you will need to borrow less money if you have a greater deposit.

Regular Payments

Throughout the term of your PCP agreement, your monthly payments will remain fixed and will be contingent upon the size of your deposit. The financier determines your car’s guaranteed future value (GFV), or how much it believes it will be worth at the end of the agreement, when you apply for a PCP loan arrangement. The amount you’ll need to pay to acquire the automobile at the conclusion of your financing arrangement is determined by the GFV.

Using your Cars

There will be guidelines about automobile usage in your PCP agreement that will assist you in avoiding additional fees. You can drive a certain number of kilometres during the life of your agreement based on these. At the beginning of your agreement, you will be informed of your mileage restriction.

Agreement’s Closure

You can choose to upgrade, return the vehicle, or pay the Optional Final Payment to take ownership of it at the conclusion of your PCP agreement. You can use the additional money if the car’s value exceeds the GFV to purchase a new vehicle.

Being Cautious about PCP Agreements

In the UK, auto financing is a huge industry. An astounding £51 billion in new financing was agreed upon in 2022 alone. Nevertheless, it is among the financial commodities that receive the most complaints too. Concerns have been voiced regarding the improper sale of PCP and whether or not purchasers are undergoing appropriate credit checks.

Undoubtedly, a lot of people claim they don’t understand how the arrangements operate, what happens if you can’t repay the loan, or what all of the fees are. For example, Upon completion of the transaction, additional fees may be imposed, such as excess mileage charges or subjective “damages”.

Furthermore, it is occasionally possible to get a “guaranteed” credit balance at the conclusion of the arrangement. This operates under the premise that the car’s estimated value at the conclusion of the financing term may decrease more than expected.

As a result, you would have accrued credit that you can use to pay the deposit on your subsequent financing arrangement. This is seldom the case in practice.

If you have an issue with your PCP auto loan, your first point of call is your credit broker or lender. Express your dissatisfaction and request that the matter be resolved. You should hear back from them in eight weeks.

You can file a complaint with the Financial Ombudsman if the vendor fails to resolve the issue or fails to respond. You can also contact an expert such as Johnson Law Group to help with a dispute.