smart Private Individual Finance

Personal Contract Purchase

Pros

• Monthly payments tend to be lower than if you chose a Hire Purchase agreement.
• You can drive away in a new or used vehicle every couple of year, without having to sell it on.
• If you don’t want to buy the car at the end of the agreement, you can simply walk away.
• When your agreement comes to an end, if the vehicle is worth more than the GFMV you can use the equity towards a deposit for a brand-new car.

Things to be aware of

• Insuring and maintaining the vehicle is your responsibility.
• All finance must be settled before you can sell the car.
• You must make all of the repayments before you can officially own the vehicle.
• If you exceed the agreed mileage, you may incur excess charges.
• You must pay the GMFV of the car if you want to buy it.

Hire Purchase

Pros

• You don’t need to estimate your mileage at the beginning of the contact, so you’ll avoid any excess charges.
• Drive away in a brand-new vehicle that you might not be able to pay for outright.
• Once you have made your final monthly payment and the option to purchase fee, you will then have full ownership of the vehicle.

Things to be aware of

• You will be responsible for insuring the car and making sure that it is properly maintained.
• It has to be in your possession until the full value has been paid.
• You cannot sell the car until the finance has been settled.
• Monthly payments could be higher than other finance options because you are paying for the full value of the vehicle.

Personal Contract Hire

Pros

• Drive away in a brand-new vehicle on low monthly payments.
• You don’t need to worry about selling the car at the end of the agreement.
• All monthly payments are fixed and will never change.
• You won’t have to worry about the vehicle losing its value.

Things to be aware of

• If you return the vehicle damaged, then you may have to pay extra charges to cover the cost of repairs.
• You may have to pay an exit fee if you wish to end the agreement early.
• You will be charged excess mileage if you exceed your agreed limit.

How does PCP work?

The vehicle’s expected value at the end of your contract, which is known as the Guaranteed Minimum Future Value (GMFV), is set at the beginning of your agreement. It means that you will repay the depreciation – the difference between what the car is worth now and what it will be worth at the end of your contract.

Your monthly repayments will cover the cost of the vehicle depreciation and interest, which is calculated in the full value of the vehicle. This means you’ll have lower monthly repayments, but you will need to make a final payment (the Guaranteed Minimum Future Value) at the end of the contract if you want to keep the car.

Can you end PCP early?

You can usually settle your PCP deal early. However, you may be required to pay the negative equity – the difference between what your car is worth now and what you still owe.

If you choose to end your agreement early, you may find that your car is in fact worth more than the Guaranteed Minimum Future Value (GMFV). In this case, you may find that you’ll have some positive equity at the end of the contract. You can choose to put this towards the cost of your next vehicle.

What happens when PCP ends?

Once your PCP contract comes to an end, you will have three options:

• Buy the car – Pay the final balloon payment (the Guaranteed Minimum Future Value) and the car is yours.
• Give the car back – The Guaranteed Minimum Future Value of the car has already been set, so handing the car back will settle the costs.
• Part exchange for a brand-new vehicle of your choice.

How does HP work?

Hire Purchase enables you to put a deposit, which is usually 10% of the vehicle’s value, on a new or used vehicle of your choice. You then have to pay the rest of the car’s value over an agreed period of time in monthly instalments.

It can last from 12 to 60 months, or up to five years. At the end of the agreement when you have paid all of the instalments, the vehicle is officially yours to keep. So, if you wish to sell it on, you can.

The rates for Hire Purchase are generally very competitive. In order to get the lowest interest rates, you will need a good credit rating.

Can you end HP early?

It is possible to terminate a HP agreement early and return the vehicle, providing you have paid for at least half of the vehicle’s value. If you have only paid less than half of its value, you can make up the difference between what you have already paid off and half of its cost.

If you have paid more than half of the car’s cost, you won’t be entitled to a refund.

What happens when the finance ends?

Once you have made all of your monthly payments, you will gain full ownership of the vehicle. And, as the owner, you can choose to do what you want with it: keep it or sell it, it’s up to you. If you would like to sell the car and enter into a new finance agreement, the choice is yours.

There is no need for you to uphold any part of the contract once the financial agreement has ended.