Personal contract purchase (PCP) is a vehicle finance agreement available to individuals (i.e. not businesses). After an a initial deposit and a series of monthly payments which effectively cover the vehicle’s depreciation, this type of lease gives you the option to purchase the vehicle or return it to the finance company at the end of the agreement.
With PCP, the monthly finance payments are not subject to VAT, although if an optional service package is taken, VAT is payable on the service costs.
NB: Nationwide Vehicle Contracts are specialists in Contract Hire and Personal Contract Hire agreements. While Personal Contract Purchase agreements are no longer available with Nationwide Vehicle Contracts, it is important that you review the benefits and exclusions of every lease contract to better understand which agreement is best suited to your needs.
If you lease a car on a PCP basis, you will be required to pay an initial deposit, followed by a series of monthly payments for the duration of your agreement – 24 or 48 months, for example. These monthly payments effectively cover the vehicle’s depreciation. As such, when your agreement comes to an end, there is still an outstanding amount of money due to be paid – known as the balloon payment. You can either choose to pay this amount and own the vehicle, or not pay it and return the vehicle to the lease company.
At the start of your contract, an agreement will be made as to what the car will be worth at the end of the contract – the minimum guaranteed future value (or MGFV) – otherwise known as the balloon. The monthly payments are the cost of the vehicle after the MGFV and the value of your deposit have been deducted.
Personal contract purchase has a counterpart that is available for business customers: business contract purchase. To find out more about this, click here.
For a brief but clear overview of PCP and contract purchase, watch our video below.
It is worth noting that personal contract hire is often more popular and common than personal contract purchase. This is because they offer more flexibility at the end of contract term than a personal contract purchase agreement.
If you’ve got further questions about which type of lease contract is best for you, take a look at the information we’ve provided on each of the different contracts. Alternatively, give our team a call on 0345 811 9595.
At the end of the contract, you have three options:
You do not need to decide which option is best for you until towards the end of your leasing contract.