Personal Contract Purchase (PCP) Explained

What is Personal Contract Purchase?

A Personal Contract Purchase (PCP) is a loan secured against the vehicle, where repayments are based on part of the value of the vehicle.

The finance company guarantees the minimum the vehicle will be worth at the end of the agreement known as the Guaranteed Minimum Future Value (GMFV) or Optional Final Payment (OFP). This is offset until the end of the agreement. PCP's can run from 2 to 4 years and repayments are determined by the size of the deposit, how many miles the customer intends to do and the length of the agreement.

Summary

Initial Payment / Deposit
You may be asked to pay an initial payment / deposit
Fees
An arrangement fee charged by the lender that can be paid at the start of the agreement or spread over the term of the agreement. There is also an Option to Purchase Fee to pay if you want to keep the vehicle at the end of the agreement.
Restrictions
The vehicle must be kept in good condition and serviced and maintained according to vehicle manufacturer's recommendations. Mileage restrictions may also apply. There may be excess mileage charges.
Ending the Agreement
At the end of the PCP agreement you have three options:
Hand it back:
If it is worth less than the GMFV, you can return the car and walk away – subject to mileage and condition.
Pay it off or refinance:
You can pay the GMFV (plus any Option to Purchase fee) and keep the vehicle. You will become the legal owner.
Part exchange or sell:
If the part-exchange value is greater than the GMFV, it can be used as a deposit for the next finance agreement or 'cash-back'. You could sell the vehicle privately once legal title is gained and settle the GMFV.

Advantages of Personal Contract Purchase

  • You don't need to worry about the future trade-in or resale value of the car, as the lender guarantees your car will be worth a minimum sum at the end of the deal.
  • It's flexible. You have several options at the end of it - you can even buy the car if you like.
  • Most cars are covered under manufactures warranty (please note this may expire before the end of the contract), as PCP deals are usually only offered on new or nearly-new cars.

Disadvantages of Personal Contract Purchase

  • You will only own the car at the end of the contract agreement if you pay off the GMFV/OFP.
  • If the predicted GMFV/OFP is set very close to the actual value of the car you will have little equity to roll onto another deal.
  • Extra charges of 6-20p per mile if you go over the agreed set mileage.
  • The GMFV/OFP is based on keeping the car in a good condition. You will be charged extra to put right anything that’s not down to normal wear and tear.

Jigsaw Finance Limited and associated trading styles is a Credit Broker not a lender and is authorised and regulated by the Financial Conduct Authority (FRN 679612). We work with a limited panel of lenders, who may offer different interest rates and charges. We are only able to offer finance products from these providers. Our lender selection process is structured to balance lender efficiencies with customer approval rates. We operate on a non-advised basis, meaning we do not provide financial advice or make recommendations. Instead, we explain key features of available finance products, and you decide whether the product is suitable for you.

We do not charge you a fee for our service; instead we receive a commission payment from lenders for arranging finance on your behalf. The commission we receive may vary depending on the lender and product. The commission we receive from the lender and pay to the introducer impacts the amount you pay.

As a credit broker with a limited panel of preferred credit providers from whom we receive commission, Jigsaw is not impartial and we may be influenced by the amount of commission we earn. Although we receive commission from lenders, we aim to provide finance solutions that meet our customers' needs.

The amount earned by Jigsaw and the motor retailer including how it has been calculated will be disclosed prior to signing your agreement. Full details of this can be found in our Initial Disclosure Document.

If you have any questions about how we are paid or how we select lenders, please ask before proceeding.