Personal Contract Purchase Schemes (PCP's)
A PCP is similar to a lease purchase in that it involves paying a monthly rental with a deferred payment at the end. However, the significant difference with this method is that the value of the car is guaranteed. Because of this final value guarantee you have the choice of whether to buy the car or not.
If the car is worth more than the guaranteed value, you can purchase the car at that value and keep it, sell it privately or trade it in and the profit can be used to fund another new car. Alternatively, if the car is worth less than the guaranteed value then you can simply hand it back and let somebody else worry about the loss. Therefore what ever happens to the future value of car this method provides you with protection and relieves you of the inconvenience of selling the car.
If you hand the car back you loose nothing because you only pay for the depreciation on the car, which you would pay if you purchased the car outright or on hire purchase. Very often the monthly rental for a PCP can be half that of a comparable Hire Purchase agreement. Therefore this method does allow you to upgrade the car or have a newer car than you could afford with other methods of finance.
The hardest part of buying a new car is selling your old car. Very often people are forced into accepting a trade-in on a car that they may not want simply to enable them to sell their old car.
Personal Contracts allow you to purchase vehicles for a lower monthly payment than equivalent Hire Purchase schemes. Personal Contracts allow you to choose whether to purchase the vehicle at the end of the contract; part exchange the vehicle; or return the vehicle with nothing more to repay.
PCP schemes are becoming more popular with people who wish to have a fixed cost motoring plan. They are also popular with company car drivers who wish to avoid the high income tax cost of a company provided car. These drivers can take advantage of the cash or allowance alternative and enjoy wider choice of car and in many cases getting a better car for the same cost.