Q: Could you please explain what a PCP is? I have heard the term bandied about all over the place and am still unsure as to what it actually means. I am currently considering buying a new car and so it has become more relevant to me than ever. Michael Simms
A: Personal Contract Purchases (PCP) are like loans, but at the end of the deal you can part-ex the car, return it or make a final payment if you want to keep the car. PCPs are available from car manufacturers and some independent suppliers.
When you embark on a PCP, a figure will be put on the car’ likely value when the agreement ends. This is known as the Minimum Guaranteed Future Value, or MGFV, and is the amount you will have to pay to own the car at the end of the contract period. If you decide to begin a new PCP and your existing car beats its MGFV, you’ll be given the difference.
The lump sum at the end of the term means monthly payments are kept low compared to hire purchase finance, but the overall cost will be higher. A PCP will also often include maintenance and servicing so you won't have to budget for any nasty surprises.