Personal Contract Purchase, also known at PCP is one of the most used car finance contracts. It is a very well used way of car financing mainly because of its flexibility. It is also one of the cheaper ways to get a car. It suits the needs of many people, providing them terms that they find feasible. However, like any other contract, it has its downsides too.
How the contract works is that you deposit an initial payment at first. This is done after you finalise the deal and the vehicle you plan to buy. The PCP system is one which lets you own the car by the end of the contract. You have to pay the final price which was decided at the start of the contract to own the car. This price is decided at the beginning of the contract by estimating the car value of the future which is the time the contract ends. You also have the option to return the car to the dealer without owning it after the contract ends. Another option is for when the car value is more than what was predicted; then another PCP is adjusted.
There are some extra charges you might have to pay by the end of the contract. One of these is the mileage penalty. In the beginning, mileage is decided, and if you travel more than that mileage, you have to pay according to the per-kilometre rate. Similarly, if you stop paying the monthly instalments before you have paid at least half of the price, then there are charges for that too, which vary from lender to lender. You will also have to pay for any damage done to the car; any wear and tear is included in these charges.
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