Personal Contract Purchase

Also referred to as PCP, like the hire purchase scheme, you make regular payments, usually over a 3 or 4-year period.

However, a deposit is paid and at the end of the payment period the vehicle is given back, or you make a final, larger payment to keep the vehicle. This final payment is often referred to as a "balloon" payment or Guaranteed Minimum Future Value.

Advantages:

• Does not commit you to keeping a vehicle – you have the flexibility of deciding at the end of your payment period whether to retain your vehicle or not.
• Monthly payments will usually be lower than on other schemes as the largest payment is not due until the end of the agreement.
• Allows you to budget for your vehicle due to the fixed nature of the loan period and the loan payments.

Disadvantages:

• Monthly payments will accrue interest on the full amount of the agreement including the final lump sum (but not the initial deposit)
• If the vehicle is returned at the end of the agreement period, there may be extra charges for excessive mileage or damage to the vehicle
• If the vehicle is retained at the end of the agreement period, you will need to find the extra, larger payment sum (the balloon payment). This amount will be the calculated market value of the vehicle at that time, a figure that will be calculated and provided to you when you sign the agreement.