How does a PCP (Personal Contract Purchase) work when buying a car?
Personal Contract Purchase (PCP) is a way of financing the purchase of a car, with repayments covering the amount of money that the vehicle is expected to lose over the length of the agreement (usually three years).
Around 80% of new cars are now bought using PCPs, because they offer fixed, low, monthly payments and a number of options at the end of the agreement. Buyers can merely hand the vehicle back with nothing else to pay. Alternatively, they can buy the car outright with a one-off payment (called a balloon payment).
A popular option, though, is to sell or part-exchange their PCP car: the vehicle is often worth more than the final payment, so trading it in or selling it raises enough money to settle the finance agreement with some money left over – which can be put towards the deposit on the next car.