PERSONAL CONTRACT PURCHASE (PCP)

The first form of cheap car leasing we shall discuss is Personal Contract Purchase. If you are looking to lease a car with slightly more flexible end of term options then this may the car lease uk option for you. This is a method of leasing cars which allows a consumer (private individual, sole trader or partnership) to buy a car on deferred payment terms which allow a series of options at the end of the agreement. The arrangement is that the buyer agrees to buy the vehicle and to make payments over a period of time. At the end of the period the buyer has one of three options:

1. Make the payment and keep the vehicle. 
2. Hand back the vehicle and have no further obligation. 
3. Use the equity in the vehicle (difference between the amount still owed and the market value of the vehicle) as a deposit for another vehicle. 

A Key feature of Personal Contract Purchase as a form of car leasing is the Guaranteed Future Residual Value (GFRV) also known as the Guaranteed Minimum Future Value (GMFV) This simply means that the finance company undertakes to buy the vehicle back at the end of the agreement for the pre agreed price ie. the (GFRV/GMFRV). This is a very valuable option as it means the risk to the buyer is reduced. Normally, if the car is worth more than the GFRV/GMFRV the buyer will opt to buy the car. If not they hand the keys back and look to buy another car! start again  term you wish to keep the car you simply finance the balloon (or GFRV/GMFV) and the car is yours. 

Hot Tip:

Unless the agreement states that the residual value/balloon is guaranteed i.e. a GFRV/GMFV (See above or car leasing Glossary for definition) then it is NOT a Personal Contract Purchase! Some unscrupulous brokers and funders will sell you a Lease Purchase agreement with an un guaranteed residual value. This has the effect of making your monthly payments look nice and cheap however come the end of the agreement you may land up stuck with a balloon which is more than the market value of the car ie. you are in negative equity. If in doubt call Vehicle Alliance the car leasing and car lease experts.

Benefits of Personal contract purchase (PCP) car leasing:

1. A deposit can be tailored to suit your requirements. 
2. The monthly rental is cheaper as you are only financing the difference between the initial cost and the residual value. This means you can often afford a much better car than you would have been able to had you funded the vehicle through one of the more traditional means of ownership finance.  
3. The residual is guaranteed (GFRV/GMFV) so the risk of negative equity is reduced and there are no nasty surprises at the end of the contract. 
4. PCP's are widely available. 
5. Rather than just provide the finance a large number of PCP providers will also supply the vehicle which means the customer saves time. 
6. PCP's are often provided at a much lower rate of interest than if the lending was unsecured as the finance company retains ownership of the vehicle.
7. PCP is an alternative to Hire Purchase. 

Disadvantages of Personal Contract Purchase car leasing:

1. There are few disadvantages to PCP for retail customers. There was a lot of negative publicity concerning Guaranteed Future Residual Values (GFRV) in the past however this was and continues to be largely a matter of opinion and perception. To explain in more detail, in recent years residual values on used cars have plummeted leaving buyers with negative or no  equity at the end of their agreement. Most buyers simply chose to hand the vehicle back but some buyers felt and continue to feel that they had paid a deposit and monthly rentals but now "had nothing to show for it" This really is a case of bad press and perceptions as if there is no equity in the vehicle at the end of its term both parties lose i.e. the customer and the finance company.        
2. In terms of business customers the two main disadvantages of PCP car leasing relate to: the fact that Personal contract purchase is an on balance sheet form of funding and for most tax paying companies it is more expensive (after tax) than contract hire for cars costing less than £12k. 

Who uses Personal Contract Purchase car leasing?

This form of leasing cars is frequently used by company car drivers who have opted out of the company car scheme, non VAT registered businesses, retail customers, partnerships and sole traders. 

Finally as with all financial commitments the decision to lease cars is best undertaken with the guidance of a professional. Vehicle Alliance are experienced leasing cars professionals who continue to provide customers with lease cars 360 days of the year. We are the car leasing uk experts so if you are looking to lease a car and want the best car leasing deals look no further than Vehicle Alliance the home of cheap car leasing.