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Personal contract purchase (PCP), often referred to as a personal contract plan, is a form of hire purchase vehicle finance for individual purchasers, similar to both personal contract hire and a traditional hire purchase (buying on installments).
Unlike a traditional hire purchase, where the customer repays the total debt in equal monthly instalments over the term of the agreement, a PCP is structured so that the customer pays a lower monthly amount over the contract period (usually somewhere between 24 and 48 months), leaving a final balloon payment to be made at the end of the agreement. The total borrowing is the same in both cases, and interest is payable on the entire amount (including the balloon payment on the PCP).
At the commencement of the agreement, the balloon payment is planned to be less than the value of the vehicle at the end of the term, creating equity that may be used as a deposit on another vehicle purchase (this does not always occur).
The customer is the registered keeper and legal owner of the vehicle, whilst the finance company retains an interest in the vehicle. This interest will be noted in the car’s history whenever anyone checks it, so that the car cannot be sold without clearing the finance first. If the owner defaults on the payments, the finance company may have the legal right to repossess the vehicle. At the end of the agreement, the customer either pays the balloon payment and takes clear title of the vehicle, or the vehicle may be returned to the finance company without any further liability.[1]
A personal contract purchase is therefore a conditional sale agreement, and under UK law the purchaser is protected under the Consumer Credit Act 1974 and the Financial Services Regulations 2004.[2]
^Masson, Stuart (8 May 2016). "What is PCP car finance? The Personal Contract Purchase explained" – via www.thecarexpert.co.uk.
^"Office of Fair Trading". Archived from the original on 2010-06-10.
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