FAQS (Frequently Asked Questions)
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A personal contract purchase (PCP), often referred to as a personal contract plan, is a form of hire purchase vehicle finance for individual purchasers, which has similarities to both personal contract hire and a traditional hire purchase (buying on instalments).
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).
The balloon payment is ideally structured so that it will be less than the value of the vehicle at that point in time, creating equity that may be used as a deposit on another vehicle purchase. 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.
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.
A PCP may include the element of maintenance during the duration of the contract though this is in the minority of cases. In the UK, the majority of PCP deals include the payment of the first year's vehicle tax, but subsequent renewals will be at the customer's expense.
The final payment, which initiates the actual transfer of ownership, is calculated by the financing company at the start of the agreement based on its estimates of the future residual value of the vehicle (Guaranteed Minimum Future Value, or GMFV). This final payment is called the balloon payment, and is usually taken as a direct debit unless the customer takes an alternative course of action prior to this time.
It may be agreed instead that the final balloon payment is compulsory within the terms of the contract, but that the owner then retains a right to hand the vehicle back to the financing company at the previously agreed figure (GMFV) in lieu of the balloon payment. It is necessary to fully understand these aspects of a personal contract purchase before signing any deal as a loss may be incurred at this point. This option, but not the obligation, to acquire the car after a period equivalent to a contract hire is therefore packaged as either an option (in law) to purchase the car (a call option) at a 'set' price, or a right to sell the car (a 'put' option) at a set price after ownership is fully achieved from the final ‘balloon’ payment.
The monthly payment amount is determined by the amount of the initial payment (the ‘deposit’), which can be negotiated with the financing company, and the final balloon payment, which is set by the financing company. The financing company is likely to be represented in this discussion by either a car dealer or automotive finance broker.
This form of contract purchase was originally used more by businesses than individuals, but there has been steadily increasing use by consumers in countries such as the UK in recent years. In 2016, 82% of personal new car finance deals in the UK were PCPs.
There is a Finance & Leasing Association Arbitration Scheme in the UK, used if there is a subsequent dispute.
VAT is applicable on the entire vehicle price and is capitalised into the monthly payment when calculating the PCP monthly payment.
Unlike Personal Contract Hire, the leasing company can reclaim the VAT, and this means that the monthly payment would be less because:
In a personal contract hire, the lessee pays VAT on the monthly payment.
PCP car sales have come under heavy scrutiny in Ireland since 2014 as customers felt enough effort was not made to ensure they had full knowledge of all details within the PCP agreement. The Society of the Irish Motor Industry (SIMI) commissioned a report on PCPs, carried out by Grant Thornton, in an attempt to benchmark PCPs. In July 2017, the Competition and Consumer Protection Commission (CCPC) commenced a study into PCP car finance market. This followed a study by Motorcheck which revealed Ireland's new vehicle market was heavily dependent on PCP agreements. The study found 73,979 new vehicles were sold on finance in Ireland in 2016, a 139% increase from 2014.
Buying A Used Car With No Credit
You need a car but have not got the cash. Bottom line, you need a vehicle to get you from point A to point B. Problem is, you have bad credit. What lender in their right mind would give you a loan, especially with your bad credit score?
Well, there is hope. You can get a car loan for bad credit. The best part is that it is quite easy to get a bad credit loan. You can get a payday loan to get the car that you want.
A payday loan is just as the name implies. It is a loan that you get, then repay it on your next payday. In just three easy steps, you can have cash in your hand. In just three easy steps, you can have a car loan for bad credit. It is almost effortless.
The first thing that you will have to do is fill out brief application online. It will ask for your information, such as your address, phone number, employer and how much money you make.
A car loan for bad credit is not a scam or fantasy. It is very real. You can get a loan, a payday loan, regardless of your credit score or credit history. Then all you have to do is go pick out your new car.
The best way to find out is to get a free online guaranteed car loan quotation so you can see what you will be paying before you take out the loan, that way you can decide if it is for you or not.
car loan for bad credit can be affordable and a breath of fresh air you just need to navigate to the reliable loan companies so that you pay a fair amount of interest for any car loan that you take out.