Personal Car leasing (personal contract hire) is great way to acquire the car you want, but, you will never have the choice to own the car. Personal Contract Purchase (PCP) incorporates the advantages of a regular leasing but also gives you the option to purchase the vehicle at the end of the agreement. PCP agreements are increasing in popularity and they are relatively uncomplicated.
Generally speaking, personal contract purchase is virtually the same as personal contract hire, but there is one main difference. An optional payment can be made at the end of the agreement enabling the individual to take ownership of the vehicle. This payment amount is actually calculated at the start of the arrangement and means the vehicle can be kept if the driver wishes. If the driver does not want to take ownership of the vehicle then they can simply return it to the leasing company and walk away.
Monthly payments are determined by the deposit required, then the retail value of the vehicle, minus the estimated future value of the vehicle once depreciation has been taken into account. This is known as the residual value. This is great if you choose a vehicle that holds its value as monthly payments can be lower.
A mileage limit will be set by the leasing company in these types of agreements. This is because the mileage is used to determine the depreciation level. The individual needs to be honest about how many miles they think they will accumulate because if this limit is exceeded financial penalties will be incurred at the end of the contract.
Overall, personal contract purchase agreements have many plus points as they offer the best of both worlds for the driver. They are flexible as they allow the driver to walk away at the end of the contract or they can purchase the vehicle if they wish. They also offer the individual the chance to drive a car they otherwise may not be able to afford.