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At the end of a Personal Contract Purchase agreement, you have the option to either: hand your car back, use any equity in the vehicle as a deposit for your next car, or pay off the Guaranteed Minimum Future Value (GMFV) to keep the car.
The GMFV is also sometimes referred to as a ‘balloon payment’, and will be agreed before you sign the contract.
Because you have to give the car back at the end of your agreement, the lender will set a maximum annual mileage for you. If you have exceeded the mileage allowance at the end of your agreement, or if the car is damaged more than general wear and tear allows, you may end up with additional charges.
Do I need a deposit on Personal Contract Purchase car finance?
Personal Contract Purchase agreements usually require a deposit to be put down. You can expect a deposit to be around 10% of the value of the vehicle. If you choose to put down a bigger deposit, your monthly repayment cost will be lower.
How does Personal Contract Purchase work?
The amount you borrow for your Personal Contract Purchase agreement is based on how much the lender predicts the car will lose in value over the term of the agreement, minus the deposit amount. Your Personal Contract Purchase contract is an agreement for you to pay this amount, usually over 24 or 36 months (2 to 3 years).
Will I own the car at the end of a Personal Contract Purchase agreement?
No. Over the course of a Personal Contract Purchase agreement, you only pay the difference between what the car is worth at the beginning of the contract, and what the car will be worth at the end of the contract. This amount is the total depreciation of the vehicle, not the full cost of the vehicle. Because of this, at the end of your Personal Contract Purchase agreement, the lender will still own the car.
Because you have to give the car back at the end of a Personal Contract Purchase agreement, there are mileage restrictions in place, as well as a requirement to keep the car in good condition. Your expected mileage will be discussed and made clear to you before you sign your contract.
You can always choose, at the end of a Personal Contract Purchase agreement, to make what is known as a ‘Balloon Payment’. This is also known as the GMFV (the Guaranteed Minimum Future Value). This amount is agreed between you and the lender before the contract is signed, and is how much the car is worth at the end of your contract. If you decide to pay the Balloon Payment, the car will then belong to you.
How will the loan amount be calculated?
How a Personal Contract Purchase loan amount is calculated can seem complex. We’ve broken it down to make it as clear as possible. Before you take out a Personal Contract Purchase, your dedicated advisor will run through all this information with you to make sure you won’t have any hidden charges further down the road.
In this scenario, we have a car worth £20,000 at the beginning of a Personal Contract Purchase agreement. At the end of the Personal Contract Purchase agreement in three years’ time, the lender predicts that the car will be worth £8,000.
If the customer pays a standard 10% deposit of £2,000, we are left with £18,000 to cover the full cost of the car.
The lender has predicted that the car will be worth £8,000 at the end of the contract, which means the customer needs to pay £10,000 to cover the car’s depreciation over the term of their loan.
The interest rate the customer will also pay on the £10,000 cost of the car’s depreciation will depend on the deposit amount, and on the customer’s credit score
Usually, at the end of a Personal Contract Purchase agreement, the car will be worth slightly more than the balloon payment amount you agreed with the lender at the beginning of your contract. The lender will generally give you the option to put this amount towards a deposit on your next Personal Contract Purchase. You cannot convert this equity into cash unless you decide to pay the balloon payment and then sell the car privately.
Can I end a Personal Contract Purchase
If you’d like to end your Hire Purchase contract, you will have to settle the remaining balance of the loan. You should be aware that, until your final payment has been made, the vehicle legally belongs to the lender you are in contract with. This makes it illegal to sell a vehicle mid-way through a Hire Purchase agreement.
To end your agreement, you must have paid at least 50% of the total finance amount. If you haven’t yet repaid half of the total finance amount, you can settle this difference, and then cancel the contract and return the vehicle.
The amount any lender can charge you for early settlement of a Hire Purchase agreement is capped by law.
The limit of what you can be asked to pay is the outstanding amount you borrowed (without the interest), plus whichever is lowest of the following amounts:
1% of the amount repaid early (e.g. £100 if you have an outstanding balance of £10,000)
0.5% of the amount repaid early if less than 12 months are remaining on the agreement (e.g. £50 if you have an outstanding balance of £10,000)
The remaining interest on the original agreement
If you cancel your Hire Purchase agreement using the terms laid out above, you will have to return the vehicle. Alternatively, you can settle the entire balance of the agreement, and you will then own the car.
Is there anything I need to know before taking out a Personal Contract Purchase agreement?
If you’d like to buy your car through a Personal Contract Purchase agreement, we’ll work hard to find the best available deal for you.
Find finance with the best possible APR
Make sure you know what the overall cost will be
Get quotations from over forty specialist lenders, so you’ll always have the most competitive rate
Haggle on your behalf if we think we can get you a lower rate
Find a selection of deals that fit your requirements, so you can choose the option that’s best for you
Make sure you’re fully aware of the maximum mileage you need to stay within