When you are looking to acquire a vehicle, there are many different ways with which you can finance the purchase. If, like most people, you are unable to pay outright for a vehicle, then you need to look at the financing options available to you. Two of the most common financing options are personal contract hire and personal contract purchase.
Personal contract hire is a financing agreement with which the lessee will pay a monthly sum based primarily on the vehicles depreciation rate over the period of the hire agreement. Whilst the two types of finance agreements are similar; a personal contract purchase agreement entitles the lessee the option of purchasing the vehicle once the contract has ended. The main benefit of PCP being that the final amount payable to purchase the vehicle will already have been agreed at the start of the contract.
The benefits of signing a personal contract hire agreement are that you could be looking at lower monthly payments, plus free road tax for the duration of the agreement. It is also possible to pay for additional maintenance agreements that will mean that you don’t have to fork out for new tires, servicing, and other repairs during the course of the lease.
Personal contract purchase contracts can be a better option if the customer is wishing to own a vehicle as when you are negotiating the finance options for your PCP, you will agree on a guaranteed minimum future value (GMFV) of the vehicle once the contract has ended. This means that you will never get into negative equity with a PCP agreement.
On the face of it, it can be a tricky choice, but the one question you should ask yourself that will dictate the most suitable option is: Do I want to own a car? With personal contract hire, you will have the option to purchase the vehicle once the lease term has ended, however, the payments you will have made will only go towards covering the depreciation on the vehicle, rather than paying off the value; plus the final payment to purchase the vehicle may not be based directly on market value.
Whilst negotiating a personal contract purchase agreement, you will be able to deliberate a guaranteed minimum future value (GMFV) of the vehicle, which will be what the final payment will be based on. This could mean that if you take care of the vehicle, and it doesn’t depreciate as much as expected, you could possibly be gaining equity as the car will be worth more than the amount you will be paying for it.
Now Try – Personal Contract Hire