Like any contract, a PCP agreement comes with certain provisions. When you enter into a PCP agreement, you are usually on: the optional final payment is fixed, which means you don`t have to worry that the car will lose more value than expected. If it is actually worth less than this estimate at the end of the agreement, then you can always go far with nothing to pay (provided the car is in good condition and within the mileage limit agreed in advance). During your PCP agreement, you pay the difference between the new price of your car and the GMFV number. All payments in a PCP agreement depend on the optional final payment, also known as the Guaranteed Minimum Value for the Future (GMFV). This is an estimate of the value of the car at the end of the agreement and based on industry data. Much like conditional selling, the PCP is a simple agreement if you are looking for easy-to-honour payments and a short-term agreement. PCP allows you to budget effectively with multiple options at the end of your contract. This allows for flexibility, especially if you are not sure what you want to do with your vehicle at the end of your contract, or if you are asking for monthly payments lower than a standard lease-sale.

High levels of GMFV may mean that you have less money to go into the deposit on a new car than you might hope at the end of a PCP agreement. While it may be useful to use the difference between the value of the car and the GMFV as a deposit on a new PCP deal, there may be a feeling of doing so. This is not an option for many people, so it is possible to partially sell or exchange your PCP car with the agreement of your lender, who will remain the owner of the car until the agreement is reached. This is usually organized through a car dealership. It is also worth investing in CAP insurance to protect itself financially if the car is depreciated under the PCP agreement. Similarly, these guidelines are often cheaper for third-party companies. The payment of the balloon is determined by the financial company which estimates the value of the car at the end of the agreement. It is called the guaranteed minimum value for the future (GMFV). You can also refund your PCP agreement before the advance. This usually saves you money in the long run on interest payments, but you usually have to pay a surcharge that covers some of the interest that the financial company has missed.

As part of a PCP agreement, you agree with the dealer how much you want to borrow, minus the down payment and the value of each car you partially replace. Your dealer then files your financing application with the automotive financial companies and, if you pass your credit checks, you pay for the car on your behalf. The purchase of a contract in a personal capacity is therefore a conditional sales contract and, under UK law, the buyer is protected by the Consumer Credit Act 1974 and the Financial Services Regulations 2004. [2] You could better pay a billing figure to the financial company, which would be a last major payment to terminate the agreement. You can then keep or sell the car. A PCP agreement also gives you the flexibility to decide whether you want to own the car directly at the end of the agreement, by paying the deferred value (GMFV) or by returning the car to the lender and entering into a new car financing contract. One of the main advantages of a PCP agreement is that it offers complete protection against a sudden and unexpected drop in vehicle values.