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What is PCP & Lease Purchase?

If you want to buy your perfect car and you want lower monthly repayments, a PCP or Lease Purchase could be just right for you.


Here’s how they work.

Traditionally, when you financed a car, the dealer would work out your monthly payments by taking the purchase price of the car, deducting any deposit you’re paying (which could be from a part exchange), adding interest, then simply dividing the total by the number of months the agreement runs for. You get a fixed monthly payment. Simple.

As an example....

A car costing £12000 will be bought over 3 years. The deposit from your old car in part exchange is £2000. Which leaves £10000 to pay. Let’s imagine the interest on the borrowing over 3 years will be £1700. So the total amount of the finance is £11,700. Divide that by 36 months and you will have a monthly payment of £325.

How do you pay back the last payment of £3700?

With a PCP you get 4 choices:

  • Pay back the final £3700 and keep the car
  • Refinance the £3700 over a further period
  • Sell the car and use any surplus for a deposit on a newer car
  • Don’t pay the £3700, hand back the keys and walk away

With a lease purchase, you only get 2 options:

  • Pay back the final £3700 and keep the car
  • Sell the car and use any surplus as a deposit on a newer car

On a lease purchase, the final value is not guaranteed.

The value of the car at the end of the agreement is important as it should be high enough to pay back the last payment, and ideally give you some money left over as a deposit on another car.

With a PCP agreement, Perrys will work out a guaranteed future value of the car for you, so you’ll know exactly where you stand at the end of the term.

A lease purchase differs from a PCP in that the figure set for the final payment is not guaranteed, which means your car could be worth less than the final payment and you’ll have to make up the difference even if you sell or part exchange the car for a new one.

Why would you choose a lease purchase over a PCP?

If you’re buying a premium or luxury car that holds its value particularly well, the final payment can be set higher than a PCP, resulting in even lower repayments. The figures here are just examples, the actual figures will vary depending on the car, the interest rate and the term of the agreement

In summary, with a PCP or lease purchase, the advantages are:

  • Lower monthly payments than hire purchase for the same car over the same term
  • A low deposit at the start
  • You can pay off the whole finance mid-term if you want
  • Fixed monthly payments throughout the term of the agreement
  • With a PCP there’s additional flexibility at the end of the agreement on what you want to do with the car