Personal Contract Purchase (PCP)
A scheme that enables customers to run a car with relatively low monthly payments. At the start of the plane, the vehicle's Minimum Guaranteed Future Value (MGFV) is calculated - how much the car will be worth at the end of the period. The loan is then based on the difference between the car's current price and the MGFV. For example, if a car is worth £10,000 now, and is thought to be worth £4,000 in three years time, then loan will be made up of £6,000 to be paid over three years (current price minus the MGFV).
At the end of the scheme, the driver may simply hand the car back to the dealer and walk away with nothing else to pay, or they may pay the MGFV (also known as a balloon payment) and keep the car. In the previous example, the balloon payment would be £4,000.
A personal contract plan can work out more expensive than hire purchase over the lifetime of the loan.
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