A Personal Contract Purchase (PCP) plan is an alternative to Hire Purchase and can offer a lower monthly repayments. This is achieved is by deferring an amount of the total cost of the vehicle to the end of the contract. This amount is known as the Guaranteed Minimum Future Value or GMFV.
The Guaranteed Minimum Future Value plus your deposit is subtracted from the cash price of the vehicle and your monthly payments are based on the balance (plus interest on the balance and the GMFV).
By only repaying the difference between the cash price and the optional balloon payment you are only effectively financing the depreciation of the vehicle.
At the end of the contract you have the following 3 options
Return the vehicle to the finance company and if you have not exceeded the agreed mileage, there is nothing more to pay.
You may keep the vehicle and simply pay off or refinance the outstanding Guaranteed Minimum Future Value [GMFV] payment.
You can part-exchange your vehicle and if the trade-in value is greater than the GMFV, the difference is yours to keep.
Lease Purchase Payment Plan is a similar structure to PCP as it too defers a lump sum to the end of the agreement. The deferred lump sum is a percentage of the total cost of the vehicle and this amount is calculated at the start of the agreement, this amount is known as the Residual Value (RV).
However Lease Purchase is slightly different to PCP as it’s the customers responsibility to settle the final payment [RV] as there is no Guaranteed buy back at the end of the agreement. Customers can raise funds either with a cash settlement or settlement by part-exchange and this can be done at any time throughout the agreement period.
The Lease Purchase Payment Plan has no tie to a mileage contract. Repayment periods are typically taken over 2, 3 or 4 years and settlement can be made at any stage of the agreement, which some people prefer as it offers more flexibility.
We would recommend that you choose a realistic Residual Value for the vehicle you intend to purchase in order to generate some equity to be used as deposit on the next agreement. At the end of the agreement period you have three options:
Compare PCP and Lease Purchase car finance options to understand the differences, features and benefits of each agreement before choosing the best solution for your next vehicle.
This page provides a clear comparison between Personal Contract Purchase (PCP) and Lease Purchase finance agreements. Both options offer flexible ways to fund a vehicle, but each works differently at the end of the term. Understanding these differences helps you select the right product for your financial goals.
PCP provides a Guaranteed Minimum Future Value (GMFV) at the end of the agreement, giving customers the option to return the vehicle with no further obligation. Lease Purchase, on the other hand, requires the final balloon payment to be settled as there is no guaranteed buy-back. Both products defer a lump sum, which helps reduce monthly payments.
PCP offers three options at the end of the term: return the vehicle, pay the GMFV to keep it or part-exchange it and use any equity as a deposit. Lease Purchase requires the balloon (Residual Value) to be paid but also provides flexibility on when this payment can be settled.
With both agreements, equity may be generated if the vehicle’s trade-in value exceeds the GMFV or RV. PCP typically offers more predictable end-of-term outcomes, while Lease Purchase may provide greater equity depending on the vehicle’s retained value.
PCP agreements are mileage-based and returning the vehicle requires staying within the agreed mileage. Lease Purchase has no mileage restrictions because the customer will ultimately settle the balloon and keep or sell the vehicle.
PCP is ideal for customers wanting lower monthly payments with the option to return the car. Lease Purchase suits customers seeking flexible settlement options and long-term ownership without mileage concerns.
With more than 18 years of experience in PCP and Lease Purchase car finance, our team can help you compare options and select the agreement that aligns with your budget, mileage needs and long-term plans. We offer transparent, FCA-regulated guidance to help you make an informed decision.
