Common Profiles

The deposit is deducted from the price of the vehicle at the start of the agreement.

The customer is then required to pay fixed monthly payments over the term of the agreement and then pay the final GMFV before taking title to the vehicle. The fixed monthly payments include interest on the full amount including the GMFV (and any option to purchase fee) but excluding the deposit paid. Typically a PCP agreement will be either 2 or 4 years long.

Deposit

Each lender will advertise any minimum or maximum deposit requirements for their own PCP – it is common for this to be very low to help attract customers.

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Fees

There can be an arrangement fee charged by the lender that can be paid at the start of the agreement or included as part of regular repayments for the term of the agreement. The fee amount is set by the individual lender (If the PCP is based on a HP contract, there will also be an Option to Purchase fee to pay if the customer wants to keep the vehicle at the end of the agreement). Any fees charged must be stated in the terms and conditions of the agreement.

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Regular Payments

The customer agrees to make regular payments to the finance company and should keep the vehicle fully insured and in roadworthy condition.

There are set mileage restrictions and conditions of use that individual lenders will impose – this is to ensure the vehicle will be worth the estimated value of the GMFV. The monthly repayments will be affected by the mileage allowance agreed. The higher the allowance the higher the monthly repayment due to the fact the more the vehicle is used the more its value will depreciate.

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Option to Purchase fee

The Option to Purchase fee (determined before the agreement is entered into) transfers title to the customer.

The amount is set by the individual lender and is usually paid by the customer with the final payment. However, this is a genuine option for the customer.

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GMFV

The GMFV is calculated after taking into account the term of the facility, the anticipated mileage and the type of vehicle and specification. It assumes that the vehicle will be kept in good condition and serviced and maintained according to vehicle manufacturer’s recommendations.

See Finance Structures module for an example of a balloon payment.

At the end of the agreed term, the customer decides whether to keep, hand-back or part exchange the vehicle.

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Mileage Allowance

The customer is asked how many miles they expect to travel in the vehicle on a yearly basis and agrees a mileage allowance applied to the agreement. The higher the number of miles travelled in the vehicle the less it will be worth at the end of the agreement. Therefore the higher the mileage allowance set by the customer the less the GMFV of the vehicle will be resulting in more capital paid up front over the term of the agreement - higher monthly payments.

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