Finance Options at Trenton

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What is Personal Contract Purchase (PCP)?

A Personal Contract Purchase (PCP) is a method of obtaining goods e.g. a vehicle through a pre -agreed fixed term finance agreement with part of the cost deferred until the end of the agreement. This may give the benefit of lower monthly repayments or a shorter period of repayment. Once all of the repayments, including the deferred payment and any fees are paid, the goods become your property. Click here to find out more about a Personal Contract Purchase including important things you must consider before taking out an agreement like what happens if you exceed your agreed mileage allowance.

A PCP is more suited for those that wish to enjoy the benefits of upgrading their vehicle every two or three years. A Personal Contract Purchase is a variation of a hire purchase agreement which offers monthly payments that are lower than some traditional finance schemes by offsetting a larger repayment to the end of the agreement.

Instead of purchasing the vehicle over equal monthly instalments an Optional Final Payment, sometimes called Guaranteed Minimum Future Value, is deferred until the end of the term. Meaning that you are paying the difference between the vehicles sale value and its minimum worth at the end of the period. The final payment is calculated based upon your driving requirements and annual mileage. Exceeding the agreed annual mileage will result in a pence per mile charge, as the higher the mileage the less the vehicle is worth.

Your repayments are based upon the price of your vehicle less any deposit and the Optional Final Payment, plus interest charges and any fees.

It is important to note that due to market conditions your vehicle may not be worth more than the Guaranteed Minimum Future Value at the end of the agreement, thus affecting the deposit available to purchase you next vehicle and subsequent monthly repayments. Therefore, it is imperative that you ensure that you accurately predict your mileage over the term, as any additional mileage is subject to an excess mileage charge.

Your options at the end of the agreement;

I.Renew – you can part exchange your vehicle at a dealership and start over again. If the vehicle is worth more than the Final Optional Payment, you can use the difference as a deposit

II.Retain Ownership – You may prefer to keep the vehicle, to do this you are required to pay the Optional Final Payment in full. Some finance providers will allow this value to be refinanced at the prevailing interest rate.

III.Return – If your needs or requirements have changed you can hand the car back to the dealer with nothing more to pay (subject to mileage and condition. Excess mileage charges may apply)

BENEFITS:

•Fixed regular payments

•You have the option of ownership of the vehicle at the end of the agreement •Variable deposits and periods available, usually between 2 and 3 years

•Once you have paid a half of the total amount payable you are able to exercise your legal rights and voluntary terminate the finance agreement by handing the vehicle back to the finance company (maybe subject to fair wear and tear)

•Satisfactory quality rights under the Consumer Credit Act are provided, meaning the credit provider may be liable for putting things right providing the cash price was less than £30,000

•The ability to repay additional amounts in to agreement and have the interest recalculated, meaning that you could lower your monthly repayment amount

CONSIDERATIONS:

•A significant proportion of the credit is deferred until the end of the period which will need repaying should you decide to own the vehicle

•The interest on the final payment is calculated differently to the body of the credit as no capital is reducing

•The vehicles resale value may not be worth more than the final payment, meaning that your deposit may be reduced for your next vehicle. Therefore, you should be prepared for higher repayments

•A ‘Fair Wear & Tear’ clause will apply if the vehicle is returned at the end of the agreement and may apply in the event of Voluntary Termination

•You do not own the vehicle outright until the final payment is made

•Your vehicle is at risk of repossession if you do not maintain the contractual repayments •Agreed mileage limits are imposed at inception

•Excess mileage charges apply

•You must maintain fully comprehensive insurance throughout the term of the agreement •You must not sub lease or rent the vehicle to a third party

•There may be restrictions on usage of the vehicle during the term of the agreement

•Charges may apply for late payments or to alter the repayment date (these are detailed in the SECCI)

•Any outstanding finance must be settled if the goods are sold

How does PCP actually work?​

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When you have chosen your vehicle, you will then agree your annual mileage and decide on the agreement term with one of our Business Managers.

We will then determine the Guaranteed Minimum Future Value (GMFV) of the vehicle at the end of the agreement and work out a deposit and monthly amount that works for you.

At the end of your agreement you will then have three options:

Return – Simply return the car the back to us 
Retain – Keep the car by paying the optional final payment
Renew – Trade it in for another car

For a quotation, help, or advice contact us and ask to speak to one of our Business Managers.

What are the advantages of PCP?

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  • Monthly payments on a car financed by PCP are usually lower than if your car is financed by a Hire Purchase agreement.
  • If you decide not to buy the car, you can simply walk away when you've made all the payments.
  • Similar to PCH, you can drive away a new or used car every few years (dependent on the chosen term) without worrying about selling it on.
  • If your car is worth more than the Guaranteed Future Value then you can use that equity towards a deposit on a new car.

What should you consider when option for a PCP?

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  • If you want to buy the car you will need to pay your final balloon payment (the Guaranteed Future Value).
  • Similar to PCH, you will need to agree on a mileage allowance at the beginning of your contract and there may be excess mileage charges if you exceed this.
  • You won’t be able to sell the car without settling the finance.
  • You won’t own the car until you have made all of your repayments.
  • You’ll need to keep the car properly insured, maintained and in your possession until the full value is paid off.

Can I settle my PCP agreement early?

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You can normally settle your agreement early by asking the finance company to provide you with a settlement figure. However, the finance company will require you to pay off the difference between what your car is worth, and what you still owe and there may be a difference which is known as negative equity. On the other hand, you may find that at the end of your term your car is worth more than the Guaranteed Future Value, which means you will have some positive equity to contribute towards your next car.

What is Hire Purchase (HP)?

Hire Purchase is a method of obtaining goods e.g. a vehicle, pay for the use of the vehicle over a pre- agreed period and at the end of that period, once an Option to Purchase Fee has been paid, the goods become your property. Click here to find out more about Hire Purchase including important things you must consider before taking out an agreement.

Hire Purchase enables you to simply choose how much deposit you wish to pay upfront, including any part exchange and the period in which you wish to repay the balance, typically up to 5 years.

The deposit is paid on delivery of your new vehicle, leaving the balance plus interest paid over the agreed period in equal monthly instalments. At the end of the agreement, subject to a nominal option to purchase fee, you take outright ownership of the vehicle.

Interest is calculated at the start and is added to the amount that you wish to fund, therefore it is fixed for the length of the agreement. This means that the amount you pay is unaffected by any future changes in interest rates, allowing you confidence that your payments will not alter.

BENEFITS:

•Fixed regular payments

•You are the ‘registered keeper’ of the vehicle with ownership of the vehicle transferred to you at the end of the agreement once the option to purchase fee has been paid

•Variable deposits and periods available, usually in monthly increments from 12 to 60

•Once you have paid a half of the total amount payable you are able to exercise your legal rights and voluntary terminate the finance agreement by handing the vehicle back to the finance company (maybe subject to fair wear and tear)

•Satisfactory quality rights under the Consumer Credit Act are provided, meaning the credit provider may be liable for putting things right providing the cash price was less than £30,000

•The ability to repay additional amounts in to agreement and have the interest recalculated, meaning that you could either lower your monthly repayment amount of shorten the term

CONSIDERATIONS:

•A ‘Fair Wear & Tear’ clause may apply in the event of Voluntary Termination •You do not own the vehicle outright until the final payment is made

•Your vehicle is at risk of repossession if you do not maintain the contractual repayments •You must maintain fully comprehensive insurance throughout the term of the agreement •You must not sub lease or rent the vehicle to a third party

•Charges may apply for late payments or to alter the repayment date (these are detailed in the SECCI)

•Any outstanding finance must be settled if the goods are sold

What are the advantages of HP?

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  • You’ll be able to drive away a car that you may not have managed to buy outright.
  • Unlike a PCP or PCH contract, you won't need to estimate your mileage at the start of your Hire Purchase agreement, so you'll avoid excess mileage charges.
  • Once you’ve made your final monthly payment, including the option to purchase fee, you'll have full ownership of the car.

What should you consider when opting for HP?

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  • Monthly payments may be higher than some other finance options, such as PCP, as you're paying off the full value of the car.
  • You won’t be able to sell the car without settling the finance.
  • You won’t own the car until you have made all of your repayments.
  • You’ll need to keep the car properly insured, maintained and in your possession until the full value is paid off.

Can I settle my HP agreement early?

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The short answer is yes, you can end your finance early. There are different provisions within each finance agreement that allows you to do just that. If you have got through two-thirds of the way through your finance agreement, the options to end the finance agreement early open up.

For a Hire Purchase agreement, there is an option of paying it off early through a settlement fee. A settlement fee covers the cost of any remaining unpaid instalments and interest payments remaining on the agreement. Once the settlement fee is paid, you take full ownership of the car early.

Under a Personal Contract Purchase agreement, you can also pay a settlement fee for bringing the agreement to an end early. After that, you can choose to hand the car back or you have a second option. Through a PCP agreement, you can take full ownership of the car by paying off the remaining Guaranteed Minimum Future Value also known as a balloon payment.