PCP Considerations title, over image of a car driving over a calculator

Friday 5th January 2024

From cases raised with us, we know Service personnel can sometimes experience issues with Personal Contract Purchase (PCP) car finance agreements when moving overseas.

It is important to consider whether PCP is the right choice for you; do your homework before entering into a contract!

To help you make an informed choice when planning the funding of a new car purchase we have collated some useful information. This is particularly pertinent if there is a chance you may apply for an overseas assignment, as certain contracts do not allow you to take a leased car with you overseas and it may be difficult for you to exit your contract.

What is PCP?

PCP is similar to hire purchase, in that you pay an initial deposit followed by monthly instalments. However, with PCP you do not automatically own the car at the end of the term. 

Instead, when the term ends you are offered the following choices:

  • Make a final and lump sum payment to purchase the vehicle and own it outright.
  • Use the equity, if the car has maintained value, as a deposit on a new vehicle via a new PCP contract.
  • Hand the car back and walk away, no further payments and no money due.

Your PCP Legal rights

UK law provides you with the right to voluntarily terminate a PCP agreement; information can be found via the Consumer Credit Act 1974.

The law serves to protect consumers who can no longer require the car or are able to afford their monthly payments due to a change of circumstances. Equally, it provides protection to finance companies to ensure borrowers cannot simply walk away from their contract obligations at any time; it does this by setting the minimum repayment amount at 50% of the total amount payable.

Voluntary Termination of PCP – How it works

You can end your agreement and return your car to the finance company as long as:

  • You repay 50% of the total amount payable (not the total amount borrowed, as you need to include interest and fees, and not half of your scheduled monthly payments)
  • Penalties may be payable for any mileage exceeded over contract agreement or damage to the vehicle over and above normal wear and tear i.e. Scratches, dents, kerbed alloys etc.
  • Assuming you have complied with both above, you’ll have nothing further to pay.

Voluntary Termination Vs Voluntary Surrender

If you need to terminate your contract, be clear in your language, point out that you are exercising your legal right to Voluntarily Terminate your car finance agreement as set out in your contract and the Consumer Credit Act 1974.

By using the correct terminology, the finance company can’t accidentally or deliberately misconstrue your termination for Voluntary Surrender, which is an entirely different and less favourable process.

Under a Voluntary Surrender, you return the car but still owe the remaining finance. The finance company will sell the car at auction (adding on extra costs for collecting and disposing of the vehicle) you will then be required to pay any outstanding amount.

What to think about before using PCP to fund a vehicle purchase

Before you enter into a PCP contract consider the following:

  • Is there a chance that you could be posted overseas during the PCP contract period?
  • Have you checked whether the contract would allow to take your car overseas with you? (EU only). Some PCP contracts do not allow this.
  • What are the penalties for breaking the contract before the end of its time period?
  • At what point during the contract will you have paid 50% of the total cost including fees and interest?

Changes to Overseas Private Vehicle Provision

The aim of Overseas Private Vehicle Provision (OPVP) is to assist Service Personnel (SP) permanently assigned to or from an overseas location with access to a private motor vehicle. Previously personnel were only able to claim for vehicle purchases, an amendment to the Overseas Private Vehicle Provision now includes assistance with leasing a vehicle in an overseas location.

We recommend that families check the finer details of any leasing agreement in an overseas location, as OPVP will assist with a capped rate of fees associated with terminating any agreement, and this may not cover the full cost. As we have mentioned, exercise caution with any leasing contract and make sure you know your rights and responsibilities should you need to terminate the contract earlier than you may have envisaged.

Remember!

PCP’s are an easy way to access a new car at reasonable cost to the purchaser, however they are legally binding and difficult to terminate in certain circumstances.  Always consider the ramifications of early termination and how it may affect you, and always read the small print!

How we can help

View our finance section for additional helpful pointers.

Read our case study on how we helped a Service person with a PCP when deployed overseas.

Contact the team online for support.

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