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Is Personal Contract Purchase for you?

  • Thinking of opting out of the company car scheme?
  • Find out if PCP could be for you
  • Pros and cons plus important things to remember in our guide

You’ve finally climbed the corporate ladder high enough to be offered a company car but the lure of a fixed cash allowance each month is also on the table.

Which do you choose?

Unfortunately there is no simple answer to that question and discovering which is best for you is based on a combination of things such as how many miles you travel each year, what type of car you have your heart set on and what is important to you; low running costs or golf course envy?  

It is worth noting that opting into a company car scheme can give you some security, you no longer have to worry about maintenance or selling the car at the end of the lease, plus you are not personally tied into a financial contract, if you leave your current job, the car stays there.

However sometimes your company will impose restrictions when it comes to the car you can choose, it may have a single badge policy (only Ford cars for example), a CO2 limit which may rule out performance models, or it may have barriers on costs and options.

If you’ve had your eye on a car for some time, being told by the fleet manager that you cannot have it can be very frustrating.

Many look to Personal Contract Purchase, or PCP as it is also known as a solution, but is it right for you? Read our guide to find out.

What is PCP?

With so many different finance schemes available it’s easy to get confused, the most common are PCP, Hire Purchase (HP) and Personal Contract Hire (PCH).

The latter is a lease only contract where you will not own the car at the end of the lease – one of the biggest benefits to this plan is the lower monthly premiums.

HP or Hire Purchase is a scheme in which you will pay a series of monthly payments until the term is finished at which point you will own the car, there is no balloon payment at the end and the monthly payments will be generally higher.

The most popular is PCP which sits somewhere in the middle of these two schemes. You’ll still pay on a monthly basis for an agreed period but unlike the other two you will have the option to pay a balloon payment at the end to take ownership of the car – as a result the monthly payments will be lower than if you opted for HP and most PCP agreements will give you the option at the end of the term to either hand the car back, part exchange the car for another car on a similar deal, or make the final payment.

It is worth mentioning at this point that the majority of the best deals will require a modest deposit at the beginning of the lease too, which could be a potential issue for some.

Why take the cash allowance?

Like most things there are many pros and cons to every decision, if you travel a lot of miles each year then the company car scheme may still make a great deal of sense for you. Remember that leasing contracts will have mileage restrictions and in most cases the more you travel the higher the monthly payment will be.

But for many it is the freedom of choice which is a big deciding factor in opting for the cash, there is also the added financial benefits that you will no longer be paying company car tax and any miles you do travel for business will be claimed back using AMAP rates which are currently set at 45p per mile up to 10,000 miles a year which gives you a chance to make further profit.

There are plenty of contracts that offer maintenance and even insurance as part of the monthly payment too so it can still make monthly household budgeting easy.

You can set the term for what suits you if you like to change cars regularly unlike the company car scheme where you will be with the same car usually for three or four years.

Things to remember

  • If you decide to take the cash to make your own arrangements for getting a new car, the first thing to be aware of it that the extra money will be subject to tax before it enters your bank account
  • Remember to never underestimate the amount of miles you may travel each year – you will be charged if you go over
  • You may also be charged if you don't keep the car in good condition
  • If you plan to use your own car for business use you need to make sure you have insurance that covers it
  • There may still be limitations on the car you can use for business travel ie: CO2 limit or age

So is your mind made up or do you need more help?

Here is a selection of other articles to help you decide.

Cash vs company car

Why a diesel company car WILL make you money

Top low-tax diesel company cars

Making AFR’s work for you

Guide to reclaiming business mileage

Need to calculate your company car tax?

The Parkers Company Car Tax Calculator helps you to work out how much tax you would have to pay for your new company car, broken down into annual and monthly costs for 20, 40 or 45 percent tax payers.