PERSONAL CONTRACT PLANS

Offered by manufacturers, dealers, banks and finance companies, Personal Contract plans are available for the purchase of new or nearly new cars and the monthly payments are usually lower than with Hire Purchase or a Personal Loan. You could also trade your old car in as a deposit.

You will still need to put down a deposit (10-20%) from your own pocket and you will have to make monthly repayments to the finance provider for the term of the agreement. However, the repayments are based on a percentage of the vehicle value and the finance provider will calculate a likely resale value for the vehicle at the end of the agreement period - the balance will be the amount that you finance – the 'Minimum Guaranteed Future Value' (MGFV) or "balloon payment".

At the end of the agreement period, you can either return the car and end the agreement ; pay the MGFV and keep the car; or, you can return the existing car and enter into a new agreement on a new car.

These agreements will impose a certain maximum annual mileage on you (you will be asked at the outset what your annual mileage is likely to be) and as the amount of mileage you do will impact on the, it is important to get the mileage figure correct. Additional mileage over and above that agreed upon will be charged at a set rate per mile.

Advantages

  • Repayments are normally lower as you are usually required to put down a deposit.
  • Because the MGFV is taken into account when assessing the monthly finance payments, the repayments can be reduced considerably.
  • You can trade in your old car as a deposit.

Disadvantages

  • If you fail to maintain the finance payments then the car may be repossessed.
  • You will usually be required to pay a deposit of between 10% and 20% from your own resources.
  • You cannot sell the car without repaying the finance agreement in full.
  • You do not own the car until the last payment and the balloon payment at the end of the term has been paid.

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