Contract purchase or personal contract purchase (PCP)

Contract purchase for a business aims to replicate the contract hire product, but uses a purchase based product.

The business agrees to buy the vehicle by paying instalments for a period of time, but the supplier agrees to buy it back at the end of the contract for a pre-agreed fixed price if the business does not want to take up the purchase option.

A mileage limit will apply to all personal contract purchase deals. This is because the leasing company will use the mileage limit to determine the vehicle’s depreciation and therefore its residual value.

“This provides a flexible option for companies as they can spread the payments on a vehicle and have an option to purchase at the end of the contract without actually committing themselves to purchasing the vehicle,” explains Hall.

• Pros: fixed prices, helping budgeting; only small deposit required; can include maintenance packages; and no residual value risk as you can choose to walk away
• Cons: can be more expensive than hire purchase.