Personal contract purchase (PCP) allows you to spread the cost of buying a car into equal monthly payments with an optional balloon payment (GMFV) at the end of the finance agreement. You do not own the car at the end of a PCP agreement unless you pay the balloon payment.
Sometimes referred to as ‘GFV’, this is the final (balloon) payment you pay at the end of a PCP finance agreement if you want to own the car.
The GMFV is set by the lender at the start of a PCP finance agreement and it is a prediction of what the lender thinks the car will be worth at the end of the agreement.
When your finance agreement ends, you have three options -
Pay the balloon payment and it’s yours to keep. There may be an additional ‘Option to Purchase’ fee (typically around £10) which covers administration costs.
It may take a few weeks for the finance marker to no longer show on any car check but you should receive a letter within a few days confirming the PCP agreement has been settled in full.
If you have equity in the car (i.e the value of the car is more than the balloon payment) at the end of the finance agreement, you can trade it in and put the equity towards a new car. Sadly, you cant just take the equity and run.
Regardless of the car’s value at the end of the agreement, you’ll have nothing more to pay. Even if the car is worth less than the balloon payment.
You could however face charges for any damage to the car, excess mileage or if the car has not been serviced and maintained according to your contract.