What are your options at the end of a PCP?

Your PCP is coming to an end. What are your options and which one is best suited to your needs? The Car Expert is here to help.

Car dealers and finance companies love selling personal contract purchase (PCP) car finance, and they love telling customers about how “flexible” it is, with an array of wonderful “options” to choose from at the end of a PCP.

A PCP consists of regular monthly payments (typically 36 or 48), followed by a large final payment, often called a balloon payment.

It’s important to understand that you generally have to make a decision of what you would like to do after your last monthly payment but before the final payment is due.

These are the three options for dealing with the final payment at the end of a PCP agreement. Click the links to jump straight to each one, or keep on reading:

  1. You pay the finance company the final payment and keep the car
  2. You give the car back under the terms of the guaranteed future value (GFV)
  3. You part-exchange the car at a dealership, who pays off the final payment for you

Understanding the final payment

The final balloon payment at the end of a PCP is often also called the guaranteed future value (GFV), which is technically a different thing but it doesn’t matter for now. Many finance companies humorously describe it as the “optional final payment”, making it sound like you don’t have to pay it unless you want to. The reality is the exact opposite, and it can have disastrous consequences for your personal finances.

What is very important, and generally not explained by car dealers, is that paying off the balloon is the default option of the three choices listed above at the end of a PCP. The finance company will try to take this huge final payment from your bank account unless you take specific action to avoid it.

   

The problem is that you probably don’t have several thousands of pounds sitting in your current account when the finance company tries to take the final payment. The payment bounces and, suddenly, you have defaulted on your loan (probably with a default fee from your bank as well).

If you do have enough money in your account to cover the final payment, chances are you were probably planning to use it for something else, like mortgage payments, school fees or an upcoming holiday. And now that money has gone, leaving you in serious trouble.

So it’s important to make your decision about what you want to do before you get to the end of your agreement. Let’s have a look at your three options and explain what they really mean for you.

Option 1. Pay off the balloon and keep the car

If you have the money available and want to keep the car, you can pay off the final payment. A PCP is a form of hire purchase (HP), so the car is not officially yours until every penny is paid back to the finance company. If you pay off the balloon payment, the vehicle becomes yours in clear title.

If you are keeping the car, you don’t need to worry about mileage, condition or servicing history. It’s yours to do with as you like. You can sell it, burn it to the ground or just keep on driving it because it’s now officially your car.

Many finance companies used to give customers the option of refinancing the balloon, so you would effectively take out another hire purchase to pay it off. Most no longer do this, although you can still take out a bank loan to pay it off.

When should you consider paying off the balloon?
  • If you want to keep the car and have enough cash to pay off the balloon
  • If the car is worth more than the balloon/GFV
  • If the mileage/service/condition charges of giving the car back are very high

When is this option not really ideal?
  • If you don’t have the money in the bank and have to borrow it
  • If the car is worth less than the GFV
  • If you don’t need the car and are not likely to use it

Option 2. Give the car back and claim the guaranteed future value

Instead of paying off the large balloon amount at the end of a PCP, you have the option of handing the car back after you have made all your monthly payments. The finance company will then sell the car at auction and hope to earn enough money to cover the balloon.

The finance company guarantees that they will accept the car instead of the final payment (the guaranteed future value) at the end of a PCP, regardless of its actual market value, as long as you have complied with the following requirements:

If you are over your mileage, you will be charged an excess mileage penalty (usually about 10p per mile, or £100 for every 1,000 miles).

If you have not had the car fully serviced on time, or serviced somewhere other than the correct franchise dealership, you will be charged a penalty (which will be hundreds, or even thousands, of pounds).

If the car has any damage that would not be considered normal wear and tear, you will be charged for “repairs” (the finance company won’t actually repair the car; it will be sold at auction but will theoretically be worth less money because of the damage). This also means that the car has to have all its bits and pieces present when you give it back – if you’ve lost a key, for example, you’ll be charged hundreds of pounds to cover the replacement cost.

Once you have given the car back to the finance company, and paid any penalties if required, the agreement is finally settled.

The GFV only applies at the end of a PCP. Depending on your circumstances, you may be able to give the car back early without waiting until the end of the agreement. For more information, read our guide to voluntary termination of a PCP.

When should you consider giving the car back to the finance company?
  • If the car is worth less than the guaranteed future value (GFV)
  • If you don’t need the car or a replacement
  • If you have met all of the mileage/servicing/condition requirements or are willing to pay the associated charges

When is this option not really ideal?
  • If the car is worth substantially more than the GFV
  • If the mileage/service/condition charges of giving the car back are very high

Option 3. Part-exchange the car at a dealership

This is the option that about 80% of PCP customers take at the end of a PCP. For most people, it’s the only real alternative because they can’t afford the balloon payment to keep the car and they can’t afford to be without a car if they simply give it back to the finance company.

It’s a common misconception that you have to go back to the same dealer, or at least stay with the same brand, when you part-exchange your car on another one. This is not true – you can go to any dealership, for any brand of car.

When you part-exchange your car, the dealer will value the vehicle and you will need to provide the exact settlement figure for the outstanding finance. Usually, the finance manager or salesperson will call the finance company while you’re there, so you can speak to them and get the precise figure and due date. The finance company will also then provide this in writing to the dealership.

Once the dealership has valued your car and you have your exact settlement figure, you will know whether you have any equity. So, if your car is worth £9,000 and your final payment is £8,000, you will have £1,000 of equity to put towards your next car.

However, if your car is only worth £7,000 but your final payment is £8,000, you will have £1,000 of negative equity. This position is becoming far more common, and means that you either pay the negative equity to the dealer, or you go back to option #2 and give the car back to the finance company. Sometimes the dealer will encourage you to add the negative equity onto your payments for the new car – don’t fall for this; it will only cause bigger negative equity problems down the line.

As part of the part-exchange process, the dealer will pay off your finance. You need to make sure you are handing the car over to the dealer at least a few days before the finance settlement is due, so that it can be paid on time. If the dealer has not paid the finance company before your final payment is due, the finance company will assume you are keeping the car and try to take the money from your bank account.

When should you consider part-exchanging the car?
  • If the car is worth at least as much as the GFV or more
  • If you are buying another car on another PCP
  • If the mileage/service/condition charges of giving the car back are very high
When is this option not really ideal?
  • If the car is worth substantially less than the GFV
  • If you don’t need another car

Hopefully, this will help you make the best decision for your needs when you reach the end of your PCP agreement. If you have any questions that are not covered above, feel free to post them in the comments section below.

For the best independent and impartial car finance advice on the internet, always check with The Car Expert:

  • Subscribe to our newsletter for weekly tips and the latest offers from car manufacturers
  • Follow us on Facebook and Twitter to see our latest articles as soon as we publish them
  • Bookmark our site so you can check back regularly
Stuart Masson
Stuart Massonhttps://www.thecarexpert.co.uk/
Stuart is the Editorial Director of our suite of sites: The Car Expert, The Van Expert and The Truck Expert. Originally from Australia, Stuart has had a passion for cars and the automotive industry for over thirty years. He spent a decade in automotive retail, and now works tirelessly to help car buyers by providing independent and impartial advice.

More expert advice

The best used V6 cars for under £10,000

The V6 engine has featured in all manner of cars over the years, but which are the ones can you now buy for under £10,000?

Car finance: the PCP (Personal Contract Purchase) explained

The PCP (personal contract purchase) is the most popular type of car finance. This guide tells you everything you need to know about PCP car finance.

Financial watchdog to crack down on rip-off car dealers

Car dealers are ripping off buyers on their car finance by more than £1,000 to pocket higher commissions, Britain’s financial watchdog has found.

Volvo to limit top speed on all new cars

Volvo Cars has used this week's Geneva motor show to announce that it will limit the top speed of its new cars at 180km/h (112mph) from next year.

How does the UK number plate system work?

Many people find the British number plate system bewildering. The Car Expert explains how it all works and what all the letters and numbers really mean.

50 COMMENTS

  1. Hi my contract ends in April with a balloon payment outstanding which is less than the cars value. My personal circumstances has changed and no longer work full time as I’m now full time carer for my friend,
    Is there a way of keap it while on employment support most I have spoken to will only lend my balloon payment if I get carers allowance, which is nearly £60 less a week worse off I don’t get ,

    • Hi Allan. Re-financing the balloon payment is often tricky, as many finance companies who lend the money for the car in the first place won’t do so for re-financing (they’d rather lend you money for another car), so you have to borrow the money elsewhere – usually a personal loan from a bank or building society.

  2. Hi Stuart, great advice and I’ve learned something I didn’t know. Can you help with this question? I’m significantly UNDER the mileage allowance – I agreed 15k per year and as I reach 2.5 years I’ve travelled 23k, c. 9k per annum. I’m interested in how this affects my final payment. Would I be right in writing that it’s as simple as, all things bar mileage being equal, the car is worth more at the end of 3 years than originally quoted? Thanks Pete

    • Hi Pete. If you are giving the car back to the finance company or paying out the balloon payment to keep the car, it makes no difference whatsoever. If you are part-exchanging the car at a dealership, however, then the dealer may value the car at slightly more money because the mileage is lower. That means there is a possibility you may have more equity (the gap between what the dealer offers you and your finance settlement figure) to put towards your next car.

  3. Hi Stuart…. I’m four months in to the PCP payments on a new Golf when on Christmas Day the car was parked up and hit from behind when the local vicar fell asleep at the wheel. The garage has quoted £5,500 of damage … Will I lose value on the car if I want to get a new one in 3 years time as it’s been In an accident and if so how do I stand now claiming the loss from his insurers.

    • Hi Nancy. As long as your car is repaired by an authorised Volkswagen repairer, it shouldn’t affect your PCP rights at the end of the agreement. Any accident damage will reduce the value of your car if a potential buyer spots anything, but that’s to be expected. Good luck trying to claim anything from an insurance company for that.

  4. Hi Stuart,
    My PCP plan will be finished in around 6 months – i will have done far less mileage than originally agreed on my plan and i have kept the car in very good condition. I believe there will be good equity in the car. Is there the potential to ‘downgrade’ on my next car due to a change in circumstances. I am hoping to have significantly less or none at all monthly payments due to a mortgage application. I haven’t been able to find this information any where to date. My current car is a Mercedes Benz A180 AMG Line – can i get a significantly ‘worse’ car as a part exchange? Hope you understand what I am trying to say? Thanks

    • Hi Kyle. You can do whatever you like with your next vehicle, as it’s unrelated to your current agreement.

      When you take your A-Class to whichever dealership you choose, they will appraise the vehicle’s value against your outstanding finance. If the car is worth more than your settlement, that equity can be used on your new car. The dealer will settle your current finance agreement and you will presumably take a new PCP agreement on your next car that better suits your 2019 requirements.

  5. Hi I bought on car on pcp in August 2017. But I have since gone in to an IVA ..but i got to keep the car .. and I am still keeping up the monthly payments on it .so if I keep up the payment for the next 33months .will I be able to exchange the car for another one .. because I won’t be able to afford the balloon payment at the end of it ..or won’t the finance company let me .. because I’m in a IVA for 6 years.

    • Hi Donna. If you want another car at the end of this agreement, that will mean another finance application.

  6. Hi, When I got my car through PCP I was not informed that I was tied into a 6000 yearly mileage limit – despite the fact that my previous car had a higher yearly mileage. At no stage during subsequent servicing with the same dealer was I warned that I had exceeded the limit. Should the car dealer have advised me that I was tied into a mileage limit (if they had done so, I would not have accepted the pcp deal)? Likewise are they obliged to warn you that you have exceeded the limit?

    • It’s up to you to check the details of a contract before signing it, as a PCP contract will clearly show the annual mileage allowance.

      As for reminding you at the annual service, no. The service department will have no idea or interest in how you have financed the vehicle, as it has nothing to do with them.

      You can complain to the finance company that you were not made aware that your new contract was for a lower annual mileage, but all they will probably do is pull out your contract with the mileage stated and see that you have signed it.

  7. Hi there I am getting my first car on PCP next week and I was wondering if you can’t afford the ballon payment but really want to keep the car at the end can you carry on the Finance instead of paying it off?

    • Hi Michaela. Generally no, the finance company won’t allow you to re-finance the balloon amount. You would need to take out a loan from your bank to pay it off.

  8. Hi,

    If at the end of the pcp (motorcycle) I want to take a second hand motorcycle.. is that even possible..?

    The motorcycle GFV will be around 4000£.
    And I will pay in 3 years 2800£.
    That means if I find a second hand motorcycle costing 4000£ .. paying the rest of 1200£ Can make me the owner ..?

    Which is the point of loosing your mooney if you can just have another one… even older.. something is better than nothing..

    Did I get it right?
    Thank you in advance for reply

    • Hi Axux. If the GFV is £4,000, then you will have to pay £4,000 at the end of the agreement to settle the finance and become the legal owner of the bike.
      Or you can give it back to the finance company instead of paying the £4,000.
      Or you can part-exchange it for a second-hand bike, but the £4,000 will still have to be settled. The dealer buying your bike will settle it, so if your bike’s worth £5K they will pay the finance company £4K and you will have £1K left over to put towards your next bike.

  9. Hi morning I have just returned my car week before the end of the agreement, due financial constraints and to my surprise the finance company, tried to take the PCP fee from my account, when took out this agreement It was never explained to me about the PCP and neither that there was a ballon payment, the agreement was taken out through a with friend who works for the dealership I who told me he could get me a good deal. And now all this has come to my knowledge. I would be grateful if you could tell what options are, thanks

    • Hi Christopher. If you have already returned the car, they obviously shouldn’t be trying to take the balloon payment as well. Sounds like they may have made a mistake – have you tried speaking to the finance company to find out why they took the balloon payment?

  10. Hi, I, coming to the end of my pcp in June and i was going to just hand it back and i was going to take over the payments of my friends car as he was going to sell it. How would this work with the pcp deal and the finance of my car

    • Hi Daniel. You can’t simply “take over” payments for someone else’s car – he doesn’t have the right to sell it to you or hand responsibility for payment over to you. For more information, have a read of our article about accommodation deals and why finance companies don’t allow them.

  11. I am at the end of my pcp. I want to buy a car with cash so I am part exchanging. Why am I being charged £700 on top of the cost of my new car?
    Ann

  12. I have a PCP that is coming up in July. When I took this out, I was under the impression that the Trade in Option meant the full value of the car at the end of PCP (as assessed by the dealer) can be used as a trade in/deposit on a new car. Now I’m slightly confused as to whether only any positive equity can be used as a deposit on a new car.

    • Hi Rebecca. Only the positive equity can be used towards your next vehicle. You still owe the balloon amount to the finance company. For more information, have a read of our guide to how a PCP works.

  13. Hello.
    I handed my PCP car back at the end of deal January 2018. Under mileage, service history and recent passed MOT in last two months. The finance company are now stating I have an outstanding balance of £520 because the car never sold for estimated value at auction. However I handed the car back and this was accepted by finance company in lieu of not taking the balloon payment on. Where do I stand and is this down to me to fork out for? The car does not require any repair or have any damage. Thanks Jade

    • Hi Jade. It sounds like the finance company is suggesting that the car was not handed back under the terms of the guaranteed future value (GFV), but rather it was voluntarily surrendered early.

      You certainly should not have to worry about whatever the finance company sold the car for at auction – that’s the point of the GFV. Have you spoken to anyone at the finance company to try and resolve this? I would have thought that it may have been an error and that a simple phone call should sort it out.

      If the finance company insists that you do owe them the £520, you will need to get some legal advice. Visit legalbeagles.info for some general advice, but you may need to speak to a solicitor.

  14. Hello. I have 9 months left of my PCP plan and looking to trade the car at a different dealer. When do you recommend is best to start looking for new deals? Is it best to wait until the end of the 3 year agreement? I’m just concerned if I trade now my car would still be in negative equity. Thanks.

    • Hi Marie. A PCP agreement is calculated to deliver a neutral or positive equity position at the end of the agreement. If you want to change your car earlier, you will normally be in a negative equity position. You have to weigh up whether the deal being offered is worth paying money to exit your current deal.

      As a rule: the more regularly you change your car, the more it is costing you. Even on a used car, there is more depreciation at the start of the agreement than at the end. This is because the price of the car includes the dealer’s cost of sales and profit, plus the interest you are paying on your finance agreement. The longer you keep the car, the less it is costing you per day/month/year.

      For more information, have a read of our article about the early upgrade myth.

  15. Hi, I’m looking to do Option 3 in the near future but at a different dealer. I’m aware I have gone over the agreed millage. Will they charge me a penalty fee or will just come off the value of the car?
    Thanks advance
    Harry

    • Hi Harry. If the dealer values your car at more than the balloon/GFV amount, then they simply buy it from you and settle the outstanding finance. The leftover amount (equity) is put towards your next car.

      If the dealer values your car at less than your balloon/GFV amount, then you need to work out if it’s cheaper to a) hand the car back to the finance company and pay the excess mileage charge, or b) part-exchange it anyway and pay the dealer whatever the shortfall (negative equity) is to settle the finance.

  16. Hi I currently have a car on PCP that will be coming to an end in June. I think my best option is going to be to part exchange the car as long as it is in positive equity as I need the car for work etc and can’t afford to the final payment. Although I can afford the car payments and have been paying it for past few years my credit is bad so I’m worried that to part exchange the car through the same dealership (Arnold Clarke) in the hope of taking out a new agreement they will re credit check me and the application will fail :( is there any chance that if I stick with the same dealer I can part exchange and get a new agreement as they know I’m good for the payments without further credit checks that I’m sure will fail.

    • Hi Kirsty. The dealership has nothing to do with it once you drive off with the car; your financial relationship is with the finance company, and they will conduct a new assessment of your situation when you next apply for finance.

      It doesn’t really matter if you are already a good customer, as they will look at a number of factors that will determine whether or not they want to lend you money again.

  17. Re the part exchange option, I am assuming that this would only apply if you take out a new finance agreement? Rather than just pay the balance for a new/used car in cash?

    • Hi Ross. Not necessarily. At the end of the day, the dealer is taking your part-exchange because they want to sell you another car. If the car is worth more than the settlement figure, it’s really not an issue for the dealer.

      Of course, the dealer will always want to sell you finance on your next car purchase because they make a nice commission on it.

  18. Hi Stuart,
    If we put in a deposit on a car, eg £4k on a pcp, does that count towards the equity at the end of the deal? Or is the equity simply worked out as you mentioned in option3 above, i.e. that the dealer works out car value v final payment?
    Thanks
    Chris

    • Hi Chris. No, your deposit is simply an upfront payment that helps to reduce your monthly payments. You don’t get it back again at the end.

  19. Hi, my agreement ended in October 2017 and the car was collected by Manheim. At the time they stated there was damage which we disputed.
    I then heard nothing more until 10 February 2018 when I received a letter stating that repairs had totalled £336 and I was expected to pay within 14 days! Surely they cannot hold me liable 5 months after collection? In addition, the email I received in September 2017 arranging the end of the agreement, stated clearly that they would be in touch within 6-8 weeks from collection if there were any outstanding liabilities.
    Thanks
    Vikki

    • Hi Vikki. You are entitled to dispute any repair charges – in any case, they have not physically repaired your car. All they have done is look at the damage and charged what they think it would cost to fix. The car would actually have been sold at auction as-is, and the dealer who bought it would be responsible for making any repairs.

      You said that you disputed the damage claim when the car was collected, so you will need to refer to this. Ultimately, it’s all a matter of negotiation.

    • Thankyou for your advice spoke to finance company and are willing to refinance my car. Do you think this is a good. Idea. Or return catr to dealer I don’t really want to change my car.

    • Refinancing is one option, as is borrowing money from your bank (or another bank or finance company) to cover the balloon.

      If you are happy with your car then it is certainly a viable option for you. You are paying interest on money that you have already paid interest on, but ultimately it’s about what works best for you and your financial circumstances.

    • Hi Rosemary. Your PCP is not connected to the dealer where you bought the car, so you don’t have to worry that they no longer trading. If you want to part-exchange your car for another one at the end of your agreement, you can go to any dealer from any brand – you are not tied to Citroën.

  20. Hi I have a lot of equity on my vehicle ,after a two year pcp contract . If I give the car back can I claim this equity in cash that has built up ? The balloon payment is £17,500. To buy a car with identical spec. age , serviced and in A1 condition is about £ 25,000 to £28,000 .they will give me the equity on a new vehicle. Am I missing something?

    • Hi Dave. If you are giving the car back to the finance company at the end of the agreement, you do not get to claim any equity that may exist over the balloon figure – you are simply handing back the car in lieu of making the final payment.

      If you part-exchange the vehicle on another car, the dealer where you buy your next car will settle your balloon and allow you to use the equity towards your next car. If you are taking another finance agreement, the dealer may agree to refund you some of the equity if you prefer, rather than putting all of it in as deposit.

  21. Hi Stuart, I have a very recent PCP with Audi and I want out cos I am 70 years old and don’t want them to deprive my family of the few quid I have left. Am I in trouble, this is very complicated. Looks like from reading your excellent info on here, that I am going to be left with nothing, wiped out by my silly notion to have a nice car. Your thought please would be appreciated

    • Hi Colin. If you have only recently started a PCP, it will be an expensive exercise to try and get out of it now. It is possible, but you will probably owe the finance company more than your car is worth. For more information, have a read of our article about settling your PCP early.

      If you want to keep the car for the duration and then simply give it back at the end, you can do that. Alternatively, once you have paid off half of the total amount payable, you can voluntarily terminate the agreement and give the car back, although this only really happens towards the end of a PCP agreement anyway.

      If you want to keep the car, you will have to keep paying your monthly payments and then pay the balloon amount at the end of the agreement.

      It’s certainly not unusual to question whether you have made the right decision to have taken out a PCP agreement. However, consider your options carefully (especially if you are still using the car) as you may be making your financial position worse by getting rid of it now.

  22. Good morning, I hope someone can help. I have recently come to the end of a PCP agreement with Audi, they say that the Option to Purchase Fee is payable come what may and is just an ‘Admin fee’.
    I think this is incorrect and should onl y be payable if I keep the vehicle and pay the balance.
    Any thoughts.

    • Hi Mark. If you are returning the car and claiming the GFV then you shouldn’t have to pay an ‘option to purchase’ fee (since you are not purchasing the vehicle). If you are part-exchanging the car, then the settlement figure will include the fee since the dealer is buying the car and settling the finance from the finance company.

  23. If I decide to trade my pcp car in do I have to have another brand new car or can I trade it in for a used car if I cannot afford the payments on a new one

    • Hi Roger. No, you don’t have to buy another new car. You can choose whatever you like, new or used, from any brand you like and any finance company. The only limit is what you can afford.

LEAVE A REPLY

Please enter your comment!
Please enter your name here

1 + 9 =

Be the first to know

Would you like to stay up to date with The Car Expert?