PCP, or Personal Contract Purchase, is a very flexible finance option when choosing a new or used car. In the first instance finance options can seem confusing, take a look at PCP, PCH or HP? Car finance explained if you are still deciding on how to finance your car.
At the beginning of a PCP contract the car is given an estimated end of contract value, known as the Guaranteed Minimum Future Value (GMFV) or balloon payment.
However, if you have already financed your car using PCP and you want to know what happens when the contract ends, then you’re in the right place.
At the end of a PCP contract you do not own the car, like you would if you had used HP finance, or hire purchase. The finance company still owns the car throughout the contract period.
There are three options to choose from when your PCP term ends:
Option one: Give the car back
You could treat the PCP contract like you would a lease and give the car back to the finance company, provided you have not exceeded the pre-agreed mileage allowance (if this were the case then you would be charged a fee). You would also have to ensure that all manufacturer services have been conducted and that the car is in good repair and working order, again you would be penalised financially if it was not.
Option two: Pay the outstanding GMFV with cash or a loan
At the end of your contract you could purchase the car from the finance company by paying the GMFV, or balloon payment. You could do this by paying cash or by refinancing so that you are the legal owner of the car.
Option three: Part-exchange for another car
Possibly one of the more popular options; part exchange of the vehicle allows you to trade the car in for another one. The trade-in value would need to be higher than the GMFV, and then the difference between these two prices would be used as a deposit for your next car.
You can normally terminate your PCP contract early, however many finance companies will require you to pay off the difference between what your car is worth now, and what you still owe (negative equity). For example, if your car is currently worth £12,000 but your finance settlement figure is £14,000, then you will need to pay the £2,000 to clear the negative equity.