What happens at the end of a PCP agreement?

Even if you had planned to own the car at the end of the agreement, your preferences may have changed during the term, which is one of the advantages of engaging in PCP vehicle finance. There are three options available to you at the end of a PCP agreement:

1. Choose to make a final lump sum payment to own the car legally
2. Decide to part-exchange the vehicle by using the equity you will have hopefully built up, as a deposit for your next one
3. Return the vehicle with no more to pay

Let’s start by looking at option one. Known as a ‘balloon payment’, the final lump sum is the amount of money left to pay at the end of your term to become the legal owner of the vehicle. Before this point, the lender is the registered keeper of the car, van or motorbike. The amount you pay is based on what the vehicle is worth - this is what’s referred to as the ‘Guaranteed Minimum Future Value’ (GMFV), which will be agreed at the beginning.

Option two is an ideal choice if you’ve decided you don’t want to keep the car but do want to drive a newer vehicle. Hopefully, you will have built up positive equity to fund your next finance deal, meaning the car will be worth more at the end of the agreement.

Option three is pretty straightforward and means you won’t have to pay the final balloon payment. When your agreement comes to an end, you’ll simply hand the car back - and assuming there’s no damage above what’s considered to be standard wear and tear - the finance agreement will end. Bear in mind that you won’t be able to keep hold of any positive equity from the car, but equally, you won’t have to worry if the car has devalued either.