What Is a PCP Car Loan?

This balloon payment or GMFV (Guaranteed Minimum Future Value) is set at the beginning of the agreement and is determined by how many years the car loan is paid over and how many miles per year the drivers thinks they may do. This GMFV is guaranteed to be the minimum the car will be worth at the end of the agreement and if it worth less than this you can just give the car back to the finance company and it is their problem. (This is providing the car is in good order and you haven’t put more miles on the clock than you said you would.) The flexibility of a PCP car loan means that at the end of the agreement you can either pay the final GMFV payment and keep the car, return the car to the finance company if it is not worth the GMFV or trade your car in for a newer one and any value that your car has over and above the GMFV will go towards the deposit on your next car. Finance companies and car manufacturers do try and set the GMFV sensibly low because they want you to have a good amount of equity in your car when you come back so that you have a good sized deposit towards your next purchase. This gives them a good chance of selling you another car every 3 years or so. If you do decide to keep the car at the end of the agreement and you haven’t saved up the money to pay back the GMFV you can also can also speak to The Car Loan Warehouse about refinancing this balloon payment over a couple of years with a similar monthly payment until it is all paid and the ownership passes to you.

Things to remember about PCP agreements:

Setting your estimated annual mileage carefully as setting this low will give you a lower monthly payment but your GMFV will be higher and if you try to give the car back at the end there will be a pence per mile penalty for every mile over the agreed total mileage. If you try and return the car with any damage you will be charged for the repairs so make sure you give it a good clean and polish and touch up any small scratches with a paint pen. Putting down a large deposit at the beginning may get you a lower payment but the GMFV will be exactly the same as if you put down no deposit so you are not guaranteed to get an equivalent amount of equity out at the end. This means you may have to put your hand in your pocket for more deposit when you come to change for a newer car if you want a similar monthly payment to what you have been used to. So in summary taking a PCP car loan and deferring the GMFV to the end of the term will get you lower monthly payments than an equivalent term hire purchase agreement. You will have fixed monthly payments enabling you to budget your finances easily and you won’t need a large deposit at the beginning unless you want to lower your monthly payment. Similar to hire purchase your agreement is regulated under consumer law so you also get certain legal rights and protections that you wouldn’t get with a bank loan. If you have any questions about PCP car loans or any other types of car loan you can call one of our experienced advisors on 0800 066 2888 or make an application for finance online. Apply Now Loan Calculator