Car finance: what happens at the end of a PCP deal?

  • Choose to return the car, buy it outright or trade it in
  • Make the optional final payment to take ownership
  • If you return car it must be well looked after to avoid charges
  • Choose to return the car, buy it outright or trade it in
  • Make the optional final payment to take ownership
  • If you return car it must be well looked after to avoid charges

When you signed on the dotted line several years ago, the end of the finance contract might have seemed like a lifetime away. However, after a few years enjoying your new car, it’s quickly time to consider your options again.

With a PCP scheme you have three choices when the contract ends; make the optional final payment and buy the car, return the keys and walk away with nothing left to pay or trade it in for a new one.

1. Return the car to the manufacturer

Hand the car back to the company and you should have nothing to pay. That’s provided you’ve made all monthly payments, stayed within mileage limits, haven’t damaged the car (beyond fair wear and tear) and have serviced the vehicle as specified in your finance agreement.

Break any of these conditions and you can expect to incur additional charges. However, if you have damaged the car, be aware that you can always get a quote from the manufacturer to fix it and compare this with another garage you trust – as getting the car fixed elsewhere could cost you less.

If you’ve kept the car in good nick, though, you simply hand the keys back and look for a new car elsewhere. Remember that you walk away with no capital, as you will have effectively rented the car for the contract term.

2. Buy the car

Say you’ve fallen in love with your car, instead you can make the optional final payment (also known as the Guaranteed Future Value, GFV) and take ownership. Pay this and you become the legal owner of the car is yours to do with as you please. You could always refinance with a bank loan and have lower monthly payments from this point on.

If the car is worth more than the Guaranteed Future Value you are also free to sell the car on and make a bit of a profit. You then have a large sum of money that you can either use as another deposit or to buy a cheaper car.

3. Trade in the car for a new one

This is the option which manufacturers will be keen for you to take as they get repeat business from you – and any equity left in the car (where the value of the car exceeds the Guaranteed Future Value agreed at the beginning of the contract) is yours to put towards the deposit on a new finance scheme.

You’ll want to remember, though, that the value of the car could also be less than expected – if, for instance, you’ve exceed the agreed mileage limit or have returned the car with damage – which could leave you out of pocket. As a result, it’s important that you’re not financially depending on equity being left in the car at the end of the agreement.


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Wear and tear and mileage limits

Go over the agreed mileage limit and you are liable to be charged for every additional mile you’ve covered. While some companies charge as little as 3p per mile, others will demand up to 30p per mile. This means that even chalking up an extra 1,000 miles each year could cost you up to £900 after three years.

Your paperwork is likely to specify how often you need to service the car and the condition it must be in when you return it. Fail to service the car on time – or at all – and you can expect to be stung with additional fees, as this has a direct impact on the value of the car. Anything beyond “fair wear and tear” may also incur a penalty to put right.

Don’t forget, however, that if you’re happy with the car you can always make the optional final payment to take ownership – and not be liable for any excess mileage, damage, or missed servicing charges. Be aware that these factors are likely to have an impact on the value of the car if you plan to sell it.

Dealers encouraging you to get a new finance deal

Manufacturers will often get in touch well before the end of your contract to try to entice you into a new contract. Though some of these offers might seem appealing, remember that the dealer is looking to make a sale, and even if the monthly payments are the same, often you’ll have to put down a hefty deposit – significantly increasing the total amount you pay compared with sticking to your current car.

Therefore, be sure that you know what you’re signing up for if you end your contract early. Also be aware that other manufacturers may have even better deals – so it pays to shop around.

How does PCP finance work?

Financing a car is by far the most popular way to purchase a new vehicle. It makes budgeting easy with a set monthly payment and there are a number of very compelling packages on offer – with some even throwing in free insurance and servicing or other extras.

What makes PCP so attractive is that you’re not paying for the whole car over the duration of the contract – unlike with Hire Purchase – meaning that monthly payments are much lower. This is because the manufacturer guarantees that the car will be worth a certain amount at the end of the term and you pay the difference between the list price and the expected final value. 

Why is the optional final payment/Guaranteed Future Value important?

The more the car company anticipates the car will be worth, the less you’ll pay each month. The flipside is that should you decide to buy the car at the end of the plan you will have more to pay for a car that retains its value well. 

At the start of the loan the lender will set the Guaranteed Future Value, estimating what the car will be worth when the term finishes. Therefore, you know how much you need to save by the end of the contract if you want to make the car yours. 

If you want to own the car but aren’t sure whether you’ll be able to afford this, you can always refinance, by talking to the dealer or looking into personal loans. With interest rates at a historically low level, this could be a good value way to get the car you want for an affordable monthly cost.

Compare Hire Purchase costs if you want to own the car

Another way to finance a car with the view to owning it, is Hire Purchase. In some cases this can be the cheapest overall finance option, as you’re paying off the loan more quickly – and less interest is being charged. 

Monthly payments are almost always much higher, however, as there is no final payment as with PCP – once you’ve made all the instalments, the car is yours. Furthermore, very large discounts are available from some manufacturers, meaning that PCP can be a better bet. Therefore, if you want to own the car it’s worth comparing PCP and Hire Purchase costs.

Alternatively, if you're considering funding your next car with a loan, visit our car finance calculator to see how much you can afford or check out our cars for sale section for local deals.

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