The optional final payment of a PCP car deal is the amount due at the end of your contract if you want to buy the car.
It’s a one-off final payment of a PCP contract – sometimes known as a balloon payment – that drivers can pay if they want to take ownership. If not, they can hand the car back with nothing left to pay (provided it’s below mileage limits and in good condition) or trade it in for a new one.
On this page, we’ll explain what you need to know about optional final payments and PCP finance, along with how to make the most out of them.
What do I need to know about optional final payments?
PCP deals split the cost of a car into a deposit, a series of monthly payments and an optional final payment at the end of the agreement.
Drivers can choose whether to make the optional final payment to take ownership, hand the car back with nothing left to pay (provided it’s below mileage limits and in good condition) or trade it in for a new one.
How do I make the most of optional final payments?
The higher the optional final payment, the lower your monthly payments will be, as the amount you’re paying – the difference between the list price and the car’s predicted value when you hand it back – is less.
Should you plan to return the car at the end of the contract, you’ll want a car with the highest possible optional final payment, as this will shrink your monthly bills.
If, however, you intend to buy the car when the plan ends, with a greater the optional final payment, the more money you’ll have to find to take ownership. This figure can be more than half the car’s list price, so make sure you’ll be able to afford this if you hope to own the car.
Alternatively, hire purchase schemes let you pay a deposit and monthly instalments with no large balloon payment at the end. Monthly instalments are typically higher than equivalent PCP options, but you already own the car at the end of the contract.
How are optional final payments calculated?
The percentage size of your optional final payment will depend on the terms of your contract and the vehicle market at the time of the agreement signing. Financers will evaluate the depreciation of other vehicles to determine how much you will need to pay at the end of your contract.
The longer your contract, the less your balloon payment will be as by the end of your contract, your car won’t be worth as much as it might’ve been several years or even just a year before.
High annual mileage will also depreciate the value of the car and therefore bring down the size of the optional final payment. However, it’s worth noting that the size of your balloon payment will have a direct impact on the size of your monthly payments.
Do you have to pay an optional final payment on a hire purchase?
No. A hire purchase agreement is a commitment to owning the car from the outset but with payment spread over a period of time. Be aware, however, that monthly payments are typically much higher as a result.
