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Car finance: what is an optional final payment?

  • What do I need to know about optional final payments?
  • How do I make the most of this finance option?
  • Parkers explains car finance terms

This is the amount you pay at the end of a PCP finance scheme if you want to buy the car outright.

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, the 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.

Similar to

Guaranteed Manufacturer Future Value (GFMV), Guaranteed Future Value (GFV), balloon payment

Want to find out more about car finance? Take a look at our car finance section or head to the Parkers Car Glossary for more motoring meanings