What the final payment is
On a PCP deal you borrow the price of the car less your deposit, but you don’t pay all of it off in the monthly payments. A set amount, the final payment, is left until the end of the agreement. It usually includes a small option-to-purchase fee. You only pay it if you want to keep the car.
Lenders often call it the guaranteed minimum future value (GMFV): the lender guarantees the car will be worth at least that much at the end, so if it’s worth less you can hand it back instead.
How lenders set it
The lender estimates the car’s future value from:
- the make, model and specification, and how well that model holds its value
- the length of the agreement
- your annual mileage limit: more miles, lower value
On real four-year deals it’s usually somewhere between about 32% and 55% of the cash price. Manufacturers sometimes set it higher on cars they want to promote, which lowers the monthly payment. The figure on your quote is the one that counts; you can’t choose it yourself.
How it changes your payments
A £25,000 car with a £3,000 deposit, at 9.9% APR over 48 monthly payments, with the final payment due a month after the last one:
| Final payment | Monthly payment | Interest (charge for credit) |
|---|---|---|
| 32%: £8,000 | £415.83 | £5,959.84 |
| 40%: £10,000 | £381.67 | £6,320.16 |
| 55%: £13,750 | £317.63 | £6,996.24 |
A higher final payment lowers the monthly cost but adds interest, because more of the loan stays outstanding for longer. These figures are illustrations only; a real final payment comes from the lender.
Your choices at the end
- Keep the car: pay the final payment, from savings or, sometimes, by refinancing it with a new loan (which costs more interest).
- Hand it back: return the car and pay nothing more, apart from charges for excess mileage or damage beyond fair wear and tear. This is useful if the car is worth less than the final payment.
- Part-exchange: if the car is worth more than the final payment, that difference, the equity, can go towards your next car.
Get a valuation a few months before the end, so you know whether you have equity.
Mileage and condition
The mileage limit is part of how the final payment was set. Ten thousand miles a year on a deal with 48 payments and the final payment a month later gives a limit of about 40,833 miles. Going over it means a pence-per-mile charge if you hand the car back, set out in your agreement. If you expect to drive more, it’s usually cheaper to agree a higher limit at the start.