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Is It Worth Buying Out Your PCP Car?

Car keys and money on table with man using calculator. Buyer counting savings and gas cost or salesman calculating sales price, vehicle value or road taxes.

Do you have a car on PCP, and you’re wondering whether you can keep it? Or maybe you’re looking at buying cars at the moment and want to know if you get PCP what your options will be?

Personal contract plans (PCPs) are one of the most popular ways to buy a car, making up for around 80% of all new car registrations. They’re a good option for people who want a car that’s outside their budget, because the price is offset by a final ‘balloon’ payment that doesn’t need to be paid if you return it.

Because this final payment often runs into the thousands, most people opt to return their car or part-exchange it for a new model. But what happens if you want to keep the car after the PCP contract ends? And is completing the balloon payment worth it?

Here, we’ll take a look at the pros and cons of making a final PCP payment to find out if it makes sense in the long term.

What is a balloon payment and how much will I need to pay?

The balloon payment is the Guaranteed Future Value (GFV) of your car when the PCP contract has ended. So, for example, you might buy a car for £7,995, and the dealer’s worked out that it will be worth a minimum of £3,495 three years down the line– this is the final amount you’ll need to pay to own the car outright.

What are the benefits of paying the final payment at the end of a PCP contract?

While the majority of drivers give their car back at the end of a PCP contract, more and more people are choosing to pay the final balloon payment to take ownership of their car. And, there are lots of reasons why this might be a good option for you – as we highlight below.

Couple is buying new car and signing the contract

How does PCP work?

PCP contracts work by splitting the value of a car into three:

  • a deposit (paid before you get the keys)
  • a monthly payment
  • the final GFV payment. Lots of people choose to give their car back rather than paying the GFV, because it would mean taking out a loan or continuing on with the same finance company until the amount is paid off.

The amount you have to pay at the end of a PCP contract will differ depending on the deposit you paid and how much the monthly payments were. The balloon payment can be as much as half the initial purchase price of the car, so make sure you factor this if you plan to buy it at the end of the contract.

You could turn a profit

The thing to remember about a GFV balloon payment is that it’s only an estimate, based on the minimum amount the finance company thinks your car will be worth at the end of the contract. Your car could be worth more than the final payment, in which case, you could sell it on and make a profit.

Car loan application form lay down on desk

There are lots of cases in which a car may be worth more than the GFV at the end of a PCP contract, including:

  • You’ve done fewer miles than the maximum amount in your contract
  • You’ve kept the car in a really good condition, maintaining its mechanics, paintwork and interior beyond the standard expected by the finance company
  • You’ve invested money in fitting new parts, like tyres, or have paid for the car to get through its MOT before finding a buyer
  • New legislation comes into force which makes a car of your type cheaper to run or more desirable, such as a new emissions tax
  • Your car is a limited-edition model which holds its value and becomes more desirable over time
  • You’re in the right place at the right time, and a buyer

No more monthly payments – eventually

PCP contracts are great for getting hold of the keys to your dream car, but they do mean months and months of repeat payments, sometimes for up to four years. Over time, paying out a substantial sum every month might put a squeeze on your finances, especially if your circumstances change or you want to start saving for other things.

Wouldn’t it be great to just own your car without worrying about paying for it every month? Of course, choosing to pay the balloon payment could mean another year or two of clearing the loan or credit card amount, but at least there’ll be an end in sight.

Even if you only plan to keep your car for a year or two after paying it off, it could give you the time to consolidate your finances and save up for your next big purchase – free from the demands of monthly PCP payments.

Indian man driving luxury taxi

You’ll own a car you love

Whether you’ve had your car for two years or four, it can be hard to remember why you wanted it in the first place when it comes to the end of your PCP contract – especially when the dealer is trying to entice you to exchange it for a shiny new model. But, don’t feel pressured to exchange if you like your current car; even if it’s a few years old, it should still have plenty of happy miles left to give.

New cars have become a bit like mobile phones, with people eager to trade theirs in for the latest model at the earliest opportunity. But if you’ve fallen in love with your car and have always been happy with how it performs, you shouldn’t feel pressured into trading it in at the end of your PCP period.

Even though financing has become the most popular form of car ownership, owning a car outright is still special. No payments, no maximum annual mileage, and no salesman calling every month to try and sell you the latest car on the forecourt. It’s what owning a car is all about.

Things to consider when your PCP contract is coming to an end

Couple sitting in their living room and checking their finances on the computer

Whether you plan to pay the balloon payment or hand back the keys, here are some essential things to remember when your PCP contract is due to end:

  • There’ll be a ‘completion fee’ to pay – Keep the car or return it, you’ll often need to pay a ‘completion fee’ to the finance company. Read the small print on your contract to find out how much this is and when it will be due..

  • Your dealer might hound you – At the end of the day, dealers don’t want you to buy your car outright because it means they stand less chance of bagging another sale, so they’ll come after you with all sorts of offers. This is good news if you’re planning to exchange, but bad news if you’re planning to pay your car off.

  • You’ll get equity back if your car is worth more than the GFV – If you’re planning on getting a new car, you’ll get equity back if your current model is worth more than the contracted GFV, and this can be used to get a better deal.

  • You might pay extra charges if you want to give your car back – There may be more to pay before you can give your car back if you’ve gone over the agreed mileage limit, damaged the car (beyond fair wear and tear) or have failed to service the car in line with the finance agreement. This is something to consider before you head to the dealership and hand over the keys.

  • You can hand back early - If your circumstances have changed and you can no longer afford to keep your car, or you want to trade in for a new model before the PCP contract has ended, you can opt for a Voluntary Termination (VT). You can only apply for a VT if you’ve paid more than 50% of the car’s total value.

Whichever option you decide on, you can take better care of your current or next car with our range of DIY car maintenance products. Visit our blog for more motoring tips and advice or click here to head to our homepage.