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.
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.
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.
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.
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: