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What happens at the end of your PCP finance agreement?

PCP finance agreements on cars normally last between three and five years. Once the agreement comes to an end, you have three options for what to do next.

We’ll go into more detail on each option below, along with their respective pros and cons. As a quick overview, however, when your PCP deal ends you can:

1. Pay the final payment (aka ‘balloon’ payment)You own the car outright and don’t make any more payments
2. Put any positive equity towards buying a different carYou can get a different and/or newer car while offsetting some of the deposit
3. Return the carNo more payments to make but you’ll no longer have the car

1. Pay the final payment

Key handover for a blue BMW 1 Series

Your PCP agreement will include an optional final payment – often called a ‘balloon’ payment. When the agreement ends, you can pay this balloon payment to complete the purchase of the car. This will make you the car’s full legal owner, meaning you can keep it as long as you like and you’ll have nothing more to pay after this point.

The balloon payment will broadly be the same as your car’s guaranteed minimum future value (GMFV), which will also be set at the start of your finance agreement. You might find the car is actually worth more than its GMFV at the end of the agreement – in this case, you could pay the balloon to buy the car outright, then sell it elsewhere and pocket the difference.

Balloon payments are usually quite expensive – often several thousand pounds. If you’d like to buy the car, but don’t have that much money available in one go, you can talk to your finance provider about refinancing the amount, allowing you to pay it off over a longer period. Alternatively, you could take out an unsecured bank loan to cover the balloon amount.

Our tips if you decide to pay the balloon payment

Motorpoint sales executive discusses options with customers
  • Paying the balloon payment is usually the default option on PCP deals
    • If you don’t confirm what end-of-deal option you want with your finance company, they will automatically try to take the payment
    • This could see you default on the agreement if you don’t have the money available, potentially affecting your credit score
    • Most finance companies will get in touch before the end of the deal, but we strongly suggest you contact them if you haven’t heard anything at least three months before the end of your PCP agreement
  • Some finance providers may try to make their PCP monthly payments look more affordable by adding a larger balloon payment at the end
    • This might be cheaper initially but means you’ll have to pay a much larger figure to own the car when compared against other providers
    • You could also be left in negative equity
    • Make sure to compare the balloon payments of different PCP deals so you’re not stuck with an unaffordable payment at the end of the agreement

Should you pay the balloon payment?

Close up of a row of cars at Motorpoint – a yellow Kia Picanto is in the foreground

Paying the balloon payment is the best and only option if you want to keep the car. So, if you need personal transport to get to work or whisk the kids to school, and don’t want the expense of a new finance deal, this might be the best choice. Once the balloon is paid, you’ll owe nothing more on the car and can keep it for as long as you like.

It’s also a good option if your car is worth more than its guaranteed minimum future value. In this case, you can put that extra money in your pocket by paying the balloon to buy the car outright, and then selling it to a third party. You can then use that cash to upgrade to a better car or put it towards any other expensive projects you have planned.

PCP finance deals include limits for mileage and acceptable wear and tear. If you opt not to buy the car and hand it back, you’ll have to pay for any extra miles covered or any damage you’ve caused. If you’ve gone far beyond these limits, it might be a better idea to pay the balloon and buy the car rather than face substantial fines from your finance provider. If you buy the car, limits to mileage and wear and tear no longer apply.

2. Put any positive equity towards buying a different car

A row of cars for sale at Motorpoint

If you still need a car, but don’t want to pay the balloon and own your current model, you might be able to bundle any positive equity you’ve built up into a new finance agreement, or put it towards a cash purchase of another car. Adding this equity to your new deal can reduce the size of your deposit or lower your monthly payments.

Positive equity happens when your financed car is worth more at the end of the agreement than its guaranteed minimum future value (GMFV). Motorpoint can get you a quick and easy car valuation, which you can use as a guideline to see if your car will be worth more than its GMFV.

Your existing finance provider will probably get in touch towards the end of your agreement, at which point you can discuss how much positive equity you’ll have and what you can put that towards. However, you can also seek out finance deals with other providers – they will be able to establish the details of your current agreement, settle any remaining payments with the old provider and bundle whatever equity is left into your new agreement.

This option does mean you’re handing the old car back, so mileage and wear and tear limits will be enforced. Make sure you’re aware of these limits and how much it’s going to cost you if you’ve gone over them.

Should you put any equity towards a different car?

A car being prepped for sale by Motorpoint's prep team

Bundling any positive equity you’ve earned into another finance agreement might be a good option for you if you’d like to upgrade your current car to something newer or more expensive. This means you keep paying monthly payments as usual but reduce the relative cost to upgrade compared to a buyer who doesn’t have a car to trade in.

This option will suit drivers who like to upgrade their car every few years. It’s also worth considering if you have an expanding family and find you now need a larger car.

Buyers who opt to pay the balloon and own their car might save money in the long run, but they’ll usually find their servicing and maintenance costs increase as the car gets older. As a result, drivers who want to avoid the hassle of keeping an older car on the road might also want to consider this option.

3. Return the car

A selection of cars for sale at Motorpoint

If you don’t want to pay the sizeable balloon payment and don’t want the expense of another finance agreement, the final option is to simply return the car to the provider at the end of the deal. At this point, you can walk away with nothing more to pay – even if the car’s in negative equity and is worth less than its guaranteed minimum future value.

The inevitable downside here is that you’ll no longer have a car, so you’ll have to find alternative transport options if you need to commute to work or tackle the school run. In addition, you’ll miss out on any positive equity you might have earned over the course of the finance agreement, which you could’ve used to make the next finance agreement more affordable.

Like option 2, you’re still handing the car back in this situation. That means you’ll have to pay an excess charge if it’s covered more miles than set out in your agreement or if there’s any wear and tear beyond agreed reasonable levels. If you’re substantially over these limits, it might be worth exploring buying the car outright and then selling it elsewhere to minimise your losses.

Should you return the car?

A pair of car shoppers browse a row of cars

You should only consider handing the car back if you’re sure you no longer need a vehicle. This might be a good option for older drivers who are considering giving up their licence or for people whose circumstances have changed to mean a car is no longer a good option for them.

Handing the car back to the finance provider might also be a good idea if the car’s generated a lot of negative equity – in other words, it’s worth less than its guaranteed minimum future value. You’ll need to pay the negative equity back if you want to buy the car outright, so it might be better to hand it back and take out a fresh finance deal.

What happens at the end of your PCP finance agreement – FAQs