Reasons to Choose PCP Car Finance

Decades ago, purchasing a new car required years of saving, but in today’s market there is a much broader range of options. While paying a lump sum isn’t feasible for many, the opportunity to break the price down into monthly payments is far more appealing.

This is the best way to explain the explosion of new cars being registered on Britain’s roads. PCP (personal contract purchase) lets you pay the cost of the depreciation of a vehicle over a period of months. At the end of the contract you have an optional final payment often referred to as a balloon payment as it’s usually a large sum.

GFV or Guaranteed Future Value is a figure on which a balloon payment in a PCP agreement is based. GFV is calculated based on the price a finance company predicts the car will be worth at the end of your contract. This figure, once set, cannot be changed regardless of the actual market value of the car.

There are three options people have at the end of a contract:

Option one – The finance company, such as Smile Car Finance, has guaranteed that the value of the car will be equal to the balance outstanding, so you can just give the vehicle back and walk away. This is subject to a few conditions however, namely; the car must not have exceeded its agreed mileage, it must have been serviced on time, and there must be no repairs required beyond normal fair wear and tear. If your car doesn’t meet these conditions, there are usually financial penalties.

Option two – You can part exchange your car. It doesn’t have to be the same dealer or manufacturer you bought it from. Once you part exchange the car, the dealer will then settle the finance agreement for you and if your car is worth more than the GFV then that equity is yours to put towards another car.

Option three – Either pay the balloon payment outright or re-finance the final payment. Once this sum is payed you’re the legal owner of the car. This means you don’t have to worry about the mileage limit or paying extra for any damage you caused to the vehicle. In some cases you may be able to make money on the car as you’re purchasing it for the guaranteed future value rather than the actual market value of the vehicle.