Car Finance Details
PCP Only: Balloon Payment
Frequently Asked Questions
What is the difference between PCP and HP car finance?
With Hire Purchase (HP) you pay the full car value in monthly instalments and own the car outright at the end. With Personal Contract Purchase (PCP) you pay lower monthly instalments but there is a large optional final payment (balloon) at the end. If you do not pay it, you hand the car back or part-exchange it.
How is the PCP balloon payment calculated?
The PCP balloon payment (Guaranteed Future Value or GFV) is set by the lender based on the car's expected residual value at the end of the contract. It is typically 35–55% of the original list price, depending on the car model, contract length and annual mileage. Higher mileage = lower GFV = higher monthly payments.
Can I pay off a PCP or HP early?
Yes, you can settle both PCP and HP finance early by requesting a settlement figure from your lender. There may be an early repayment charge. For PCP, you can also use the half-rule — if you have paid 50% of the total amount payable, you can hand the car back with no further payments.
Which is cheaper overall — PCP or HP?
HP is usually cheaper overall because you are paying off the full car value and there is no balloon payment or mileage restrictions. PCP can appear cheaper monthly but if you want to keep the car, the total paid (deposits + monthly payments + balloon) will often exceed the HP total. PCP suits drivers who like changing cars every 2–3 years.
What happens at the end of a PCP agreement?
At the end of a PCP, you have three options: 1) Pay the Guaranteed Future Value (balloon payment) to own the car. 2) Part-exchange — if the car is worth more than the GFV, you keep the positive equity as a new deposit. 3) Hand the car back with no further payments (subject to condition and mileage limits).