What Happens at the End of a PCP? Your 3 Options at the Final Payment

Most people sign a PCP deal and focus entirely on the monthly payments. The end of contract often gets forgotten until a letter arrives from the finance company asking what you'd like to do. At that point you have three choices, and the right one depends on a number your lender won't tell you: whether the car is worth more or less than the balloon payment.

Here's what each option involves, what it costs, and how to prepare.

Not at the end yet? This guide covers the final payment. If you want to hand the car back, pay it off or change car before then, read how to end a PCP early instead.

Your 3 choices

When a PCP agreement reaches its final payment, you have three options:

1. Hand the car back: return it to the finance company with nothing more owed (subject to condition and mileage)
2. Pay the balloon payment (GMFV) and keep the car: own it outright
3. Part-exchange or roll into a new deal: use any equity as a deposit on your next vehicle

None of these is automatic. Your finance company will contact you in the period before the contract ends (typically a few months beforehand) to ask what you intend to do. If you take no action, the lender will make arrangements to collect the vehicle, but you should always communicate your decision in writing rather than leaving it open.

Option 1: Hand the car back

Best when: the car is worth less than the balloon, or you simply don't want to keep it

The balloon payment (GMFV, Guaranteed Minimum Future Value) is guaranteed by the finance company, not by you. If the car's market value at the end of your agreement is lower than the GMFV, you can hand it back with nothing further owed on that shortfall. The lender absorbs the difference. This is the core protection of a PCP compared to other finance types: your exposure to depreciation is capped.

To hand back with nothing more owed, the car must meet two conditions:

1. Fair wear and tear

The car must be in a condition consistent with its age and mileage. The British Vehicle Rental and Leasing Association (BVRLA) publishes a Fair Wear and Tear Guide that most UK finance companies reference when inspecting returned vehicles. Minor scuffs and light interior wear consistent with age are generally acceptable; dents, chips, torn upholstery, and damage beyond normal use are not.

Finance companies will arrange a vehicle inspection: either at your address or at a collection point. It is worth inspecting the car yourself beforehand and repairing minor damage if doing so costs less than the excess damage charge would.

2. Mileage within the agreed allowance

Excess mileage charges apply on handback at the pence-per-mile rate stated in your agreement. These are not waived simply because you're returning the car. They were disclosed at the outset and are a contractual obligation. If you've gone over your annual allowance, check the total overage against the rate in your agreement before the car is collected.

Option 2: Pay the balloon and keep the car

Best when: the car is worth more than the GMFV, or you want to own it outright

The balloon payment (the GMFV stated in your original agreement) is the amount you pay to own the car at the end of the contract. If the car's market value is higher than the GMFV, you benefit: you're buying the car below what you could sell it for. That difference is your positive equity.

How people fund the balloon:

• Savings: the straightforward route if you have funds available
• Refinancing through the lender: many finance companies offer to refinance the balloon into a new HP or personal loan agreement, spreading the cost over a further term. You'll pay interest on this, so compare the total cost carefully
• Personal loan from a bank or building society: often competitive rates for UK borrowers with good credit, and may work out cheaper than lender-arranged refinancing
• Part of a new PCP: some drivers effectively roll into a new PCP deal, using the trade-in value of the existing car (after settling the balloon) as a deposit. This is distinct from Option 3 below, which involves a dealer handling the handover

When this makes sense:

If the car is worth significantly more than the GMFV, paying the balloon and selling privately or via a car buying service can return a meaningful sum. You pay the balloon, own the car, sell it, and keep the difference. Our PCP equity guide explains how to work out whether the car's current value justifies it.

Option 3: Part-exchange or roll into a new deal

Best when: you want a new car with minimal fuss and your equity position is roughly neutral or positive

In a part-exchange, the dealer handles the final balloon payment to your lender as part of the transaction. They request your settlement figure (which at the end of contract is effectively the balloon), pay it off, and apply whatever market value remains as a deposit toward your next vehicle.

If you have positive equity: the dealer credits you the difference between the car's value and the balloon. This becomes a deposit on the next car, exactly the same as the equity you'd have captured by selling privately, though typically for slightly less, since the dealer builds in their margin.

If the car's value is at or below the balloon: there's little or no deposit available. The next deal starts from zero equity, which is fine if you're simply choosing a new car at that point.

Negative equity rollover is less common at the end of a standard PCP than during one, because the GMFV was set to sit below the car's expected market value. However, if market conditions have moved significantly (rapid depreciation, high mileage, damage), the car's actual value may be below the GMFV at handback. In that case, returning under Option 1 is usually better: the lender absorbs the shortfall, whereas a dealer transaction at that point may work against you.

Comparison

GMFV, GFV and optional final payment: what's the difference?

You'll see the final payment called different things depending on your lender and dealer. They all refer to the same lump sum at the end of the agreement:

• GMFV (Guaranteed Minimum Future Value) or GFV (Guaranteed Future Value): what the finance company guarantees the car will be worth at the end of the agreement, based on your agreed mileage.
• Optional final payment or balloon payment: what you pay if you want to keep the car. It's normally set at the same amount as the GMFV.

It's called "optional" because you don't have to pay it. If you'd rather not keep the car, you hand it back instead (Option 1) and the guarantee means you don't owe the difference if the car is worth less. Your agreement states the exact figure.

Can you trade in a PCP car at a different dealer?

Yes. You aren't tied to the dealer or brand you bought from. Any dealer can take your car in part exchange: they ask your finance company for the settlement figure, pay it off, and put whatever value is left towards your next car.

It's worth getting quotes from more than one dealer, plus a buying service like We Buy Any Car, because valuations for the same car can vary by hundreds of pounds. The best figure isn't always from the dealer that sold it to you.

What if you can't afford the balloon payment?

You don't have to pay it. If you can't or don't want to, you have two straightforward routes:

• Hand the car back (Option 1). As long as it's within your mileage and in fair condition, you owe nothing more.
• Part-exchange it (Option 3). If the car is worth more than the balloon, the difference goes towards your next car.

You can also refinance the balloon with your lender or a personal loan if you want to keep the car, but compare the total cost first.

If it's the monthly payments you're struggling with before the end of the agreement, you have a legal right to hand the car back early using Voluntary Termination. Speak to your lender early as well: they have to treat customers in financial difficulty fairly.

What to do in the months before your contract ends

1. Find out your car's current market value

Use We Buy Any Car for a guaranteed floor price and Motorway or Auto Trader for a private sale estimate. Compare both figures to your GMFV (in your original agreement), this tells you immediately whether you have positive or negative equity.

2. Check your mileage position

Look at your odometer and calculate your total against the contract's total allowance (annual allowance × number of years). If you're over, check the excess rate in your agreement and factor it into your decision.

3. Inspect the car for damage

Walk round the car and note anything beyond fair wear and tear. Get repair quotes for any damage: if repairs cost less than what the finance company would charge, it's worth having them done before the inspection. Photograph the car thoroughly once repaired.

4. Request your settlement figure in writing

Even at end of contract, get the figure confirmed in writing from your lender. This is your legal right under section 97 of the Consumer Credit Act 1974: they must provide it within 7 working days and it must be valid for at least 28 days.

5. Decide early

The worst position to be in is receiving a collection notice with a week to spare and no decision made. Knowing your equity position three to four months out gives you time to compare dealers, arrange refinancing, or sell privately if that's the best route.

Our free PCP calculator shows your estimated settlement figure and equity position at any point in your contract, useful for tracking this in the final months.

How EquityGo helps

EquityGo's car settlement calculator tracks your settlement figure, equity, and Voluntary Termination progress automatically, then lays out your keep, hand-back, VT, and part-exchange options side by side on its Decisions screen, so you're not weighing this up from memory in the final few months.

Get EquityGo on Google Play. Free to use, with a free 30-day Pro trial.

Sources

• Consumer Credit Act 1974, Section 99: right to voluntary termination (for early exit before end of contract)
• Consumer Credit Act 1974, Section 97: right to a written settlement figure, due within 7 working days under the Consumer Credit (Settlement Information) Regulations 1983
• BVRLA Fair Wear and Tear Guide: industry standard for vehicle condition on return
• MoneyHelper: Personal Contract Purchase (PCP): UK government-backed guidance on PCP agreements
• Financial Ombudsman Service: free dispute resolution for consumers