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How does PCP work at end of term? Optional Final Payment

The optional final payment in your Personal Contract Purchase car finance deal is the last amount you’ll need to pay to take full ownership of the car

Car finance

PCP balloon payment (Optional Final Payment)

When you’re getting ready for a new vehicle on a Personal Contract Purchase (PCP) finance deal, you’ll see the term ‘optional final payment’ pop up a lot.

Also known as the ‘balloon payment’, this is the last payment you’ll need to make on your PCP car finance deal to take ownership of the car.

In a PCP car finance deal, you’ll be covering the difference between the car’s value at the start of the contract and how much it’s predicted to be worth when that contract comes to an end.

At the end of the contract, you’ll get the option to pay the optional final payment and own the car, or hand the car back to the lender.

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What affects the optional final payment?

To calculate the optional final payment for your PCP car finance contract, the car finance provider will take a look at the market and base an estimate on how the value of other cars has fallen.

The optional final payment will be a fixed cost, no matter how the value of your car actually depreciates.

The length of your finance contract will affect the optional final payment amount, as will the annual mileage allowance.

If you opt for a longer contract, you can expect the final payment to be lower, as older cars are typically worth less.

Likewise, putting more mileage on your car will also see a lower final payment, as higher mileage cars are less desirable.

Having a lower final optional payment does mean that you’ll be paying more on a monthly basis, as your car will have lost more value over the time that you’re driving it.

Is it worth paying the optional final payment?

It’s worth paying the final optional payment if you love your car and don’t want to return it.

Once you’re all paid up, you’re the legal owner and can do as you please with it – even choosing to sell it if that suits you.

If you know that you will definitely want to keep your car, it might also be a good idea to consider a Hire Purchase (HP) deal.

With HP car finance, you’ll spread the full value of your car across a monthly basis until you’re all paid up and just pay the small ‘option to purchase’ fee that’s included in your final payment.

What is PCP car finance?

Optional final payments are part of the Personal Contract Purchase (PCP) car finance process, so you might want to opt for a Hire Purchase (HP) agreement if that’s something you want to avoid.

PCP car finance allows you to pay the depreciation amount of your car on a monthly basis, with the option to hand back your car at the end of the contract or pay that optional final payment to become the legal owner.

Over the course of the agreement, you’ll pay the difference between the current value of the car and the predicted value of your car at the end of your contract.

The final payment will cover the full balance of the vehicle so you can become the owner.

These contracts come with guidelines for things like mileage and the condition of the car.

You’ll need to stay within the mileage allowance stated in your contract to avoid extra fees, and keep the car well maintained.

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