How does a balloon payment work?

By CarMoney March 14, 2017
How does a balloon payment work?

Balloon Payments Explained: Owning Your Car After a PCP

A balloon payment might sound fancy, but it’s simply a lump sum you pay at the end of a Personal Contract Purchase (PCP) agreement if you want to keep the car. Think of it like a final option to buy after you’ve been renting the car for a set period. But if you don’t want to own it, you can simply return the car to the dealership – no hassle, no fuss.

The amount you pay is predetermined and based on the finance company’s estimated car value at the end of the contract. This valuation, known as the Guaranteed Future Value (GFV), is crucial. Here’s why:

  • Shorter Loans, Better Accuracy: The shorter your PCP term, the closer the GFV is likely to be to the car’s actual market value. This means a more predictable balloon payment and potentially less risk for you.

So, should you choose a balloon payment?

It depends on your goals. Here’s a breakdown:

  • Love the Car? Keep It: If you’ve fallen head-over-heels for your car and want to own it after the PCP term, the balloon payment is your path to car ownership.
  • Thinking of an Upgrade? PCP can be a good option if you like to switch cars frequently. Just return the car at the end and walk away (assuming there aren’t any mileage discrepancies).
  • Uncertain About the Future? PCP offers flexibility. You can decide what to do with the car at the end of the agreement based on your circumstances.

CarMoney: Your PCP Partner

At CarMoney, we understand that car finance can be confusing. That’s why we offer:

  • Competitive Rates: We fight to get you the best possible interest rates on your PCP deal.
  • HP and PCP Options: We offer both PCP and Hire Purchase (HP) agreements, so you can choose the financing option that best suits your needs.

With CarMoney, you have all the bases covered to drive away happy in your perfect car!

 

CarMoney LIMITED is authorised and regulated by the Financial Conduct Authority (FCA) for consumer credit activity and our registration number is 674094. Representative 17.9% APR. Over 18’s only. CarMoney IS A BROKER NOT A LENDER.

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