How a PCP Payment Is Calculated
A PCP lends you the whole price minus your deposit but defers the GMFV to an optional final payment. Your monthly payments cover the depreciation down to the GMFV plus interest on the full balance. A £30.000 car with £3000 down at 7,9% APR over 36 months with a £13.500 GMFV costs £506,54 a month; keeping it means paying the £13.500 balloon, for £34.745 in all.
PCP payment formula
UK lenders quote APR as an effective annual rate, so the monthly rate is not simply APR ÷ 12. At 7,9% APR, r = 0,6356 % a month.
Your three choices at the end of a PCP
Pay the optional final payment (the GMFV, plus any option-to-purchase fee) and the car is yours.
Hand the car back and owe nothing more, as long as you are within the mileage limit and the car meets fair wear and tear standards.
Part-exchange it: if the car is worth more than the GMFV, the difference (your equity) becomes the deposit on the next PCP.
What sets the GMFV
The lender predicts what the car will be worth at the end of the term for your annual mileage and guarantees that figure as the GMFV. A lower mileage limit or shorter term means a higher GMFV and smaller monthly payments, but going over the limit costs excess-mileage charges, typically 6p–12p a mile on mainstream cars and 12p–20p on premium models.
Positive and negative equity
Equity is the car's real value at the end minus the GMFV. Positive equity is yours to take as a deposit on the next car or as cash if you buy and sell. Negative equity is the lender's problem: you simply hand the car back. That guarantee is what you pay for in PCP's higher interest.
Is PCP the cheapest way to pay?
Compare the same car on PCP, hire purchase, a personal lease (PCH) and cash, with net cost after the car's value.
Preguntas frecuentes
How is a PCP monthly payment calculated?
Subtract your deposit from the price to get the amount of credit. The lender sets a GMFV (the optional final payment). Monthly payments repay the credit down to the GMFV, plus interest on the whole balance including the deferred GMFV, at the monthly rate implied by the APR. That is why PCP payments are lower than HP payments but the total interest is higher.
What is GMFV on a PCP?
The Guaranteed Minimum Future Value: the lender's guaranteed value of the car at the end of the agreement, based on term and annual mileage. It is also the optional final payment you make if you want to keep the car. If the car is worth less, you can hand it back instead.
What happens at the end of a PCP deal?
You choose: pay the optional final payment and keep the car, hand it back (paying only excess-mileage or damage charges), or part-exchange it for a new car, using any equity as your next deposit.
Can I end a PCP or HP agreement early?
Yes. Under section 99 of the Consumer Credit Act 1974 you can voluntarily terminate once you have paid half the total amount payable (deposit, monthly payments, interest, fees and, on PCP, the balloon). Write to the lender, return the car in reasonable condition and owe nothing more. Below the halfway point you can pay up to half and then terminate, or settle early with a rebate of future interest.
Is PCP more expensive than HP?
In total interest, usually yes: on PCP you pay interest on the GMFV for the whole term because it is not repaid until the end. PCP has lower monthly payments and protects you if the car loses more value than expected; HP costs less overall if you plan to keep the car.