PCP - Maximum Percentage

Kasey7
Kasey7 Posts: 1 Newbie
Hi, does anyone have any knowledge on the maximum value the balloon payment can be, as a percentage of the total agreement value.
I'm currently looking into Voluntary Termination, but during the entire term of the agreement, i will not have reached the 50% threshold, to be able to do this.

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  • molerat
    molerat Posts: 31,577
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    The balloon payment is the predicted value at the end of the hire period so there is no limit.   Low deposit deals often run into this problem, could be a clever way of preventing you from reaching the 50% point as that can cost the lender money.
    Post up the details and someone will look at it. 
  • Nearlyold
    Nearlyold Posts: 2,239
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    edited 19 January at 10:26AM
    Kasey7 said:
    Hi, does anyone have any knowledge on the maximum value the balloon payment can be, as a percentage of the total agreement value.
    I'm currently looking into Voluntary Termination, but during the entire term of the agreement, i will not have reached the 50% threshold, to be able to do this.
    *You can still VT at any time, you just have to pay the shortfall between what you've already paid and the VT point of 50% of the total amount payable. You can also make overpayments at any time before asking for a VT if you want to.

    * The above assumes you have a regulated Conditional Sale or Hire Purchase based PCP rather than a Fixed Sum/Term Loan (aka Personal Loan) based PCP. The latter has no VT option even if regulated. Unregulated Finance won't have a VT option at all.
  • MrFrugalFever
    MrFrugalFever Posts: 1,228
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    Kasey7 said:
    Hi, does anyone have any knowledge on the maximum value the balloon payment can be, as a percentage of the total agreement value.
    I'm currently looking into Voluntary Termination, but during the entire term of the agreement, i will not have reached the 50% threshold, to be able to do this.
    As you've mentioned 'PCP' in your thread title, your terminology of 'balloon payment' is incorrect and is not applicable to a PCP agreement. 

    The Guaranteed Minimum Future Value (GMFV) is set by the lender and worked out by various market data tools between the lender and the Manufacturer. It is the finance lender's way of saying they are prepared to take a risk, if your car drops below this point (as seen more recently on some electric cars) then the finance company will bear the risk if instructed to do so (T's & C's will be in the Sales Agency Agreement). The GMFV can be set at whatever the lender deems fit, irrespective of the right to VT at 50%. 

    If the GMFV becomes greater than the 50% VT point then you simply wait until the agreement comes to an end and then exercise your option to return to the finance company. If you are wanting to get out of the agreement early then you may have to foot the negative equity bill (if there is any) but this doesn't make financial sense if it goes beyond the GMFV.

    If you've been accepted on a PCP Fixed Sum Loan - as mentioned above - you forfeit the right to a VT and can only VS which is a whole different scenario and not recommended unless you absolutely have no option as it results in a default on your credit file and money still owing.
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  • molerat
    molerat Posts: 31,577
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    Kasey7 said:
    Hi, does anyone have any knowledge on the maximum value the balloon payment can be, as a percentage of the total agreement value.
    I'm currently looking into Voluntary Termination, but during the entire term of the agreement, i will not have reached the 50% threshold, to be able to do this.
    As you've mentioned 'PCP' in your thread title, your terminology of 'balloon payment' is incorrect and is not applicable to a PCP agreement.

    What is a balloon payment for car finance?

    A balloon payment is usually offered with PCP (Personal Contract Purchase) car finance. PCP deals see your deposit and monthly repayments pay off a car’s depreciation over the course of the contract.

    The balloon payment is actually the value that the car has retained over the course of the deal – IE all the car’s value that has not been paid off.

    The balloon payment is technically known as the GMFV (Guaranteed Minimum Future Value), and it is set at the start of the contract, having been worked out based on a car’s predicted depreciation.

    https://www.carwow.co.uk/guides/financing/what-is-a-balloon-payment



  • MrFrugalFever
    MrFrugalFever Posts: 1,228
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    molerat said:
    Kasey7 said:
    Hi, does anyone have any knowledge on the maximum value the balloon payment can be, as a percentage of the total agreement value.
    I'm currently looking into Voluntary Termination, but during the entire term of the agreement, i will not have reached the 50% threshold, to be able to do this.
    As you've mentioned 'PCP' in your thread title, your terminology of 'balloon payment' is incorrect and is not applicable to a PCP agreement.

    What is a balloon payment for car finance?

    A balloon payment is usually offered with PCP (Personal Contract Purchase) car finance. PCP deals see your deposit and monthly repayments pay off a car’s depreciation over the course of the contract.

    The balloon payment is actually the value that the car has retained over the course of the deal – IE all the car’s value that has not been paid off.

    The balloon payment is technically known as the GMFV (Guaranteed Minimum Future Value), and it is set at the start of the contract, having been worked out based on a car’s predicted depreciation.

    https://www.carwow.co.uk/guides/financing/what-is-a-balloon-payment



    The words 'balloon payment' are often used for PCP deals but are factually incorrect, a little like people call VED, road tax which it is not.

    A PCP gives three clear options; hand the car back to the lender subject to damage etc, purchase the vehicle by paying the remaining amount or exercise your right to trade the vehicle in to a debt adjuster. A Hire Purchase with Balloon payment, on the other hand, has two options; trade the vehicle in to a debt adjuster or pay the final balloon in full.

    Anyway regardless of the semantics here the OP would need to go all the way to the end of the agreement and simply hand the car back if the GMFV is above the VT threshold.
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    Credit Cards x 6 (total limit £24,250)
    Creation FS Retail Account x 1
    0% Overdraft x 1 (£250)
    Mortgage x £140,250
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