MRP or forecourt price
Dealer contribution or discount
Your deposit or trade in value
|Final payment (GMFV)||
Balloon or GMFV as per quotation
|Interest rate (APR)||
Annual interest rate as per quotation
|Loan term (months)||
Loan term months (11-60)
|Total capital payable|
|Total interest payable|
The cynic may suggest also, that the PCP suits the motor trade as the balloon payment (GMFV) offers a convenient means to muddy the water.
Let’s explain why, because it’s important to understand if you want to negotiate a good deal on a PCP. With a normal loan (HP or car loan) what you pay is pretty transparent: you may have a small administration fee added to the loan but essentially the interest rate (APR%) you are quoted is the price you pay for the money lent and you can easily compare different lenders according to their rates.
The spanner in the works for a PCP is the balloon payment (or GMFV) which is the price you will have to pay for the vehicle to own it at the termination of the contract. It may seem a long way off and the temptation to sign on the dotted line strong but beware! You may be quoted a very reasonable interest rate but if the balloon payment is too high you could get a nasty surprise. Rather than having a lump sum as a deposit to use on your next car you may find you are left with nothing.
To get to grips with this conundrum you need to find a way to test the integrity of the balloon payment. In other words, you must be sure that the balloon payment has not been ramped-up so that when the agreement expires you are left with a car worth less that the final payment.
This can be done by using our depreciation calculator and future value predictor which will give you a guide to the value of your vehicle at a point of your choosing in the future. If our calculators show low or negative equity, you may well be advised to look more closely.