PCP End of Contract Options: Pay Balloon or Walk Away

If you get to the end of your PCP term (Personal Contract Purchase), there are several things you can do. You can pay the final balloon payment to keep your PCP car. You can choose to hand it back if it is in good condition. Another option is to use part exchange to get a new car or even a used car. You might also be able to refinance the balloon payment.

This guide will help you know what to do when you reach the end of your PCP agreement. It explains how to see if you have positive equity or negative equity with your PCP car. You will learn about fees that might pop up and see how voluntary termination works under the Consumer Credit Act. There is some easy maths so you can find out which option is best for your needs.

You will get family reminders to compare car finance. This helps you make sure that your next deal is the best deal for you, so you do not pay more than you should.

What is a PCP agreement and why is there a balloon payment?

A PCP agreement is a type of finance that splits the total finance into several parts. You pay an initial deposit first. After that, there are fixed monthly payments you need to make. At the end of the contract, you will need to pay a big final lump sum called the balloon payment.

The balloon payment comes from the value of the car at the end of the term. The finance provider sets this by looking at the guaranteed future value of the car. They decide what they think the value of the car will be once you reach the end of the term.

The guaranteed future value is based on things like the agreed mileage limit and the fair wear on the car. If you go over the mileage limit or the car has more wear and tear, the value of the car may go down.

Key PCP terms at a glance

What are my options at the end of a PCP contract?

You generally have four:

How do I check if I’m in positive equity or negative equity?

“Equity” is the value of the car at this time, minus the amount you still have to pay.

Step-by-step equity check

1. Call or email your finance company. Ask them for the settlement figure. This is the money you will need to pay at the end of your PCP. If you want to finish early, ask for the amount you owe today.
2. Find out the value of your car. You can get this during a trade-in, or ask a firm for a buying amount.
3. Equity is the value of your car, minus the settlement figure and any fees. This is what you could get back.

• Positive equity is a good option because you can use it for a part exchange when you want a new car. You can also have it help lower the remaining debt if you choose to refinance.
• If you have negative equity, you can think about handing back the car. You might choose early settlement, or put more money down as a deposit. Try not to roll over a large shortfall into a PCP deal, unless you have paid the full total cost.

Illustrative example (adjust to your numbers)

If you do a part exchange, you can use that £1,200 as your initial deposit for the next deal. If the value was £12,000, you would have negative equity of −£600. In this case, they say you may give the car back or wait until the values get better. This could be a good way to handle it.

Money Guides

Helping You Borrow Money at the Right Price

Compare Now

What charges can appear at the end of your agreement?

These are set out in your PCP contract:

• Excess mileage: This is what you pay for each mile you drive over your agreed mileage limit. The cost is set by pence for every mile over.
• Fair wear & tear: You will not have charges for normal use of the car. The company expects the car to get used. But if there are things like dents, scratched wheels, broken glass, worn tyres, or you miss a service, you may face extra costs.
• Admin fees: These can be a purchase or option fee if you want to keep the car. A small admin fee might also come up if you choose to return it. You should read your paperwork to see what admin fees are tied to your deal.
• Missing items: When you return the car, you need to hand in all items that came with it, like a spare key, SD card, parcel shelf, or a charging cable for electric cars. If any items are missing at the end, there is a set charge for each.

Simple handback checklist (to minimise bills)

Can I end the agreement early (before end of the term)?

Yes—two routes:

1) Early settlement (pay off and exit or sell/part-exchange)

Under the UK Consumer Credit Act, you can choose an early settlement if you want to end your PCP agreement before it is finished. When you do this, you may get a rebate for the amount of future interest you will not pay, because of the Early Settlement Regulations. You have to ask your finance provider for a settlement figure. This means the amount you need to pay, and it will include any settlement fee that is in your PCP agreement. If you want to sell your car or use it for part-exchange, the buyer or dealer must pay the lender first. After this, any extra money left goes to you.

Why do this? If car buying prices in the market go up, the value of the car can be more than your remaining balance. An early settlement gives you a chance to get positive equity. Before you make any decision, look at the value of the car. Compare what you pay now to what you will pay if you wait one or two more monthly repayments. This way, you know if early settlement is right for you.

2) Voluntary termination (VT) – your legal right

For many HP or PCP deals, you have the legal right to ask for voluntary termination under the Consumer Credit Act, sections 99 and 100. When you have paid 50% of the total amount you owe—this includes the money, interest, and any fees listed in your contract—you can end your agreement. After this, you give the car back and will not need to pay more, as long as you took care of the car and it has only normal fair wear.

If you have not yet paid 50%, you can still use voluntary termination. You just need to pay enough to reach that halfway mark.

Should I refinance the final balloon payment?

Refinancing takes your final balloon payment and breaks it up into small payments over a new period of time. This works well if you want to keep the car. You will not have to make a big final balloon payment now. It lets you pay the final payment in smaller amounts that feel easier for you. You can keep driving your car. You do not have to stress about having the whole final payment come up at one time.

Pros

• Stay with a car that you already know. Try not to choose a new deal if it asks for a bigger initial deposit.
• You might pay less each month than you would if you got a short-term personal loan.

Cons

• The deal can feel more exciting, but the total cost can go up over time compared to paying the balloon payment once.
• When you use the asset for a longer time, it gets older. This means there is a higher chance for it to need repairs.

Always get quotes for car finance and compare them. Look at the APR and any fees. Check these with your other choices.

Is part exchange into the next car a good option?

If you have positive equity, you can use part exchange to get the new car or choose a used car. This can be a good way for you to go if you want the new car or a used car.

Steps

1. Find out what your settlement figure is.
2. Ask at least two places about the value of your car. This lets you see what you could get for it.
3. When you look for car financing for your next deal, compare offers from more than one lender. A car loan that you get straight from a lender can often be better than what the dealer offers you first.
4. Make sure the monthly payments and total cost work for your budget.

What about GAP insurance at the end of the agreement?

GAP insurance can help you during the PCP term if you have a total loss. It pays out the difference between what your insurer gives you and the remaining balance you still owe. In most cases, this insurance is not used at the end of a PCP agreement, unless you have a total loss right then. You should think of gap insurance as protection while you are in a PCP agreement, not as something to figure out money when the PCP term is over.

How will each option affect my credit score?

• Pay balloon / refinance / part exchange: This is seen as neutral or even good if you make all the payments on time.
• Return the car at the end of the term: This is neutral because that is what a PCP is made for.
• Voluntary termination: This is not bad on its own because you have a legal right to do it. But if you miss payments or have arrears, that can be negative.
• Voluntary surrender after missing payments: This is usually seen as bad because people will try to get the shortfall.

Always keep making your monthly repayments until the lender tells you that the account is settled or closed.

What if I’m over the mileage limit or the car isn’t in good condition?

You can still return the car, but expect:

• There are extra charges if you travel more miles than the agreed mileage limit.
• Fair wear standards are used. You may have to pay for things like tyres that are too worn, cracked glass, deep scratches, or if you do not get scheduled services done.

Mitigation: Light smart repairs and quick pre-MOT checks can cost less than paying end-charges. Change tyres that may fail before you take the car in for an inspection. You should go with a car that is cleaned inside and out; bring all its paperwork and both keys with you.

Quick comparison: what happens at the end of PCP vs HP vs PCH?

Money Guides

Helping You Borrow Money at the Right Price

Compare Now

Worked examples (illustrative)

These are some good examples to help you see how this works. You can use your own numbers if you want.

Example A: keep the car by paying the balloon

Example B: part exchange with equity

Example C: refinance balloon

Paperwork and timing checklist

• 60–90 days before the end of your contract: ask the finance company to give you your settlement figure and send you their guide on how to give the car back.
• 30–45 days before the end, check the value of the car. Get quotes from at least a few places. Start to look for your next deal or get some new quotes if you want to do refinance.
• 7–14 days before handing the car over, pick a date for inspection or collection. Fix any small things you find wrong with the car. Put together everything you need like one spare key, the V5C if it’s needed, manuals, the service book, a locking wheel nut, and for electric cars, the charging cable.
• On the day you return the car, make sure it is clean. Take some photos that clearly show how the car looks, showing the time and date in the photos. If you sell the car or use part-ex at the end of your agreement, make sure you pay off any outstanding balance or remaining debt.

Common pitfalls to avoid

• Rolling a big negative equity into a new PCP deal and not checking the total cost can cause you problems.
• If you forget about admin fees or an option to purchase fee until the last day, you might have to pay more.
• If you think VT will hurt your credit score, it is not true. The law says you have the right to VT. It is going behind on payments that can put your credit score in danger.
• If you do not remember the agreed mileage limit, you may have to pay more when you get the bill.
• When you pick the first car finance offer and do not take time to compare, you may not get the best deal.

FAQs About PCP End-of-Contract Options

Explore Money Guides

Helping You Borrow Money at the Right Price

Compare Quotes