PCP finance: what is an optional final payment?

What is the optional final payment on a car finance scheme? And should you pay it?

Christofer Lloyd
May 29, 2019

The optional final payment is the approximate amount a car is expected to be worth at the end of a PCP finance contract, shaping your monthly payments and determining what to pay when the contract ends.

Unlike traditional car loans or Hire Purchase schemes - where you put down a deposit and then pay the whole cost of a car, plus interest, over a series of monthly instalments - with PCP finance, your monthly payments only cover part of the cost of the car.

Your monthly bills cover the difference between the car’s initial cash price and its predicted value at the end of the contract. This predicted value is known as the optional final payment. The higher it is, the lower your monthly payments. Similarly, the lower the optional final payment, the more you have to pay every month.

A car that is desirable second-hand may have an optional final payment of around 50% of its original price on a three-year contract, while one that loses value quickly may have an equivalent figure of just 30%. So, a high optional final payment is good news if you plan to run the car for the length of the contract and then hand the keys back, as you’ll pay less.

Remember, though, that if you want to buy the car at the end of the contract, you’ll need to be able to find enough money to pay this, or refinance. So, while a car that retains much of its value is more affordable in monthly payment terms, it’s more expensive to buy at the end of the contract, as you’ll need to make the optional final payment then to take ownership.

What happens if my car is worth less than the optional final payment at the end of the contract?

The optional final payment is also sometimes known as the guaranteed minimum future value (GFMV). This term is used as, even if the value of your car were to drop more sharply than expected - as happened to many diesel cars, following the diesel emissions scandal - and the car was worth less than the optional final payment at the end of the contract, you wouldn’t have to pay extra. The car company takes the hit. 

Should this scenario occur, drivers who want to hand the car back will have been protected from the unexpected loss of value, potentially handing a car back that is worth less than the remaining value.

Meanwhile, those who intended to buy the car at the end of the contract, could either still make the optional final payment to take ownership - though the car at that stage may be worth less than that amount - or hand it back and buy an equivalent car, for a lower price.

Factors affecting the optional final payment

Since this figure reflects how much the car is worth, you can expect to see a lower optional final payment if you take a four-year contract than if you signed up for a two-year contract on the same car, as older cars are worth less than newer ones.

Similarly, signing up for a 20,000-mile-per-year contract rather than a 10,000-mile-per-year one will lead to a lower optional final payment - as the higher the mileage, the less a car is typically worth. That lower optional final payment means you can expect to pay more per month for a high-mileage contract than a lower one, as the car you hand back will have lost more value.


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