PCP GMFV (guaranteed minimum future value)

A safety net for PCP car finance: how the GMFV protects you against a sudden drop in value - and dictates your monthly payments

BuyaCar team
Feb 6, 2019

The guaranteed minimum future value (GMFV) is a crucial part of every personal contract purchase (PCP) finance agreement. It determines how much your monthly payments are going to be, as well as the ultimate cost of keeping your vehicle.

It's the key to keeping PCP finance affordable and flexible for new and used cars, and making it simple to regularly change your vehicle.

The GMFV will also protect you against any unexpected fall in the value of your car: the finance company take the hit if the vehicle is worth less than anticipated at the end of the agreement.


What is a GMFV?

The Guaranteed Minimum Future value is an estimate of how much your car will be worth at the end of a PCP finance agreement. The figure is calculated at the start of the contract and your monthly payments are then based on the difference between the price of the car and its GMFV. At the end of the agreement, you'll have paid off the value lost by the car (depreciation). You can then choose to buy the car for the GMFV, or refinance it. Alternatively, return the vehicle with nothing more to pay.

The GMFV is also known as the balloon payment. It offers protection against a larger-than-expected fall in the value of your vehicle, because the lender guarantees the valuation. If the car is actually worth less at the end, you can still return it with nothing more to pay (apart from any mileage and damage penalties).


How GMFV payments are calculated

Lenders use industry price guides to estimate the value of your car at the end of a PCP agreement and this figure becomes the GMFV.

Your monthly payments are then calculated to cover the difference between the price of the car at the start and the GMFV, minus any deposit, so you only pay for the car's depreciation over the term - not the full price.

Choosing a vehicle that holds its value well will help to reduce your monhtly payments, as the GMFV will be proportionately higher. But because you defer more of the cost to the end of the agreement, interest cahrges will be higher.

Once the last monthly payment is made, the value of the car is normally similar to the amount you still owe (the GMFV). You can either make that final payment, or refinance it to keep the vehicle. You can also return the vehicle to settle the agreement.

The right decision will depend on your circumstances, as well as whether the car is worth more or less than the GMFV (see below).


Should I pay the GMFV at the end of a PCP?

You'll need to pay the GMFV if you want to keep you car, and this can be done with a lump sum cash payment, or by refinancing the value. This could be in the form of another PCP deal, or a Hire Purchase (HP) arrangement, which would automatically make you the car's owner once the final payment has been made. You could also take out a bank loan to cover the cost.

It's generally wise to get your car valued by a car retailer or buying group before making your decision because it may be worth less than the GMFV. If that's the case, returning the vehicle is often the best option, as your lender will take the financial loss. Instead of buying your car for the GMFV, you'll be able to buy a similar second-hand model for less.


When your car is worth more than the GMFV

You'll often find that your car is worth more than the GMFV at the end of a PCP deal because lenders err on the side of caution with their valuation estimates. 

If that's the case, then you may be best-off not returning the car, even if you don't want to keep it.

  • A popular option is to part-exchange the car for another vehicle. The GMFV will be paid to the lender on your behalf by the car retailer and any remaining money can be put towards your next vehicle.
  • You could make the GMFV payment then sell the car immediately for more than you paid, leaving a surplus amount. This isn't a profit, but some of your monthly payments that you can recoup.
  • In most cases, you'll be able to sell the car with the agreement of your lender, without making the final payment. The proceeds will cover the GMFV that's owed to the lender and the surplus can be returned to you.

Lenders tend to be conservative when calculating the GMFV to reduce the risk of cars being worth less at the end. It does mean that you're frequently overpaying for the car because the monthly instalments usually add up to more than the depreciation. If you return the car, then that excess is pocketed by the lender rather than you.


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