If this is the case, consider your PCP finance balloon payment. My Car Credit can help you with refinancing your balloon payment, leaving you free to keep driving your car with a new agreement in place.

 What is a PCP?

A PCP (Personal Contract Purchase) is a very common way of purchasing a new or nearly new car. Unlike a traditional personal loan or HP (Hire Purchase) agreement, you won’t be paying off the full value of the vehicle, and you won’t own the car at the end of the finance agreement – unless you choose to.

At the end of the term, you can either pay a final lump sum balloon payment to keep the car, hand the car back and walk away, or get a new car with a brand new agreement.

What is a PCP balloon payment?

A PCP finance balloon payment is the final lump sum needed to take ownership of a car at the end of an agreement. Most car finance paperwork refers to this as the optional final payment. When you first take out the loan, the vehicle costs are split across an initial deposit, a series of monthly payments and then this optional final payment if you choose to buy the car.

The balloon payment is fixed at the beginning of the contract, so you should be aware of the cost of buying the vehicle before you get to the end of the deal. The balloon payment is an estimate of the vehicle’s value at the end of the finance agreement, and it offers protection against an unexpected decline in your car’s value. It is also known as your car’s guaranteed minimum future value.

Should you refinance a balloon payment?

The current COVID-19 pandemic may have influenced your decision on whether to keep or buy your vehicle. Perhaps you’re a key worker and need a vehicle to rely on every day. Or maybe you’ve lost work and are looking for smart ways to save more money.

It is worth bearing in mind that due to the current difficulties in changing vehicles, some lenders are offering an extension to your current agreement.

However, if you want to keep the car, you would need to make the balloon payment. This is possible by paying the lender in cash or by refinancing the payment, which usually takes the form of a Hire Purchase agreement and will leave you as the car’s owner at the end.

Before making a final decision on whether to hand your car back or refinance the balloon payment, it’s important to consider your car’s current value with how much you’d have to pay – or refinance – to keep it. A good rule of thumb is if the car is worth less than the balloon payment, you may want to give it back and purchase a similar used model for less.

However, if the vehicle is worth more than the balloon payment listed on your agreement, you are better off paying – or financing – this amount to own the car for less than what a similar model would have cost you.

How do I refinance a PCP balloon payment?

If you want to keep the vehicle but cannot afford to pay the full optional final payment in cash, talk to My Car Credit about balloon refinancing. We have a number of lenders on our panel who offer balloon finance, so long as it is the right option for your circumstances.

Balloon payment finance is a Hire Purchase agreement. You can finance cars up to 10 years old or 100,000 miles at the start of the contract. Keep in mind that this will mean that you won’t own the car outright until you’ve made the final payment. However, if you refinance, you can settle your agreement at any point during the agreement.

There’s no doubt, this is an accessible and affordable way to spread the cost of car ownership. Best of all, at the end of the term, often between 24 and 60 months, the car becomes yours!

Another option for refinancing is opting for a bank loan. If you have a good credit score, you may be able to take advantage of low-interest rates. However, be aware that a personal loan does not have the same consumer protection rights as a hire purchase agreement. You may find you’re able to get a better deal with car finance, so it’s worth getting Hire Purchase quotes, too. My Car Credit offers rates from as low as 6.9% APR and will give you an instant online decision along with your expected rate of interest.

Get started today

Have you been thinking about purchasing your car at the end of your PCP agreement for a while? If you’ve been waiting years to finally own the car, don’t miss out! You don’t have to wait until the end of your PCP agreement before talking to your lender about refinancing. You may even be able to reduce your monthly payments by refinancing early.

• Start by applying for finance. Our dedicated car credit advisors will work with you according to your chosen financial plan and goals. We’re always on hand to help and are happy to guide you through the process.

• Calculate your budget. Get an idea of how much you can afford to spend.

• Let the team at My Car Credit handle the rest. We can help you land the right refinancing option that suits your needs and budget.

Find a financial plan to suit you

At My Car Credit, we understand that it’s a troubling time for everyone. That’s why our dedicated agents work to secure the right plan to suit your needs, vehicle and budget. To get expert advice and guidance, call us on 01246 458 810 or email us at enquiries@mycarcredit.co.uk. We look forward to hearing from you.