The main difference between HP and PCP vehicle finance is that with PCP, you only pay for the vehicle’s depreciation over the contract term and with HP, you are pay the entire vehicle purchase price over the contract term.
At the beginning of the agreement the lender will calculate a ‘Guaranteed Minimum Future Value’ (GMFV) for your chosen vehicle based on your anticipated annual mileage. This GMFV or balloon amount is then deferred as a final payment made at the end of the agreement.
Deferring the GMFV to the end of the agreement means that your regular monthly payments are lower than those on a comparable HP agreement over the same term.
At the end of the PCP agreement, you will have several options: