GFV is calculated based on the predicted residual value of a vehicle, which in turn is calculated according to information from trade guides and takes factors such as depreciation, mileage and condition into account. After being agreed at the start of the contract, the GFV will not change, meaning the balloon payment you were quoted at the beginning of the contract will not change.
This is regardless of current market value of the car at the end of the contract. When you take out a PCP contract, it's important to take the Guaranteed Future Value into account, as this figure will be the amount that you will have to make as a balloon payment at the end of a contract if you wish to take ownership of the vehicle.
To protect the GFV, most lenders will set a mileage limit on a PCP contract. The mileage limit will be agreed at the start of the contract and will affect the GFV figure.
This is because mileage can have a significant effect on the value of a used car – the higher the mileage, the less a car is worth. By imposing a mileage limit, the GFV is protected. If you go over the mileage limit there is a fee payable, usually calculated as a few pence per mile over the limit.
Because the GFV is based on the residual value, it will also have a role in determining what your monthly repayments will be. This is because they are calculated based on the difference between the cost of the vehicle at the start of the agreement and the Guaranteed Future Value or residual value.
This data has been put together with help from the Creditplus Customer Advisors.
If you require further assistance, our team of Customer Advisors are here to help. We're open six days a week - you can view our opening hours here - and we're more than happy to answer your questions.