PCP finance agreements: The importance of customer understanding


A recent survey has found that 37% of 4,000 motorists replaced their cars far more often than they would have done a decade ago, citing attractive finance deals as a strong motivating factor.

Industry aggression

However, it is thought that customers are committing to finance agreements - particularly PCP agreements - that are unsuitable to their individual needs in the long run due to the aggressive nature of some finance providers. In an increasingly competitive finance market, it is this aggressive stance that is seeing a greater number of customers entering into a PCP agreement where the ‘balloon’ payment is set too high. This in turn leaves customers with balloon payments that are higher than the cars actual value, which leaves them open to facing unpredictable de-hire damage costs.

Guaranteed Future Value explained

As the UK’s leading online finance provider, Creditplus ensure their ethical lending approach is always adhered to, and one step they take to protect consumers from such cases, is having Guaranteed Future Value (GFV) set in place. GFV describes the cost on which a balloon payment is based on for a PCP agreement, and is something which Creditplus ensure each of their PCP customers are educated on when they take out their finance agreement.

The GFV is calculated using the predicted residual value of a vehicle, which in turn is calculated based on trade guides, considering depreciation, mileage and condition. The reason GFV can protect customers from overstretching their finances is because once it has been agreed at the beginning of the contract, it will not change. Regardless of the current market value of the car at the end of the contract, the balloon payment quoted at the start will remain the same, avoiding any unwelcome surprises for the customer.

Most lenders will set a mileage limit on a PCP contract so that they can safe guard the GFV, meaning the mileage limit will affect the GFV figure. This is due to the affect mileage has on the value of a used car; the higher the mileage the less the value of the car. If this mileage limit is breached, then there is usually a fee payable.

Customer service

It is important that customers consider the Guaranteed Future Value when entering a PCP contract, as this will be the figure they are required to pay as a balloon payment when the contract comes to an end if they choose to take ownership of the car. It is also a critical part of Creditplus’s relationship with their customers that they understand what the PCP agreement entails for the duration of the term they are committing to, including being fully aware of the end costs of their vehicle and whether they can realistically pay them.

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