Buyer guide
PCP balloon payments (GFV) and excess mileage charges explained
Published · Example prices are real CarJab offers taken on ; dealer prices change.
A PCP has three parts: a deposit, monthly payments, and an optional final payment (the "balloon") you pay only if you want to keep the car. The balloon is set at the start from the car's guaranteed minimum future value (GMFV, often shortened to GFV). If you hand the car back instead, mileage and condition decide whether you pay anything more.
How the balloon is set
MoneyHelper explains that the finance company sets the balloon at the start of the deal, based on its estimate of what the car will be worth at the end: the GMFV. Your monthly payments cover the price minus the deposit and the balloon, and interest is charged on the whole amount borrowed (the price minus your deposit), so you pay interest on the balloon too.
The GMFV depends on the agreed annual mileage and the car's condition at the end. A higher mileage allowance means a lower expected value, a smaller balloon and higher monthly payments.
A real PCP, line by line
| Cash price | £25,430 |
|---|---|
| Customer deposit | £3,815 |
| Franchise (dealer) deposit contribution | £1,000 |
| Total amount of credit | £20,616 |
| Monthly payment | £327.44 |
| Term | 48 months |
| Optional final payment (balloon) | £9,939, plus a £10 option-to-purchase fee |
| Total amount payable | £30,153 |
| Fixed interest rate / representative APR | 7.87% / 7.90% |
| Annual mileage / excess mileage charge | 10,000 miles / 5.63p per mile |
The dealer's total adds up with 47 monthly payments and the optional final payment in month 48, the usual PCP shape: £3,815 + £1,000 + 47 × £327.44 + £9,939 + £10 = £30,153.68. The balloon is 39% of the cash price. See this deal.
Your options at the end
- Pay the balloon (and any option fee) and keep the car.
- Hand the car back with nothing more to pay, provided you are within the mileage and fair wear and tear terms.
- Part-exchange: if the car is worth more than the GMFV, the difference (equity) can go towards your next deposit with the same dealer.
MoneyHelper also warns that a dealer may offer to refinance the balloon with a new agreement, and that it is easy to get into a cycle of changing cars to avoid the final payment.
Excess mileage charges
PCP and lease agreements set an annual mileage. If you return the car over the total allowance, you pay the pence-per-mile rate in your agreement for each extra mile. The BVRLA says the charge per mile will be shown on your contract, and its Leasing Code requires members to explain the permitted mileage and how over-mileage is charged before you sign.
| Volkswagen Taigo PCP, 5.63p per mile | 1,000 miles over = £56.30; 2,000 = £112.60; 5,000 = £281.50 |
|---|---|
| Volkswagen ID. Polo PCP (electric), 5.77p per mile | 2,000 miles over = £115.40 |
| CUPRA Leon Estate PCP, 6.83p per mile | 2,000 miles over = £136.60 |
If you expect to drive more, it is usually cheaper to agree a higher allowance at the start than to pay excess charges at the end, but compare both: a higher allowance raises the monthly payment for the whole term.
Fair wear and tear
At return the car is inspected. The BVRLA defines fair wear and tear as normal deterioration from everyday use, not damage from a specific event such as an impact, harsh treatment or negligence. Customers are not charged for refurbishment that comes from normal wear and tear. The BVRLA suggests checking the car against its Fair Wear and Tear Guide 10 to 12 weeks before return, so there is time to arrange professional repairs.
Ending a PCP early
A PCP is a hire-purchase agreement, so section 99 of the Consumer Credit Act 1974 lets you end it once you have paid half the total amount payable. The total includes the balloon, so on the Taigo above that is £15,076.50, reached late in the deal. Excess mileage (pro rata) and damage can still be charged. Compare with lease and HP.
Questions and answers
What is a GFV or balloon payment?
The optional final payment on a PCP. The finance company sets it at the start from its estimate of the car’s value at the end of the contract (the guaranteed minimum future value). You pay it only if you want to keep the car.
Do I have to pay the balloon payment?
No. At the end of a PCP you can pay it and keep the car, hand the car back, or part-exchange. If you hand it back you may be charged for excess mileage or damage beyond fair wear and tear.
How are excess mileage charges worked out?
Miles over the contracted allowance multiplied by the pence-per-mile rate in your agreement. On the Volkswagen Taigo PCP CarJab listed on 2 October 2026 the rate was 5.63p a mile, so 2,000 miles over would cost £112.60.
What counts as fair wear and tear?
Normal deterioration from everyday use. Damage from a specific event (impact, harsh treatment, negligence) is not fair wear and tear. The BVRLA publishes the industry standard used by most leasing and finance companies.
Sources
- MoneyHelper: Buying a car with Personal Contract Purchase (PCP)
- MoneyHelper: Leasing a car with Personal Contract Hire (PCH)
- BVRLA: Leasing: Frequently Asked Questions
- BVRLA: Returning your leased vehicle (fair wear and tear)
- BVRLA: BVRLA Leasing Code of Conduct (PDF)
- legislation.gov.uk: Consumer Credit Act 1974, section 99 (right to terminate hire-purchase agreements)
This guide is general information, not financial or tax advice. CarJab is not a lender or broker.