What Happens At The End Of Car Finance?


If you’re coming to the end of your car finance agreement it can sometimes be confusing what happens next. Whether you have a car on a Personal Contract Purchase (PCP), lease, Hire Purchase (HP), or bank loan – in our latest guide we show you what to expect when your contract is up.


Read on to find out what to expect if you’re approaching the end of your car finance agreement.


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What happens at the end of a PCP deal?


At the end of a PCP deal you’ll have three main options. Your first is to pay the final balloon payment and own the car. Second, you could walk away with nothing more to pay. Finally, you can trade the car in, using positive equity to fund the deposit for your next vehicle.

Here’s how each option works.


1. Buy your PCP car

Woman happy after buying her car

In order to keep a vehicle you have on a PCP deal, you’ll need to pay the final balloon payment. This is an additional lump sum that can be worth as much as half of the vehicle’s value.

If you can’t afford the balloon payment but still want to own the car, you can choose to refinance this sum. This involves taking out a new PCP deal, the monthly payments of which split the cost of the final lump sum so you can take ownership of the vehicle. Taking this option usually lowers the cost of the instalments too, especially if you stick to the same terms.

Until you pay off the total finance outstanding on your PCP agreement, you won’t be able to sell the car.


2. Trade in your PCP car


PCP deals allow you to trade in your car for a new one on a separate finance agreement. This is a good option if the car is worth more than the remaining finance owed, because you can use the extra cash towards the deposit on your new car.

The easiest way to change your car is at the end of your agreement, when you can hand the vehicle back and take out a new deal on another new model.

If your vehicle is worth more than the balloon payment, you’ll have positive equity that you can put towards the deposit on your next model. On the flip side, if you owe more than the vehicle is worth, you’ll either have to make up the difference or roll the remaining debt into the deal for the new car.


The monthly payments for your new car will be more expensive if you’re paying off the your previous vehicle on top of it.


You do have the option to swap your car early if, for example, your circumstances change during your PCP deal (i.e. you become a parent), you may need a bigger car, for example. In this instance, you can swap your car for a model that suits your requirements, taking out a new deal for it in the process.


3. Return your PCP car and walk away

Handing the keys back to a car

If you no longer need a car, you have the option to return your vehicle to the lender with nothing more to pay. You’ll need to make sure the car is in good condition and that you’ve stuck to your agreed annual mileage. Otherwise, you’re likely to face charges at the end.

Don’t worry about making the car look like it’s in showroom condition. Finance providers will expect there to be some wear and tear from your use of the vehicle. At the end of your agreement they’ll assess your car’s condition using ‘fair wear and tear’ guidelines.

Under these guidelines a few small scratches/stone chips on the body are acceptable. What isn’t acceptable are serious dents, missing items and cracked glass, for example.


What happens at the end of a car lease deal?


Leasing is one of the simpler forms of finance when it comes to the end. As long as the car is in good condition – which you can check by making sure your car meets the BVRLA Fair Wear and Tear Guidelines – and you haven’t exceeded your agreed annual mileage, you can hand the vehicle back with nothing more to pay.

For more information on what condition your lease car should be in when it comes to returning it, check out our complete guide for returning a lease car here.


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What happens at the end of a HP deal?

A couple smiling in their new car after buying it on hire purchase

It’s a very simple process when you reach the end of your HP agreement. There are two options you can take:

  1. Hand the car back. You’ll need to make sure the car is in good condition if you’re giving it back.
  2. Pay the option to purchase fee and own the car. It will cost around £100=£200 to own the car and you won’t need to worry about the car’s condition as you won’t be handing it back.

What happens at the end of a car bank loan?


Bank loans are one of the most traditional ways you can buy a car. Unlike the other methods of finance mentioned, you’ll own a vehicle you pay for with a bank loan straight away.

This is because the bank or lender will give you the cash for vehicle and you’ll then buy it straight off the dealer. Or certain lenders may allow you to buy a car off a private seller with a bank loan.

You’ll then spend around 2-5 years paying off the loan in the form of fixed monthly repayments back to the bank or lender. You won’t have to do anything at the end of your loan term – quite simply the car is yours to either sell, modify or keep as is.


Want to find out more about car finance or leasing? Head over to hour handy guides page for everything you need to get started.


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