What are balloon payments and how are they set? We explain everything you need to know about this figure.
If you choose a personal contract purchase (PCP) lease, you’ll have the option of purchasing the car you’ve been driving at the end of your car lease.
To take full ownership of your car at the end of your PCP lease, you’ll have to make one final large payment. This is referred to as the balloon payment, and it represents the car’s guaranteed minimum future value (GMFV).
In this article, we’ll explain everything that goes into calculating balloon payments, how they work, and how an all-inclusive subscription with Onto means you’ll never have to worry about hidden fees.
A balloon payment is the final payment made to purchase a car leased through Personal Contract Purchase.
The balloon payment represents the full value of the car at the end of the lease, so it’s usually thousands of pounds higher than the monthly lease payments.
At the end of a PCP lease, the driver has the option of paying off this final balance. Once they do this, they have full ownership of their car.
The balloon payment is set by the dealer when the lease is initially agreed. The dealer uses industry data on car values and depreciation, and comes up with an estimate of how much the car will be worth at the end of the lease.
This final value estimation is the amount that will be due as the balloon payment.
The balloon payment is based on the guaranteed minimum future value. The GMFV is set using the dealer’s estimation of the car’s value at the end of the lease.
Monthly payments are based on the car’s depreciation over the lease term and the value of the deposit. When you make a monthly lease payment, you’re making a payment on the total amount your car will depreciate over the term of your lease, minus that amount you put down as a deposit.
When your lease ends, you will have paid off the full amount your car depreciated during your lease, but the GMFV will remain.
The final balloon payment is made to cover that outstanding GMFV. Unlike your monthly lease payments, it can’t be divided into instalments - it has to be paid in full at the end of your lease if you want to own your car.
As they represent the car’s entire remaining value, balloon payments can be considerably larger than regular monthly payments - usually by thousands of pounds. Although 90% of new cars in the UK are sold through finance, most consumers don’t actually buy the car at the end of the contract.
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We’re transparent about what’s gone into setting the subscription fee for your electric car, so you can be sure you’re getting a competitive rate.
And every Onto subscription is all-inclusive. You won’t have to worry about arranging insurance or maintenance - and you’ll even be able to use a wide range of public charging points for free.
For an all-in monthly fee, enjoy all the benefits of car ownership, but none of the hassle.
