What is Guaranteed Future Value (GFV)?
When buying a car on a PCP finance deal the repayments are worked out by the proposed residual value of the car at the end of the term. This is known as the guaranteed future value (GFV) of the car.
This means that your monthly repayments on PCP can be kept relatively low as you’re essentially paying off the difference between the value when you bought the car and the agreed value at the end of the term. This makes PCP a very popular form of car finance deal.
How is GFV calculated?
GFV is calculated by working out the residual value of the car at the end of the term. This is done by taking into account a number of factors, including but not limited to:
- The make of car
- The model of car
- The type of fuel the car uses
- Your estimated annual mileage
- The length of your agreement
Consider your mileage and wear & tear
The GFV of your car will not change once it has been set, but there are some things that could affect how much you owe in addition to your repayments. For instance, if you go over your mileage limit then you will be charged for each additional mile. So, be as accurate as possible with mileage estimates and give yourself a cushion, just in case your circumstances change and your mileage increases.
Similarly, the wear and tear of the vehicle can be taken into account. Most deals will calculate the GFV based on what they consider to be normal wear and tear, and anything in addition to this may incur charges, despite the set GFV. Some PCP deals will offer maintenance packages that may be worth considering to prevent this. It’s also the dealer who will decide what constitutes fair wear and tear, but the lender may send along a representative if needed.
GFV and balloon payments: The cost of owning your car on PCP
PCP is one of the car finance options that allows you the chance to own your car outright at the end of the agreement. This is generally done through a balloon payment and in this case that balloon payment will be the same as the GFV, as that was the residual value of the car after the depreciation over the course of your term, that you agreed with the lender.
You can also consider using this car as a part exchange for your next car on a PCP deal, although it is advised you formally end one before moving on to the next. Work out the overall value of the car and the equity you can secure as part of a part exchange.
Other guides related to car finance
More car finance guides