How to refinance a PCP balloon payment

At the end of a PCP deal and can't afford a new car, but don't have the cash to buy your current one? You can refinance the balloon payment

Christofer Lloyd
Jul 31, 2020

Coming to the end of a PCP finance deal and not sure what to do next? Fear not, you have several options. PCP splits the cost of a car across a deposit, a series of monthly payments and an optional final payment (also known as the balloon payment) - make this and the car is yours. But if you don't have the cash to hand or don't want to keep the car, there are other options.

At the end of the contract, you can choose to hand the car back with nothing left to pay (provided you've stuck to the pre-agreed mileage limit and there is no damage beyond fair wear and tear), 'trade it in' - using any equity, should the car be worth more than the optional final payment, to put towards the deposit on your next car - or you can make the optional final payment and own the car outright.

The problem is that the optional final payment may be half the initial cash price of the car - or potentially even more - at the end of a four-year contract. That means that a £20,000 car that may have cost you £265 per month on PCP with a £2,000 deposit, could have an optional final payment of £10,000. And most of us simply don't have that kind of cash to hand.

If you're in that camp but you'd like to keep the car - either because you've fallen in love with it, because a new car is a little out of reach, or simply beause you'd rather keep your current car than source another one, then refinancing could be the answer. And you have the option of taking out another PCP finance deal or Hire Purchase.

If your car is relatively new - typically up to around four or five years old - you can often refinance this figure with another PCP deal (with another series of monthly payments and then another - albeit lower - optional final payment to pay at the end if you want to own the car at this stage), while with Hire Purchase you can finance cars up to 10 years old or 100,000 miles at the start of the contract and automatically own the car once you've made the last monthly payment.

Refinance with another PCP deal and your monthly payments should drop noticeably (assuming the same type of finance, contract length, deposit amount and mileage allowance). That £20,000 car that might have cost £265 per month if you intially financed it at two years old, could be £150 per month if you refinanced the balloon payment - at six years old and with a £10,000 cash value - after the initial contract ended (again with a £2,000 deposit). Go for this option and after another four years, the car may have an optional final payment of around £4,000. You can either pay this to own the car or refinance again.

If you want to avoid having to pay a large final sum - and pay less interest overall - choosing Hire Purchase when the car is six years old would give you monthly payments of around £225 (again on a four-year contract with a £2,000 deposit). After the four-year term, the car would then be yours to keep. Even if you had no cash at all to put down another deposit, monthly payments would be around £265 - the same as the initial PCP contract, but with no large final payment needed to own the car.

This means that if you're coming to the end of a PCP contract and want to keep your current car, but don't have bags of cash to buy it outright, refinancing can be a simple and affordable way to do it. PCP offers the lowest monthly payments, however remember that you'll still need to pay a reasonably large final payment at the end if you want to own the car. Meanwhile, with Hire Purchase there is no large final payment needed to own the car - and you will pay less interest than with an equivalent PCP deal - but monthly payments will be a little higher.

If you're nearing the end of your contract and want to find out about refinancing, click here.

Another option for refinancing is going for a bank loan. This may work for you if you have a very good credit score, as you can take advantage of low interest rates, and you own the car from day one. However, be aware that with unsecured loans it's not just your car that could be repossessed if you fail to make payments on time. Also, you may find you get a better deal with car finance, so it's always worth getting PCP and Hire Purchase quotes too.

BuyaCar works with a number of different lenders that cater for a wide range of drivers and can offer finance tailored to your needs. Click here for a no-obligation finance quote.

Should I refinance my balloon payment or return the car?

Before making a final decision whether to hand your car back or refinance the optional final payment (this is the same thing as a balloon payment), it's helpful to compare the car's current value with how much you'd have to pay - or refinance - to purchase it.

If the car is worth less than the balloon payment, you may want to hand it back and purchase a similar used model for less (find out how much a similar used car would cost with the BuyaCar used car search tool here).

If however, the car is worth more than the balloon payment, you're better off paying - or financing - this amount to own the car for less than a similar used model would cost you. Click on the links below to find out more:


Read more about:

Latest advice

  1. What is very poor credit car finance?

  2. What is bad credit?

  3. What is Benefit-in-Kind tax and how is it calculated?