What does GFV mean?

[TroubledSoul]

OK, so I know literally that it means Guaranteed Final Value, but what does it actually mean with regards a finance deal, and how does it affect the terms etc?

I was reading about Harris and the FF just now and I realised that if you put a large deposit down on a car on what I guess would be PCP for it to have a GFV (ready to be corrected), what happens if you then sell up without completing the term? Is that while deposit lost? Does the GFV amount have some influence over what happens?

Not sure why I decided I needed to know this now, but hey ho.

[Toaster Pilot]

GFV is the final payment on the agreement - it is part of the total balance of the finance agreement.

If you sell the car mid way through the agreement, you need to pay the finance company your remaining payments + gfv minus some interest.

[matrignano]

Guaranteed Final Value

Or

Good fk Valerie

[hornetrider]

The balloon.

[Muzzer79]

Probably best illustrated with an example.

£20k car (purchase price)

Your deposit is £2000

The GFV; what they think it will be worth at the end of the term is £6k

This leaves £12k to finance. If the GFV is higher, there's less to finance. Likewise if the GFV is lower, there's more to finance and your payments will be higher.

At the end of the term, the difference between the actual value and the GFV is key.

Using our example, if the car is actually worth £7k, you can hand the car back and have £1k to put towards your new one (£7k actual minus £6k GFV)

If it's actually worth £5k, then you pay nothing as your £6k was a guaranteed (minimum) value of the car. You can either hand it back and walk away with nothing, or pay £5k to own it outright.

Lots of people can't get their head around putting a deposit down, paying (£x) a month and then still not owning the car.
This is how PCP works though - you get the benefit of lower payments every month but have to be aware that's traded off by the balloon at the end of the term.

[Toaster Pilot]

Muzzer79 said:

Probably best illustrated with an example.

£20k car (purchase price)

Your deposit is £2000

The GFV; what they think it will be worth at the end of the term is £6k

This leaves £12k to finance. If the GFV is higher, there's less to finance. Likewise if the GFV is lower, there's more to finance and your payments will be higher.

At the end of the term, the difference between the actual value and the GFV is key.

Using our example, if the car is actually worth £7k, you can hand the car back and have £1k to put towards your new one (£7k actual minus £6k GFV)

If it's actually worth £5k, then you pay nothing as your £6k was a guaranteed (minimum) value of the car. You can either hand it back and walk away with nothing, or pay £5k to own it outright.

Lots of people can't get their head around putting a deposit down, paying (£x) a month and then still not owning the car.
This is how PCP works though - you get the benefit of lower payments every month but have to be aware that's traded off by the balloon at the end of the term.

I don't like the use of "that leaves £12k to finance" - you finance £18k if your deposit is £2k, not 12.

The GFV is part of the loan and can't be ignored - if the car is written off, stolen, etc you can't hand it back to the finance company, likewise if you want to trade it in for another car mid-term like the OP asked.

[Paul O]

Toaster Pilot said:

Muzzer79 said:

Probably best illustrated with an example.

£20k car (purchase price)

Your deposit is £2000

The GFV; what they think it will be worth at the end of the term is £6k

This leaves £12k to finance. If the GFV is higher, there's less to finance. Likewise if the GFV is lower, there's more to finance and your payments will be higher.

At the end of the term, the difference between the actual value and the GFV is key.

Using our example, if the car is actually worth £7k, you can hand the car back and have £1k to put towards your new one (£7k actual minus £6k GFV)

If it's actually worth £5k, then you pay nothing as your £6k was a guaranteed (minimum) value of the car. You can either hand it back and walk away with nothing, or pay £5k to own it outright.

Lots of people can't get their head around putting a deposit down, paying (£x) a month and then still not owning the car.
This is how PCP works though - you get the benefit of lower payments every month but have to be aware that's traded off by the balloon at the end of the term.

I don't like the use of "that leaves £x to finance" - you finance £18k if your deposit is £2k, not 12.

Aye. In this example you would repay £12k, but finance £18k. The £6k is then the final payment/baloon/hand-back-car.

[TroubledSoul]

Cheers all.

I think I would find it hard to accept I didn't own the car! If I wanted to change anything about it, I couldn't really, in this situation.

I didn't know that, re: the GFV and how you get a rebate if the car is worth more than the agreed figure.

Do you have to pay the entire remaining finance + GFV then if you decide to change cars mid term?

[rfoster]

Paul O said:

Aye. In this example you would repay £12k, but finance £18k. The £6k is then the final payment/baloon/hand-back-car.

You're quite right, it's common misconception about a PCP or lease purchase product that you only finance the difference between the lend and the final balloon of GFV. In the instance here, you are financing all £18,000 and are deferring £6,000 of capital repayment until the end of the term, so during the agreement you'll pay back interest on the £18,000 but only repay £12,000 of the capital payment; and therefore you pay compounded interest on the deferred capital.

With a lease purchase or PCP agreement that is regulated by the consumer credit act, you can pay off additional lump sums during the course of the agreement and lower your monthly payments or lower the balloon if you wish, and you can also settle the whole agreement at any time and benefit from a regulated settlement figure. Both options here will result in a reduction of the total interest payable under the agreement.

[HTP99]

Muzzer79 said:

If it's actually worth £5k, then you pay nothing as your £6k was a guaranteed (minimum) value of the car. You can either hand it back and walk away with nothing, or pay £5k to own it outright.

Wrong, if you want to own the car you still have to pay £6k even if the car is worth £5k becuase that £6k is still outstanding.

[rfoster]

HTP99 said:

Wrong, if you want to own the car you still have to pay £6k even if the car is worth £5k becuase that £6k is still outstanding.

Correct. *but* there's nothing to stop you handing the vehicle back to the finance company, finding out where they are auctioning it off, and going along to take your chances on getting the same car back again.

[panholio]

PCP can be great in some circumstances (I have a car on one).

But a lot of people don't understand it (as demonstrated by this thread on a car forum, God help the general public) and enter into it with misconceptions. This can also be an advantage to the person selling it.

[TroubledSoul]

panholio said:

PCP can be great in some circumstances (I have a car on one).

But a lot of people don't understand it (as demonstrated by this thread on a car forum, God help the general public) and enter into it with misconceptions. This can also be an advantage to the person selling it.

Absolutely. I only have experience of HP in the past. I've always though that PCP et al were difficult to buy with as you'd either need to be saving an additional amount alongside the payments or get a new loan at the end of it to pay the balloon.

I also didn't realise that you'd have to basically pay off the entire agreement to change cars mid term. That's a big incentive to see it through.

[HTP99]

panholio said:

PCP can be great in some circumstances (I have a car on one).

But a lot of people don't understand it (as demonstrated by this thread on a car forum, God help the general public) and enter into it with misconceptions. This can also be an advantage to the person selling it.

8/9 years ago we took over where I work now; in the early we had customers back for their three year turnaround on their PCP expecting to have the whole amount in their baloon to play with, so they thought that they would hand their car back and also get £3500 to put down as a deposit on a new car, or take the cash and run.

The previous place seriously mis sold them.

[rfoster]

TroubledSoul said:

I also didn't realise that you'd have to basically pay off the entire agreement to change cars mid term. That's a big incentive to see it through.

Well - an early settlement will be subject to a regulated settlement calculation, so you don't payoff *everything* as such.

If we assumed you borrowed £20,000 over 36 months at £400 per month, with a £10k balloon, and wanted to settle early after 18 monthly payments had been met, your balance left would be:

18 x £400 + £10,000 = £17,200
But there would be a rebate of interest no longer payable of £1656.06
Leaving a settlement figure of £15,543.94
(plus any document fees still payable under the specifics of your agreement which vary from company to company.)

[Muzzer79]

HTP99 said:

Muzzer79 said:

If it's actually worth £5k, then you pay nothing as your £6k was a guaranteed (minimum) value of the car. You can either hand it back and walk away with nothing, or pay £5k to own it outright.

Wrong, if you want to own the car you still have to pay £6k even if the car is worth £5k becuase that £6k is still outstanding.

Well technically, yes but if anyone is moronic enough to pay £6k for a car worth £5k instead of making a deal with the finance company to not hand it back then they deserve what's coming.

To all those questioning the fact that you should count the GFV value in the figure being financed; again quite correct but by 'financed' I meant the amount that you are actually making payments on during your term.

[panholio]

Muzzer79 said:

Well technically, yes but if anyone is moronic enough to pay £6k for a car worth £5k instead of making a deal with the finance company to not hand it back then they deserve what's coming.

To all those questioning the fact that you should count the GFV value in the figure being financed; again quite correct but by 'financed' I meant the amount that you are actually making payments on during your term.

I'm sorry this is wrong. You owe the GFV at the end of the term. It is the bit you have deferred payment on no matter what the car is worth at that time.

And you are making payments (or more importantly paying interest against) the whole amount less your deposit.

[rfoster]

Muzzer79 said:

To all those questioning the fact that you should count the GFV value in the figure being financed; again quite correct but by 'financed' I meant the amount that you are actually making payments on during your term.

You're making payments on the amount that you borrowed - if you borrow £18k with a £6k balloon then you are paying back capital and interest on a lend of £18k, not £12k. At the end of the term, prior to paying the GFV, you will only have paid off £12k worth of capital, but interest is charged on £18k plus the deferred lump.

[TroubledSoul]

Another question; is PCP only available on new cars? I'm not planning to buy anything in the forseeable, but it's nice to know what's what.

[HTP99]

TroubledSoul said:

Another question; is PCP only available on new cars? I'm not planning to buy anything in the forseeable, but it's nice to know what's what.

You can get a PCP on a used car however with many manufacturers the rates and offers on new cars actually can make it cheaper to finance a new car as opposed to a used car.