Glossary · Motoring
Balloon payment
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Definition: A large optional final payment on a PCP car-finance deal that you pay only if you want to keep the car at the end of the agreement.
On a Personal Contract Purchase (PCP), monthly payments cover the car's expected depreciation, not its full value. At the end you can hand the car back, part-exchange it, or pay the 'balloon payment' (the Guaranteed Minimum Future Value) to own it outright.
Because the balloon payment can be several thousand pounds, many drivers either return the car or refinance the final payment. Comparing the total cost against Hire Purchase or a personal loan is worthwhile.
Primary source: fca.org.uk