GMFV: Guaranteed Minimum Future Value

If you’ve been considering PCP car finance, then it’s likely that you’ve come across the term ‘GMFV’ or Guaranteed Minimum Future Value.

This is an integral part of a PCP contract, as it affects both your monthly payments and also what is possible come the end of your agreed term.

Let’s dig a little deeper into why the GMFV can be so important.

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GMFV Explained

In essence, the GMFV is an estimate of what your car will be worth at the end of a PCP contract.

This is based upon market values of the car in question, as well as the mileage expected to be done during the agreement and what the age of the car will be at the end.

The dealer will calculate the GMFV at the start of the contract, after which the monthly payments can then be determined by the difference between the total cost of the car and what has been set as the GMFV.

Come the end of the agreement, the GMFV will act as an optional final payment that can be paid in full to own the car outright, or can be refinanced for greater affordability. You may also see the GMFV be referred to as the ‘balloon payment’.

The immediate benefit of the GMFV is that it sees the lender guarantee the valuation, so lessens any sort of worry you may have about your car’s value come the end of the agreement - even if it ends up being worth less, you won’t have anything more to pay, unless you have incurred mileage or damage charges.

GMFV – what do I do at the end of the contract?

With PCP finance packages, you have three key options available after making the final monthly payment:

- Walk away and hand the car back to the dealer without paying the GMFV

- Pay the GMFV outright or by refinancing the amount to make the car yours

- Use any equity in the car to part exchange for another

In regards to that last one, it is not uncommon that the true value of the car is higher than the GMFV after that final monthly payment has been made. In this instance, the car has equity in it that can be used towards a new vehicle as a deposit.

So, for example, if the car’s GMFV is £7,500 but the vehicle’s actual value come the end of the agreement is £9,000, then you have £1,500 of equity in the car that can be used as a deposit towards your next purchase.

This also presents other opportunities, such as paying off the GMFV and then selling the car immediately to gain the extra value as profit. Alternatively, and more realistically, get permission from the lender to sell the car, pay off the GMFV and keep the surplus value for yourself.

If it turns out the car is worth less than the GMFV, then it is usually advised that you hand the car back and walk away, as the lender will pick up any loss in value instead of paying a GMFV that is more than the car is actually worth.

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