GMFV Meaning

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.

Also referred to as the GFV (Guaranteed Future Value) or Balloon Payment, the GMFV 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.

What is the GMFV?

In essence, the GMFV is an estimate of what your car will be worth at the end of a PCP contract, but an estimate that won't ever change once the agreement has started.

It is also the figure you'll need to pay at the end if you wish to take ownership of the vehicle.

This figure 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.

As a result, it's this Guaranteed Minimum Future Value that helps PCP monthly payments be so affordable, as much of the car's value is tied up in this optional final payment.

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

You have three main options when it comes to the end of your PCP agreement:

• Return the car - once you've paid all the planned monthly payments, you can walk away from the rest of the deal and hand the car back to the dealer, meaning you don't have to pay the GMFV. Just be aware that, if you've gone over your mileage allowance or the car has damage over and above general wear and tear, there will likely be excess costs as a result.

• Take full ownership - This is one of two situations where the GMFV comes into play - to take full ownership of the vehicle, you must pay the GMFV off - this is usually done in via a lump sum, but it can also be possible to refinance the GMFV over time to make it more affordable, though that option would be susceptible to interest.

• Part exchange the car - Again, the GMFV comes into play here, albeit in a different manner - if you find that the car is worth more than the GMFV, that means you have equity in the vehicle, and this can be used as money towards your next car. As such, you can utilise this as a sort of part exchange, with the equity going towards the deposit of the new vehicle.

GMFV Practical Examples

In the event you are looking to change cars come the end of your contract - and you aren't looking to take full ownership of the car by not paying the GMFV - then the following situations could apply to you:

Car is in equity

If, for example, your car’s GMFV is £7,500 but the vehicle’s actual value come the end of the agreement is £10,000, then you have £2,500 of equity in the car that can be used as a deposit towards your next vehicle.

In this instance, you could also decide to sell the car, and take the equity as cash.

Car is not in equity

If, for example, your GMFV was £7,500, but the car is worth only £6,000 at the end of the contract, you'll have no equity to put towards a new vehicle - also, if you paid the GMFV of £7,500, you would be paying £1,500 more than the car is actually worth.

In such an example, you may want to consider whether just walking away and handing the car back is in your best interests instead.

Making the most out of your GMFV

Under the right conditions, you can find that your car on PCP is worth potentially £1,000s at the end of its contract.

But how can your car be worth more than the PCP's GMFV?

The most common reason you'll find you have equity in your car is that you haven't reached the mileage figure that was set at the start of the agreement.

If you agreed to 32,000 miles over a 48-month contract, but you've only done 25,000 come the end of the deal, you should find that the value of the car is more than the GMFV, as the future value was based on you doing the full 32,000 miles - but you've done 7,000 less.

Another factor that can help is purchasing a car from a brand that typically holds its value and it is usually a sought-after car, meaning the value can be higher than expected if demand becomes greater for that model just as you come to the end of the contract.

Keeping your car in great condition will also help maximise its value, giving it a chance to exceed the GMFV amount.

What is a 'Balloon Payment'?

A balloon payment is something that effectively works on the same basis as the GMFV.

In the context of a PCP deal, it could be that the GMFV has been worded as the Balloon Payment, and is the optional final payment at the end of the contract that will make the car yours once paid.

However, the term 'Balloon Payment' may also be used in other car finance types.