PCP versus a standard hire purchase in the UK

The majority of new car finance deals in the UK are Personal Contract Purchase (PCP), which works exactly like the balloon payment modelled by this calculator: lower monthly payments because you are only financing the depreciation, with a large "optional final payment" (the balloon) due at the end if you want to keep the car. With PCP you can also hand the car back at that point and walk away, provided it meets the mileage and condition terms, which a standard loan or hire purchase (HP) does not offer.

The FCA's affordability rules and the "guaranteed minimum future value"

UK car finance is regulated by the Financial Conduct Authority (FCA), which requires lenders to check affordability before approving a loan. On a PCP deal, the final balloon payment is called the Guaranteed Minimum Future Value (GMFV), set by the finance company at the start of the contract rather than negotiated by the buyer, which is why it is worth comparing GMFV terms across lenders rather than assuming they are all similar.