How PCP finance affects your service requirements

If you don't pay attention to your vehicle's finance contract, you could be penalised heavily.


The rapid growth of PCP finance agreements in the commercial vehicle sector has followed the passenger car market, with more and more small businesses or sole traders taking out PCPs to finance their vehicles.

However, many buyers are unaware of the servicing requirements that form part of the terms and conditions of such contracts. We discussed this a while ago at our sister site The Car Expert, and it’s worth looking at here as well.

Warranty and finance are separate issues

The LCV sector tends to be much more clued-up about servicing rights than the passenger car sector, and most operators and owners will be aware that you are perfectly within your rights to take your vehicle to any suitable garage you like for regular servicing without voiding your warranty. However, there is another issue to consider if your vehicle is financed using a PCP.

One of the key features of PCP vehicle finance is that the finance company guarantees to cover the outstanding settlement figure at the conclusion of the term.  This is called the Guaranteed Minimum Future Value (GMFV) and it means that your worst-case scenario should be that you can simply give the vehicle back to the finance company at the end of the agreement with nothing else to pay – as long as you have complied with the conditions of the contract.

There are usually three conditions that you must meet to claim your GMFV:

  1. You must not exceed the total mileage stated in the contract over the term
  2. The vehicle must not have sustained any damage beyond normal wear and tear
  3. You must have the vehicle serviced by the manufacturer’s official dealer network

It’s that final item that we are looking at now.  The GMFV offered is based on a vehicle with no damage, limited mileage and a full manufacturer service history.  If you do not have a FULL manufacturer service history (which means on time, every time, by an official dealership), then the finance company can and will charge you a large penalty.

What is a dealer service history worth?

The argument for this is straightforward: the GMFV is based on a vehicle with a full manufacturer service history, and a vehicle with a perfect service record will always be worth more than one without.

To a large degree, this is true.  However, the penalty charges that finance companies can apply are very harsh, particularly since a franchise dealer service isn’t necessarily any better than one done by a good independent garage.

Some manufacturer finance companies will charge you hundreds of pounds in penalties if only one service is not in accordance with the official requirements (even if it is done by the dealer but not on time), with the charges rocketing up if multiple services are not done by the book. This seems disproportionate to the real effect on a used vehicle’s value, especially if servicing is done by a qualified garage but not strictly by the wording of the PCP agreement.

What if I don’t want to give the vehicle back at the end of the term?

If you are not claiming the GMFV at the end of the agreement (ie – if you are not giving the vehicle back to the finance company), then you don’t have to worry about where you have it serviced.  So if you want to settle the outstanding finance and keep your van, or sell it privately, or part-exchange it for something else, you can have your vehicle serviced wherever you like and the only downside will be a slightly diminished resale value.

However, if your vehicle is worth less than its settlement figure (negative equity), you won’t have the security of the GMFV to cover you.  This means that you will have to pay the negative equity out of your own pocket.  With national used van values generally in decline – and with further devaluation on the horizon once the London ULEZ arrives – you run the risk of having to cough up thousands of pounds to clear your finance because you have invalidated your GMFV.

Understand what you are signing up for!

This scenario is cropping up more and more around the country, and part of the problem is that the terms and conditions have not been explained by the dealer at the point of sale.  The other problem is that buyers are notoriously lazy when it comes to reading contracts before signing them.  The result is that a customer is not aware that they can no longer claim their GMFV, and it ends up costing them dearly.

Given the mileage that working vehicles rack up each year, servicing your vehicle becomes a significant expense. While many businesses have traditionally used independent mechanics for servicing in the past, this may not be advisable if you are using a PCP to finance your vehicle.

Stuart Masson
Stuart Massonhttps://www.thecarexpert.co.uk
Stuart founded sister site The Car Expert in 2011. Originally from Australia, Stuart has had a passion for the car industry for over thirty years. He now provides overall direction for our four automotive titles.

What are your thoughts? Let us know below.

More features

LEVC plans to go beyond taxis

LEVC has unveiled a new vehicle architecture that suggests the British manufacturer is targeting a bigger slice of the vehicle market.