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Originally Posted On: https://www.clearmoneyclaims.com/what-is-car-finance-based-on/
What is car finance based on?
When you go and get a car and you decide to take it out on finance, do you know how that finance is calculated and what it is based on?
First off let’s start with this abbreviation, so you don’t get lost in the first sentence.
The (GFV) Guaranteed Future Value (sometimes known as the Guaranteed Minimum Future Value, optional final payment or balloon payment) is when a finance company guarantees what your car will be worth at the end of your finance term, regardless of its true depreciation.
The GFV is based on various factors, including the length of the loan, the anticipated mileage, and the car’s projected retail value, credit, loan amount. Generally speaking, the better your credit, the lower your interest rate can be. Lenders can also look at your debt and income and all of these can effect the amount you pay.
If you’re trading the car in, any GFV equity can be used as a deposit towards your new car.
Unless you’re buying a collectible classic or a limited edition supercar, it’s pretty much a given that new vehicles will depreciate in value over their lifetime, particularly over the first two or three years.
However, thanks to a part of their agreement known as the Guaranteed Future Value, or GFV, Personal Contract Plan (PCP) customers can be reassured that they are protected against depreciation.
Cost of the car
Now, the most obvious factor that affects the cost of car finance is the value of the car you’re looking to buy. Car finance is essentially a loan that you take out to pay the dealership or seller. The higher the value of the car, the more money you’ll need to borrow.
When completing your application, it can entail a lot of paperwork, including copies of your driver’s license, proof of income, and auto insurance policy. If any of the information requested is missing from your application, your loan could be declined, so triple check that you have submitted all of the documentation required.