What is a balloon payment?

A balloon payment, sometimes called the optional final payment or Guaranteed Future Value, is the large lump sum left at the end of a PCP agreement. It's calculated at the start of the deal as an estimate of what the car will be worth at the end.

You have three real options when it's due: pay it and own the car outright, hand the car back and walk away (as long as it's within the agreed mileage and condition), or trade it in and use any equity towards a new deal. It's worth deciding in advance which of these you're likely to want, since it affects whether PCP or a different way of financing the car actually suits you.