Buying a Car? 'Option-to-purchase fee' explained

In PCP or HP finance deals, your car loan provider may include an option-to-purchase fee as part of the deal. Some dealers also call this fee as an option-to-buy fee, an option fee, or purchase fee.

Option-to-purchase fee in detail

Option-to-purchase fee is an optional fee, which is applicable only if you purchase a car. The dealer will charge this fee at the end of the term. You need to pay this fee to transfer the vehicle legally to your name. Unlike an administration fee, this fee will not be included in your monthly installment.

Example 1:

Suppose you want to buy a Kia Sportage Diesel Estate worth £16,800 under PCP. As part of the deal, you may be asked to pay an option-to-purchase fee of £175. However, your monthly PCP payment will not include this amount of £175.

How does the option-to-purchase fee affect you?

You will have to pay the option-to-purchase only if you want to purchase a car. Under HP, you have no choice, but to pay this fee because you will be taking ownership of the car. In PCP, you will have to pay this fee ONLY if you are buying the car when the term is ending. If you are opting for a cash settlement/ part exchange, you do not have to pay this fee.

Example 2:

To continue with the above example, let's assume your PCP term is over. If you decide to take ownership of a car, you will have to pay this additional fee of £175. If you are going for another car, you do not have to be concerned about this money.

Moreover, if you purchase the same car under HP, it will be compulsory for you to pay the option-to-purchase fee. If not, the dealer may not transfer the ownership of the car.

iCalculator tip:

At times, sales agents may not show a clear picture about the option-to-purchase fee. Also, if the fee is too high, it may come as a shock in the end. Therefore, we recommend you to confirm this amount before signing the deal.