Voluntary Termination, odd situation

biccys

Hi,
I have a finance agreement on a car I bought new, but it's a used car finance deal. The deal was I pay for the term of the loan (5 years) and then there;s a £4000 (ish) lump sum to pay at the end of that term which I can refinance or do whatever. I'm just over 2 years in and am sick to death of the car being so thirsty and high tax. I have it serviced on time, it's immaculate and is worth £7800 now. The settlement figure I got yesterday was £11,800 so I'm roughly £4k in negative equity which will just increase as time goes on.

Am I able to VT at the 2 1/2 year point (or if 1/2 the loan has been paid) and forget about that final payment? Or will I be able to VT and still have that £4k debt owed to someone?? And if that's the case and the finance company don't care about the extra £4k, to whom do I owe it....?!

bowlhead99

You need to keep paying without missing a beat until you have paid half the total amount due under the finance agreement (which will be more than half what you borrowed, because of interest and fees you have been paying as you've gone along).

The total amount due, which would include the 'guaranteed future minimum value' if a PCP or the £4k final lump of debt on a standard finance agreement, is going to be shown on your finance agreement so you should be able to find it easy enough. So if you just have a straight HP or PCP deal it is straightforward as long as you keep to your side of the bargain and don't miss any payments and are able to return the car undamaged.

If it is a lease rather than a traditional dealer finance arrangement, the cancellation terms can be expensive but with PCP or HP you can just walk away at the appropriate moment.

It's worth noting that of course, with a history of terminating finance agreements early without letting them reach full profit for the dealer, you may find it difficult to walk up to another car financier and get another one right away, because they may prefer not to do business with you, but other sorts of finance like loans and overdrafts and credit cards and mortgages would be largely unaffected because you are just exercising your rights under the contract and not actually defaulting on something.

bigjl

The specific information you need will be in your agreement.

Rain_Shadow

You are nowhere near far enough into the agreement to VT at the moment.


Seeing as the fuel consumption and road tax can't have been too much of surprise you would probably be better keeping it for the remainder of the term.


If you are determined to change it and can afford to do so then you might consider taking a £11800 personal loan over three years to settle the finance and selling the car and using the proceeds to buy something more to your liking. At least at the end of the three years you will have a car and no debt.


Five year finance agreements on second hand cars are very often a recipe for disaster. I seem to recall that many years ago you couldn't get finance over more than two years if the purpose was to buy a vehicle.

bowlhead99

Rain_Shadow wrote: »

If you are determined to change it and can afford to do so then you might consider taking a £11800 personal loan over three years to settle the finance and selling the car and using the proceeds to buy something more to your liking. At least at the end of the three years you will have a car and no debt.

An alternative option which might make things more affordable month to month is to borrow over a slightly longer term.

Example with Sainsburys Bank if your credit rating is OK you can get a £11800 personal loan at 3.5% over 54 months (4.5 years). This comes out at £236 a month.

By the time you are three years down the line from now on that Sainsbury loan agreement, you will have paid a total amount of £8.5k of which some is interest and most (almost £7700)is capital. You will therefore still owe about £4100. Which is comparable to if you saw the existing finance through to the bitter end and still owed them a 4000(ish) lump sum in three years.

So effectively you can settle the finance, have the freedom to change your car to whatever low tax economical car you like, maybe even downsize and put a bit of money to one side or whatever, and keep on paying the £236 a month and owing £4000 after 3 years. You could then refinance the £4000 or keep paying it off at £236 a month for another year and a half, or clear it or whatever depending on your personal circumstances.

Obviously if you expect to have the cash to clear it faster then get a shorter term loan agreement - to pay the full £11800 over 3 years with Sainsbury's is £345 a month. (3.4% APR) and then you are free and clear like Rain Shadow said.

If you don't fancy those options you'll have to suck it up and keep paying your monthly amount until you've hit the magic halfway point (not halfway through the term, half the grand total amount of money including interest and the terminal £4k lump) and then you can give back the car.

facade

biccys wrote: »

Hi,
I have it serviced on time, it's immaculate and is worth £7800 now. The settlement figure I got yesterday was £11,800 so I'm roughly £4k in negative equity which will just increase as time goes on.

So if you buy it at the settlement figure, and sell it for the maximum value you are at least £4000 down.

Keeping it until the end of term means you stay within your original budget and have £4000 to spend on the extra petrol & tax over three years. (Assuming you swap for some tiny ecobox that does 60 MPG and is zero tax)

It is the difference in running costs that you will be funding that £4000 from.

blackste

If you are determined to get rid of the car, you can actually voluntary terminate at any time, but you will be required to make a payment to take you up to the 50% of total amount payable.

So, if your total amount payment (stated on finance agreement) was £15000, and you had made payments totalling £6500, you could make a further payment of £1000 at the time of termination, with nothing further to pay (subject to reasonable condition of the car, and how hard you would be willing to fight with the finance comapny).

Read the small print in the finance agreement, and i would also recommend finding the legal beagles forum if you have not complete a VT before. You will get advice from experienced people who understand this legislation, and have helped lots of people do it.

blackste

bowlhead99 wrote: »

You need to keep paying without missing a beat until you have paid half the total amount due under the finance agreement (which will be more than half what you borrowed, because of interest and fees you have been paying as you've gone along).

The total amount due, which would include the 'guaranteed future minimum value' if a PCP or the £4k final lump of debt on a standard finance agreement, is going to be shown on your finance agreement so you should be able to find it easy enough. So if you just have a straight HP or PCP deal it is straightforward as long as you keep to your side of the bargain and don't miss any payments and are able to return the car undamaged.

If it is a lease rather than a traditional dealer finance arrangement, the cancellation terms can be expensive but with PCP or HP you can just walk away at the appropriate moment.

It's worth noting that of course, with a history of terminating finance agreements early without letting them reach full profit for the dealer, you may find it difficult to walk up to another car financier and get another one right away, because they may prefer not to do business with you, but other sorts of finance like loans and overdrafts and credit cards and mortgages would be largely unaffected because you are just exercising your rights under the contract and not actually defaulting on something.

This while post is pretty bang on(you can still VT with defaults, as long as you pay them up.I
would question the last paragraph, as that would depend on your credit record. I VTd a car to mercedes last month, and the same week got a new car from them with no problems at all. Remember, a VT does not negatively affect a credit record, its only a grey mark. I guess the finance companies look at each case individually. Regardless of their complaints or feelings when you VT, they are still making a lot of money compared to leaving their money in the bank.