Voluntary termination issue - please help

CF72DS

Hi there. In 2013 I traded in my old mercedes for a newer bmw at a local car dealership. When I traded it in, I was told that there was £2000 negative equity in the mercedes, and that this would be added into my new finance agreement with the bmw - fine, that was straightforward enough. The total amount of the agreement was £305 pcm over £60 months (after a deposit I laid down at the beginning).

Fast forward 2.5 years. I have just been given notice of redundancy at work, and set about contacting the finance company for a quote on voluntary termination: the reason being, once I am made redundant, I won;t be able to keep up payments on the car finance.

Now, this is where things get confusing, and where I need advice.

At 2.5 years into the agreement, I am absolutely at the halfway point in the car finance, and along with the small deposit I paid at the beginning, I was expecting to be able to hand the car back having paid over half of the total amount owed.

However, when I had the quote for voluntary termination back from the finance company, I was amazed to see that I owed £2500 if I wanted to settle the agreement early?

Shocked by this, I phoned the car finance company to ask for a breakdown of how they were arriving at this figure. They explained to me that when I bought the BMW in 2013, I had taken out £4000 of insurance? And in line with the terms of the agreement, I was liable for 100% of these insurance fees if ever I wanted voluntary termination during the HP agreement?

I didn;t remember taking out £4000 of insurance? I remembered purchasing GAP insurance for £600, and a warranty for £400 (totalling £1000)... so where was the rest (£3000) of this insurance coming from?

I phoned the car dealership who sold me the car to ask them the question. They explained to me that when I had bought the car, they had put the negative equity from my previous mercedes (£2000) onto the new agreement as insurance, and over the 60 month term of the agreement this £2000 would accrue interest of £1000. Thus totalling £3000 of insurance?

Now this is where I really need your help and advice. I will break this down in smaller questions:

1. have you heard of negative equity from a previous car being put onto a new HP agreement as 'insurance' carrying interest?
2. If so, is there a reason why the negative equity is not just added in with the value of the new car on the HP agreement?
3. It was never explained to me that the negative equity was going to be added onto my new HP agreement as 'insurance with interest', does this sound reasonable to you?
4. In line with voluntary termination legislation, is it right that I am liable for 50% of the total amount owed on the car, including interest, but 100% of any insurance taken out with the car as well as 100% interest on the insurance
5. Are you aware if it is even legal to add interest onto negative equity which has been built into your HP agreement as 'insurance'?
6. Do you have any further observations you can help me with?

Thanks a lot in advance for your help and advice. If I'm honest I'm concerned that the method of adding negative equity onto new HP agreements as 'insurance' is a means of keeping me tied into my car until the very end of the agreement should I wish to end the agreement voluntarily - I can reahc the half way point of paying for the BMW and all of its interest, however I will never be able to reach a half way point on paying for the negative equity on the previous mercedes as I am apparently liable for 100% of this plus 100% of the interest. However, this could all very well be legitimate, and may be common practice - so any help or advice that you can provide on this would be very gratefully received.

Thanks a lot guys.

Cornucopia

1. I've never heard of negative equity from a previous agreement being carried over (certainly not at that level) at all. So, no, not as "insurance". I suspect that this was done partly to hide the deal from the Finance Company, and you *might* have some leverage on that basis - both against the Dealership (possibly via the Manufacturer) and against the Finance Company (should have known that £4k insurance was unreasonable).

1(a). Also, you probably need to go back and check the invoice carefully, because it sounds like there is another £1000 floating around somewhere (the difference between £4000 and £2000+£600+£400). If that is the case, you will have additional cause for complaint.

2. Yes, because it is cash that is not offset by the value of the vehicle, and therefore could not fairly be cancelled under the "50% rule".

3. No. I think it should have been its own line item. However, I suspect that the Finance Company would have rejected that.

4. I think you are liable for your original debt, but not the interest from here onwards. Consult your contract, though, because it may say otherwise.

5. The whole thing is a mess, and there is the makings of an allegation that the Dealer fraudulently misled the Finance Company. However, you borrowed an extra £2000, and I don't see any scenario in which that will not have to be repaid. If I were you, I would use a spreadsheet to work out a fair settlement - offer that to the Finance Company and see what they say. You can explain that you think that the Dealer misled them and your were disadvantaged as a consequence. Do you have any paperwork that would support that allegation?

6. As I say, work out what you think you should owe (the settlement figure for the car+£2000+interest to date on £2000+whatever is due on the actual insurance you agreed to buy). If the difference between that and the Finance Company's figure is worth fighting over, then start rattling a few cages. However, if you think you are going to get half of the £2000 written-off, or that you deserve to, I think you are mistaken.

IMHO.

edit: I have adjusted my figures above, as I see I misread the OP regarding the original negative equity amount. Based on the £2500 required by the Finance Company, I would probably just pay it. I'm sure that there is £500 of interest and other charges in there, easily.

I'm more concerned about the missing £1000 on the original invoice. That needs checking.

foxy-stoat

If you were unable to pay the £2000 of negative equity when you changed cars then you would not of been able to complete the sale. The dealer did you a favour but enabling you to carry the negative equity over.

They would rarely explain the ins and outs of VTing at the start of the deal - rather like when your at the church getting married to your partner, the Victor isn't going to explain how to get a divorce and the costs involved.

I agree that you shouldnt pay the interest on the "debt/insurance" part but if you work out the actual cost of the interest over the last 2.5 years on the proportion of the £2000 debt that would be outstanding (if thats possible) it may only be a few bargin buckets of fried chicken's worth.

For you to get out of this agreement you will still need to find £2000+.

Good lucks

AdrianC

CF72DS wrote: »

3. It was never explained to me that the negative equity was going to be added onto my new HP agreement as 'insurance with interest', does this sound reasonable to you?
4. In line with voluntary termination legislation, is it right that I am liable for 50% of the total amount owed on the car, including interest, but 100% of any insurance taken out with the car as well as 100% interest on the insurance

Terming it "insurance" sounds odd, but the fact is that you DO owe the full amount that was, effectively, a cash advance - and, yes, of course interest should be added on to it from the start of the agreement until you repay it.

Frankly, given that you don't even seem sure whether the negative equity was £2,000 or £2,500, you really need to revisit the original paperwork. Confirm how much it was. Confirm the APR.

The total finance package is £305 x 60 = £18,300. That is made up of the amount you borrowed for the car, the amount you borrowed for the gap insurance, the amount you borrowed for the warranty, the cash advance amount you borrowed to pay your previous deal off, and the interest on the whole lot.

To VT, you need to pay off ALL of the gap, the warranty and the cash advance, half of the amount for the car, and the relevant interest. So (£600 + £400 + (£2,000 or £2,500)) + (50% of car funding) + interest. That is, obviously, going to be more than simply (50% of total borrowed) + interest.

CF72DS

Thanks a lot for sharing your knowledge and advice, much appreciated.

It's helping me to build a bigger picture as to what's happened.

Adrian, just to clarify the figures:

The negative equity was £2000 going in.
They've added a further £1000 interest on top for the duration of the 60month period. Total £3000.
There was also GAP insurance and warranty totalling £1000 over the duration of the agreement.
Grand total in the 'insurance' section of my HP agreement at the beginning of 60 month term: £4000

I've since been paying this £4000 off over 30 months (along with the rest of the money for the car in the HP agreement).

The finance company have instructed that I now owe £2500 of 'insurance' (out of the original £4000) to settle under VT.

Having read some of the responses above, it seems like this is a method that may have been used to help me part-ex my old car with minimal fuss for everyone concerned - with the perception of doing me a favour. I'm still a little confused as to how £1000 of interest can be added onto negative equity, concealed within insurance - just doesn't seem right to me?

Cornucopia

CF72DS wrote: »

I'm still a little confused as to how £1000 of interest can be added onto negative equity, concealed within insurance - just doesn't seem right to me?

It's almost certainly a breach of the Consumer Credit Act.

Why did you agree to it?

IF it was hidden from you at the time, you certainly have cause for complaint, to both the Dealership and Trading Standards. If not, you may struggle to get anywhere with it this long after the event.

It looks like you may need help from someone (Accountant? CAB? Trading Standards?) to analyse the figures and try to make some sense out of them before you put a full & final offer to the Finance Company. You could argue that the Dealer was operating as their agent, and therefore they share responsibility for his apparent misdeeds.

facade

The negative equity was a cash loan. The gap insurance and warranty were cash loans too.
They somehow lumped all the cash loans together, and called them "insurance"
So you had to pay back this £3000 cash over the 60 months, they did this as a separate cash loan, not part of the car price, so there is interest to pay, they are saying that to settle this is £2500. (You don't get a reduction in the warranty cost or GAP insurance because you don't need the full 60 months worth)

The car is different, you basically took out another loan on the full cost of the car. They allow you to not pay back the final value (they have the car back in lieu of you paying this amount, or you pay it and keep the car) , but charge interest on the whole amount outstanding.
To VT it you need to have paid back half of the price of the car (and interest upto that point) this includes your deposit and parts of the monthly payments that were not going towards the "insurance"

The problems seem to be not explaining this to you, and indeed whether they can actually call the negative equity "insurance", but the bottom line is you have to somehow pay backall the "insurance" and half the price of the car if you VT it.

=rizla=

If this amount of extra 'insurance' including interest is £4000 and you've been paying it for half of the term why is it £2500 and not £2000??, also the £1000 interest on the £2000 'insurance' or is that on the £3000 including the real insurances? either way seems a very very high apr. However aren't you entitled to pay less than the full interest as you would if you settled a normal loan off early?

motorguy

CF72DS wrote: »

Hi there. In 2013 I traded in my old mercedes for a newer bmw at a local car dealership. When I traded it in, I was told that there was £2000 negative equity in the mercedes, and that this would be added into my new finance agreement with the bmw - fine, that was straightforward enough. The total amount of the agreement was £305 pcm over £60 months (after a deposit I laid down at the beginning).

Fast forward 2.5 years. I have just been given notice of redundancy at work, and set about contacting the finance company for a quote on voluntary termination: the reason being, once I am made redundant, I won;t be able to keep up payments on the car finance.

Now, this is where things get confusing, and where I need advice.

At 2.5 years into the agreement, I am absolutely at the halfway point in the car finance, and along with the small deposit I paid at the beginning, I was expecting to be able to hand the car back having paid over half of the total amount owed.

However, when I had the quote for voluntary termination back from the finance company, I was amazed to see that I owed £2500 if I wanted to settle the agreement early?

Shocked by this, I phoned the car finance company to ask for a breakdown of how they were arriving at this figure. They explained to me that when I bought the BMW in 2013, I had taken out £4000 of insurance? And in line with the terms of the agreement, I was liable for 100% of these insurance fees if ever I wanted voluntary termination during the HP agreement?

I didn;t remember taking out £4000 of insurance? I remembered purchasing GAP insurance for £600, and a warranty for £400 (totalling £1000)... so where was the rest (£3000) of this insurance coming from?

I phoned the car dealership who sold me the car to ask them the question. They explained to me that when I had bought the car, they had put the negative equity from my previous mercedes (£2000) onto the new agreement as insurance, and over the 60 month term of the agreement this £2000 would accrue interest of £1000. Thus totalling £3000 of insurance?

Now this is where I really need your help and advice. I will break this down in smaller questions:

1. have you heard of negative equity from a previous car being put onto a new HP agreement as 'insurance' carrying interest?
2. If so, is there a reason why the negative equity is not just added in with the value of the new car on the HP agreement?
3. It was never explained to me that the negative equity was going to be added onto my new HP agreement as 'insurance with interest', does this sound reasonable to you?
4. In line with voluntary termination legislation, is it right that I am liable for 50% of the total amount owed on the car, including interest, but 100% of any insurance taken out with the car as well as 100% interest on the insurance
5. Are you aware if it is even legal to add interest onto negative equity which has been built into your HP agreement as 'insurance'?
6. Do you have any further observations you can help me with?

Thanks a lot in advance for your help and advice. If I'm honest I'm concerned that the method of adding negative equity onto new HP agreements as 'insurance' is a means of keeping me tied into my car until the very end of the agreement should I wish to end the agreement voluntarily - I can reahc the half way point of paying for the BMW and all of its interest, however I will never be able to reach a half way point on paying for the negative equity on the previous mercedes as I am apparently liable for 100% of this plus 100% of the interest. However, this could all very well be legitimate, and may be common practice - so any help or advice that you can provide on this would be very gratefully received.

Thanks a lot guys.

Your ability to VT without anything further to pay is based on 50% of the total agreement cost, NOT 50% of the way through the agreement.

I would say - as others have said - the company selling you the car rolled in the £2K of negative equity as "insurance" to get it past the finance company. Did you think it had just disappeared?

The balance due, i would suspect, is merely the remaining amount to be paid to take you to the 50% marker and has nothing to do with insurance, or interest on the insurance specifically.

Also, why are you knee jerking into getting rid of the car, bearing in mind you will undoubtedly need a car when you get a new job, which might only be a matter of days or weeks away?

motorguy

CF72DS wrote: »

Having read some of the responses above, it seems like this is a method that may have been used to help me part-ex my old car with minimal fuss for everyone concerned - with the perception of doing me a favour. I'm still a little confused as to how £1000 of interest can be added onto negative equity, concealed within insurance - just doesn't seem right to me?

They were doing you a favour - otherwise you couldnt have "afforded" the car?

Your finance agreement should be very clear about the total agreement amount, and what 50% of that amount is. I would say you will find it has nothing to do with "insurance" or "£1000 interest on the insurance" but is simply just the remaining balance to get you to that 50% marker

They cant simply decide to charge you £1000 interest on the £2000 "insurance", and i would love to see how that was represented on your finance agreement if they did.

Also, did you really pay £1,000 for GAP insurance? Its a £250 product tops.

bigjl

As others have said why would you look into VT a credit agreement due to impending redundancy?

Surely there will be some form of redundancy payment?

Which should be enough to see through living expenses till a new job is found.

As already said, you will then need a vehicle.