VW Financial Services 'Preferential Early Termination'. Does anybody have any experience in this?

BudgetandScarper

Hi all,

18 months ago I took up a contract hire agreement with VW Financial Services for a Seat Leon FR with a big 2.0 litre engine. Payments were agreed at £273 per month for a total of 48 months. I'm now 18 months in and my insurance is still £1700 annually (I'm 23, 4 years of driving & NCB, clean driving record). To summarise, it seems that I have matured slightly in the last 18 months and I am now in a position where I would like to re-visit my monthly outgoings and try to start putting some money away to save for a Mortgage deposit. ( :-)... I think)

I explained this to VWFS on the phone and they told me about their 'Preferential Early Termination' option in which I would need to arrange for a SEAT dealership to buy the car from VWFS in order to negate any early termination costs, as long as I take out another agreement with them (Which I want to do, just for a lot more economical and cheaper per month car). Full explanation provided by VWFS below:

"A Preferential Early Termination is generated with the intention of reducing the cost a customer would have to pay in order to early terminate their current agreement in times of exceptional circumstances.
In order for a Preferential Early Termination to be confirmed, there are two conditions which must be met –

Condition 1 –A customer terminating their current Contract Hire agreement is required to take out another VWFS agreement. This can be Contract Hire, Lease Purchase, Finance Lease, PCP or Hire Purchase (these are different finance products our dealership supplies and they can help you choose what’s right for you). The vehicle you choose must be within the VWFS Group for example VW, Audi, Skoda, SEAT.

Condition 2 – If you decide to go ahead with this, the dealership who provides you with your next vehicle will buy the current Contract Hire vehicle from VWFS, as we are the registered keepers. The figure agreed by the dealership to buy the vehicle from VWFS can impact the customers Preferential Early Termination shortfall. The shortfall is discussed with you by the dealership as failure to make payment for the shortfall will result in contact from our collections department. This may also affect your credit rating if the shortfall is not paid.

If both conditions are met and you are happy with the Preferential Early Termination figure, then we can continue with the process.

Purchase of the vehicle is at the dealerships discretion therefore if one dealer did not want to buy your current vehicle at this point in time, another might."

So, I've contacted my local dealer who did not seem to know about the above, but they completed an appraisal on the car and have agreed to have a conversation with VW FS/Seat FS about the process and then contact me after the Easter bank holiday.

My question is, does anybody have an understanding of how this exchange is supposed to work commercially? At the moment I am operating on the assumption that VWFS will want me to pay the balance that I would have paid over the remaining 30 months of the contract, which would equate to £8,200. Currently the same car as mine with the same particulars (Age, Mileage, Engine, Trim) are selling at around £14/15k on the market. So financially, I've got to hope that VWFS offer the car to the SEAT dealership at a price that still would leave the dealership with a profit margin when they sell the car on?

Can anybody tell me whether I'm thinking incorrectly? Would love to have some idea in my mind so that I'm not stewing it over all weekend! :-)

neilmcl

k3lvc wrote: »

Not quite sure why there's a need for a special name for this early termination - unless I'm missing something it's standard practice that you


a) get a settlement figure from VWFS
b) talk to dealer (any dealer - not just VW group) for your new car
c) give new dealer your settlement figure
d) negotiate deal based on paying off shortfall of current car plus cost of new car


Are VWFS throwing in some additional incentive for you to stay within the VW group ??

He's leasing the car, it's not a credit agreement such as a PCP/HP. If he wants out the OP will have to abide by VWFS terms.

k3lvc

neilmcl wrote: »

He's leasing the car, it's not a credit agreement such as a PCP/HP. If he wants out the OP will have to abide by VWFS terms.

That'll teach me to read all the thread :rotfl:


OP - ignore my crap advice

neilmcl

BudgetandScarper wrote: »

My question is, does anybody have an understanding of how this exchange is supposed to work commercially? At the moment I am operating on the assumption that VWFS will want me to pay the balance that I would have paid over the remaining 30 months of the contract, which would equate to £8,200. Currently the same car as mine with the same particulars (Age, Mileage, Engine, Trim) are selling at around £14/15k on the market. So financially, I've got to hope that VWFS offer the car to the SEAT dealership at a price that still would leave the dealership with a profit margin when they sell the car on?

I'd guess the idea is that VWFS wont hold you to the balance you currently owe them if a VAG dealer purchases the car and you pay any shortfall in terms of negative equity and also take out another agreement, whether it would be another lease or PCP/HP etc.

BudgetandScarper

neilmcl wrote: »

I'd guess the idea is that VWFS wont hold you to the balance you currently owe them if a VAG dealer purchases the car and you pay any shortfall in terms of negative equity and also take out another agreement, whether it would be another lease or PCP/HP etc.

Yeah I think that is the idea. What I was wondering about though is can you foresee there being any negative equity? Based on the above calc in my original post... Do you think I'm missing anything?

neilmcl

Do you have the "Preferential Early Termination figure"?

BudgetandScarper

Sorry Bud, I haven't. Say we operated on the assumption that they wanted the full remainder of the monthly payments, which is £8,200...

neilmcl

BudgetandScarper wrote: »

Sorry Bud, I haven't. Say we operated on the assumption that they wanted the full remainder of the monthly payments, which is £8,200...

I think this figure is key. You need to get VWFS to explain it all in detail so that you fully understand what will happen and how much, if anything you will owe them with regards the contract hire.

BudgetandScarper

Okay, I'll give them a ring, thanks for your help Neil.

System

BudgetandScarper wrote: »

Yeah I think that is the idea. What I was wondering about though is can you foresee there being any negative equity?

Oh there'll be negative equity alright, a massive great load of it. I bought my Mondeo at 2 years old for just one third of its new value. Most cars are only worth around 50-60% their new price by 2 years old especially for trade values.

At the moment I am operating on the assumption that VWFS will want me to pay the balance that I would have paid over the remaining 30 months of the contract, which would equate to £8,200.

Given you're going to be paying money out to get out of this AND you'd have to take out another VWFS product I personally can't see much benefit in doing so.

CardinalWolsey

Think of the ownership trail of VW Financial Services... The sole purpose of the financial services arm is to enable the parent to sell more vehicles. Effectively the motor manufacturers realised that the best return they could get on the spare cash they have is to use it to lend back to the consumer to buy more of their product. The reason you are being offered a "Preferential Early Termination" is that it enables them to sell another car - and registrations count. The parent company will net off the lost income potential from the loan against the additional income they've gained from the sale of a new car. This is why it is conditional on you taking another new (and it will have to be a new registration) car from within the VW group. Get your bargaining head on and push the dealer.