Car Finance Voluntary temination - Advice needed

sean1875

I have a friend who has a dilemma...
In their current financial situation they can't afford to keep up payments for their 2 year old car taken out on a PCP plan over 4 years. The car was bought when living with parents, they now live alone and are finding the finance payment to be crippling and their living costs are expected to increase significantly in 2019 which would mean not being able to afford the payment at all.


In order to settle the finance now there is a difference of £1570 to pay due to negative equity. I estimate the car will depreciate at a slower rate than the monthly finance payment meaning over time the balance to pay should keep reducing but probably not by much.


The other option is it looks like there is a clause in the finance T&C's saying you can hand the car back once 50% of the balance has been paid. This will be in February 2019. Has anyone ever done this before?


The concern is there is some damage to the side sills due to a minor accident but I'd assume if you tried to execute this voluntary termination clause they'd go over the car with a fine toothcomb looking for additional fees to charge?

gycraig_2

Of course they!!!8217;d charge you for damage to a car you want to return .......

foxy-stoat

No cheap/easy way out of it I am afraid, but your friend knows that anyway.

iolanthe07

there is a clause in the finance T&C's saying you can hand the car back once 50% of the balance has been paid.


It is 50% of the total amount due including the balloon payment, AFAIK.

DrEskimo

Where was the valuation from to make them think the negative equity was £1,570?

My advice is try different dealers, a website called Tootle, sale or return and private sale to try and maximise the sale/trade in price. Basically minimise the negative equity.

Then use any savings they have to clear the outstanding balance and get a cheaper car.

Then tell them to never use car finance again....

Futuristic

Whatever they end up doing, they will want to fix the damage to their car before they return it unless they want a 2-3-4x charge than most body repair shops Take it around 2-3 and get a quote and pick one.

sean1875

The valuation was from Honda which is where the car was bought from. I didn't get the impression dealers were overly keen on buying cars if you aren't part exchanging for another one they're selling.


Due to a significant deposit put down the voluntary termination that would be available early next year takes into account the final balloon payment.


It's not a great situation to be in but they never expected to have to move out from their parents home and are constrained in how much money they can earn due to having a child and associated childcare costs outwith nursery times.

DrEskimo

sean1875 wrote: »

The valuation was from Honda which is where the car was bought from. I didn't get the impression dealers were overly keen on buying cars if you aren't part exchanging for another one they're selling.


Due to a significant deposit put down the voluntary termination that would be available early next year takes into account the final balloon payment.


It's not a great situation to be in but they never expected to have to move out from their parents home and are constrained in how much money they can earn due to having a child and associated childcare costs outwith nursery times.

Exactly as you say. Honda dealer will give you a low valuation. try WBAC and Evans Halshaw to see whether they can improve it, but generally you can get up to £2k extra by selling privately, so you would in fact be in positive equity. Having said that, selling a car privately with finance is not without it's challenges.

Try other dealerships, other local garages and sites liked Tootle. If you can settle the car with the sale now, you will be in the same position as VT, but obviously save on the payments until Feb2019.

The deposit has little impact on the VT point. Higher deposit means lower monthlies, whereas low deposit means higher monthlies. Net effect is the same. What can make a difference is how the dealer use deposit contributions or discounts, but the impact is not huge.
If they are 24m into a 48month contract, it seems quite optimistic to think the VT will be at month 30. This is typically the VT point on a 36month term, whereas the VT on a 48month term is around month 42.

You seem fairly certain that Feb2019 is the VT point though, so I'm probably missing something.

Indeed...life has a habit of throwing things at you that you don't plan for. Which is why I vowed to never take car finance or indeed any other type of finance if I can help it. People take these deals on the optimistic expectation that their situation will stay the same, or indeed improve. This of course can happen, but the consequences when it goes the other way are really quite severe, that it rarely pays to take such risks IMHO.

Best of luck to your friend. Hopefully they can get a fair price for the car, settle the finance and make do with a cheap car until they get their life back on track.