Stuck with a car I can't afford and massive neg equity, please help?

ReservoirDodds

Hello,

Long story short, in January this year I got a promotion at work, with a several hundred pound per month wage rise. In my infinite wisdom, I rushed to purchase a new luxurious car as my commute equates to 88 miles per day and I wanted something comfortable to drive in.
I foolishly maxed my credit card putting down a 2k deposit on a car costing me £371 a month on PCP. (Yes, I know, I'm an idiot).

My issue now is, I've recognised the error of my ways and I wish to change my car to something far cheaper so I can start making a dent on my credit card repayments.
Unfortunately, my car is valued at 17.5k currently, and when I was shopping around a month or two ago, my settlement figure was around 20k, however I checked again this morning and it is now at £21800. Obviously this negative equity is a killer, I'm about 8 months into an agreement and I have no money to front a deposit more than about £200/300.

Any advice to help a complete fool get their finances back in order?
Thank you.

facade

How can the settlement figure keep going up? Surely you are paying something each month?


Options


1) get hold of the settlement money and buy it.
2) find someone who will buy it and you chip in the difference to make up the settlement figure and clear the finance. (I think WBAC will do this)
4) get hold of enough to add to what you have already paid to make the 50% figure and VT it (bad idea)
4) Keep paying the £371 from your payrise and sort out a payment plan for the credit card.

k6chris

ReservoirDodds wrote: »

Hello,

Long story short, in January this year I got a promotion at work, with a several hundred pound per month wage rise. In my infinite wisdom, I rushed to purchase a new luxurious car as my commute equates to 88 miles per day and I wanted something comfortable to drive in.
I foolishly maxed my credit card putting down a 2k deposit on a car costing me £371 a month on PCP. (Yes, I know, I'm an idiot).

My issue now is, I've recognised the error of my ways and I wish to change my car to something far cheaper so I can start making a dent on my credit card repayments.
Unfortunately, my car is valued at 17.5k currently, and when I was shopping around a month or two ago, my settlement figure was around 20k, however I checked again this morning and it is now at £21800. Obviously this negative equity is a killer, I'm about 8 months into an agreement and I have no money to front a deposit more than about £200/300.

Any advice to help a complete fool get their finances back in order?
Thank you.

How long until your PCP finishes? what is the GFV?? What car is it???

AdrianC

ReservoirDodds wrote: »

Long story short, in January this year I got a promotion at work, with a several hundred pound per month wage rise. In my infinite wisdom, I rushed to purchase a new luxurious car as my commute equates to 88 miles per day and I wanted something comfortable to drive in.
I foolishly maxed my credit card putting down a 2k deposit on a car costing me £371 a month on PCP. (Yes, I know, I'm an idiot).

I'm not so sure you are.
90 miles/day is 450/week, is 20k+/year, even before any other use. It's not massive miles, but it's certainly non-trivial. And that's going to affect the PCP cost markedly... because it affects the depreciation.

Remember, with a PCP you're borrowing the entire value of the car, less your deposit, and just repaying the depreciation over the term - plus, obviously, interest on the whole lot. Then you can either pay the remaining value at the end, or say goodbye to the car.

So whatever finance you take is going to be a chunk more than the headline rates, simply because of your mileage.

Unfortunately, my car is valued at 17.5k currently, and when I was shopping around a month or two ago, my settlement figure was around 20k, however I checked again this morning and it is now at £21800.

Because the car's still depreciation faster than you're repaying the finance...

The heaviest depreciation is the first few months. ALWAYS. Let's say you're in the market to buy a car like this... How much do you want off a shiny new one - or even a pre-reg delivery mileage one - to sway you into an 8mo, ~15k one? Now subtract the dealer's margin and prep costs, and that's why your car's lost so much value so quickly.

Also - think what any 8mo, ~15k car says to buyers. It screams "ex-rental"... So you'd be getting shot at just about the worst possible time, because somebody's going to be selling a car that potentially scares buyers off. Needlessly, in this case, but will they just look past the ad?

Obviously this negative equity is a killer, I'm about 8 months into an agreement and I have no money to front a deposit more than about £200/300.

Firstly, how much are you actually going to save of that £370/mo if you take finance on a smaller, cheaper car over the same mileage? £100? £150?

That's a lot of months of savings to make up for the £4k -ve equity you're looking at by terminating early...

Sometimes, you have to look at the bigger picture than just the monthly outgoings.

facade

I don't understand why the settlement figure keeps going up, unless the OP is paying less than the interest on the loan, and I thought you couldn't do that.

AdrianC

facade wrote: »

I don't understand why the settlement figure keeps going up, unless the OP is paying less than the interest on the loan, and I thought you couldn't do that.

He's paying £370 each month.
Some of that is going to pay off interest on the entire outstanding balance, including the balloon. Let's say it's £25k at 5%, that's ~£85/mo. So he's paying £285 off the outstanding capital per month.

How much is it depreciating each month...? If it depreciates £500/mo, the -ve equity goes up £215/mo.

facade

You mean he is somehow subtracting the value of the car from the settlement? So the settlement is actually £39,300, not £21,800 :eek:
The current value of the car has nothing to do with the finance cash settlement unless I totally fail to understand PCP.


EDIT: I think I get it, he is VTing now, and the £21,800 is what they want to take the car back and clear all the finance to the 50% level, as my option 3). That would be insane, better to keep paying the monthlies and VT at 50% paid, at least he has a car to drive round in


I was thinking "Settlement" meant pay off the whole loan.

AdrianC

<random numbers to illustrate>

You have borrowed £30k to buy a car that starts off worth £32k. It's a 3yr PCP with a £21k balloon.

Your monthly payments mean you're paying off £250/mo from the debt.

After three years, you've paid off £9k (plus interest), so the debt is £21k, because the car is expected to be worth £21k. That's your balloon.

But...
After 8 months, the car is now worth £26k. You've paid off £2k (plus interest). You owe £28k. You are now in £2k negative equity, because handing the car back won't cover the debt.

After 12 months, the car is now worth £24k. You've paid off £3k (plus interest). You owe £27k. You are now in £3k negative equity, because handing the car back won't cover the debt.

facade

I get it, but that isn't what I understand by "settlement" it is a handback.


And it explains why we are talking about the famous "negative equity" in something that you don't actually have any interest in on PCP, so has no actual value to you.



The settlement figure should be what is left of the capital, including balloon, plus whatever fees they can get away with, and that has to go down every month.

[Deleted User]

Park it in Liverpool for the weekend.

facade

Sleazy wrote: »

Park it in Liverpool for the weekend.

Only if you have GAP insurance.