Reducing car PCP outgoings

AlistairS

So I pay £356 monthly over 4yrs on PCP.  I'm 20 months in and my negative equity is around £6000.  Due to a change in earnings it would be preferable. To get my PCP down to around the £250 mark.  Any suggestions how I may go about this?  I still need a vehicle for commuting.  

AdrianC

You are in a four-year contract to pay the depreciation on the car, plus interest on your borrowings. You aren't going to get it down without changing to a different deal.

Any different deal is going to wrap that £6k -ve equity into it - and that's going to be £125/mo + interest in itself, which leaves you virtually nothing to pay for the replacement car...

TBH, I'm surprised if you really are -£6k with 28 mo to go - that'd mean £215 of your £350/mo is going to that -ve equity, and a large chunk of the rest to the interest on the balloon. That would suggest that either the end of the PCP is going to see the balloon a LOT higher than the value (great for you, lousy for the financier - and suggests the market for that car has imploded since you got it), or that the depreciation between now and the end of the term is remarkably low.

DrEskimo

AlistairS said:

So I pay £356 monthly over 4yrs on PCP.  I'm 20 months in and my negative equity is around £6000.  Due to a change in earnings it would be preferable. To get my PCP down to around the £250 mark.  Any suggestions how I may go about this?  I still need a vehicle for commuting.  

If you make a lump sum payment on the finance, that will reduce your monthlies. 

The alternative is to ring around as many dealers/garages as you can to get the best possible trade price on the car, reduce the shortfall and then get a new credit agreement (credit card, loan) that costs only £250/month to clear the shortfall and use the remaining balance to buy a cheap car.

facade

If you are on month 20, then you likely can't VT for another 24 months or so, so what you need is £2500 from somewhere, to make up the £250 that you can afford into the £356 until you can VT (or  £2800 to reach the handback point). I can't see any cheaper way to keep a PCP deal on, if you roll the £6000 into a new deal, as AdrianC points out, you would need a car that costs less than £125 a month, I suspect you wouldn't like being stuck in one of those after one that costs £350.

neilmcl

facade said:

If you are on month 20, then you likely can't VT for another 24 months or so, so what you need is £2500 from somewhere, to make up the £250 that you can afford into the £356 until you can VT (or  £2800 to reach the handback point). I can't see any cheaper way to keep a PCP deal on, if you roll the £6000 into a new deal, as AdrianC points out, you would need a car that costs less than £125 a month, I suspect you wouldn't like being stuck in one of those after one that costs £350.

Not strictly correct. You can VT at any time, the only stipulation is that you have to pay your liability of 50% of the total amount owed, therefore there's nothing stopping you making this amount up earlier in a lump sum.

DrEskimo

neilmcl said:

facade said:

If you are on month 20, then you likely can't VT for another 24 months or so, so what you need is £2500 from somewhere, to make up the £250 that you can afford into the £356 until you can VT (or  £2800 to reach the handback point). I can't see any cheaper way to keep a PCP deal on, if you roll the £6000 into a new deal, as AdrianC points out, you would need a car that costs less than £125 a month, I suspect you wouldn't like being stuck in one of those after one that costs £350.

Not strictly correct. You can VT at any time, the only stipulation is that you have to pay your liability of 50% of the total amount owed, therefore there's nothing stopping you making this amount up earlier in a lump sum.

Indeed. 

If the trade value is really £6k less than the settlement figure, then an alternative is to look at what it would cost to reach the 50% payable to VT. If that is only, say, £5k, then you would be better off paying to VT it. 

I suspect that £6k shortfall is based on a single dealers valuation. There is massive variation, so with a bit of work I'm sure you could reduce that £6k shortfall quite substantially. 

facade

neilmcl said:

facade said:

If you are on month 20, then you likely can't VT for another 24 months or so, so what you need is £2500 from somewhere, to make up the £250 that you can afford into the £356 until you can VT (or  £2800 to reach the handback point). I can't see any cheaper way to keep a PCP deal on, if you roll the £6000 into a new deal, as AdrianC points out, you would need a car that costs less than £125 a month, I suspect you wouldn't like being stuck in one of those after one that costs £350.

Not strictly correct. You can VT at any time, the only stipulation is that you have to pay your liability of 50% of the total amount owed, therefore there's nothing stopping you making this amount up earlier in a lump sum.

You are right of course, but as the half way point is usually 3 or 4 months from the end, I assumed VT now would be a non-starter as it would cost around £8000 and leave the OP with no car. I thought it was more obvious money-saving to pay the £8k to borrow a car for 2 years than pay the £8k to give it back now

AlistairS

Thanks for your advice.  It's a mini cooper s with John cooper works  kit on it.  It's the usual nonsense that it's only a vanilla cooper s on trade in but on a mini dealers forecourt it has the extra stuff and therefore sell for more. The car was 25k new so VT would cost about 6k

neilmcl

AlistairS said:

Thanks for your advice.  It's a mini cooper s with John cooper works  kit on it.  It's the usual nonsense that it's only a vanilla cooper s on trade in but on a mini dealers forecourt it has the extra stuff and therefore sell for more. The car was 25k new so VT would cost about 6k

You can work out exactly what your VT point is by looking at your agreement for the Total Amount Payable figure and taking 50% of that minus what you've paid to date.

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If you have the cash to VT it, then use the cash to keep paying the PCP and have the use of the car until you reach the natural VT point. Why pay thousands to hand it back today, when it will cost the same to keep using it for over a year?

AdrianC

AlistairS said:

Thanks for your advice.  It's a mini cooper s with John cooper works  kit on it.  It's the usual nonsense that it's only a vanilla cooper s on trade in but on a mini dealers forecourt it has the extra stuff and therefore sell for more. The car was 25k new so VT would cost about 6k

Ah, that may well go some way to explaining it.

PCPs on cars with options usually price the options to be fully paid during the term, because they rarely add anything to the residual value. If they have added value, then the value at the end of the term will be higher than the balloon - and it makes sense to trade the car in then, rather than simply hand it back.

But, if that was the case, then the trade-in value now would be higher than expected. Did you get the figure from somebody actually inspecting the car, or just from a desktop valuation which is probably based on a standard Cooper S?