Changing car mid-PCP... what's the MSE advice?

Nug8321

Hello, hoping some more financially savvy people than myself may be able to offer some thoughts on my following situation.

I took out a 3 year PCP on a used car from a main dealer just over a year ago which costs me £175 per month.
The car is very small - a Fiat Abarth 595 - and is no longer fit for my usage which is to drive once a week to my office, covering very long motorway miles. I'd like to change the car to a larger, more comfortable motorway mile muncher and something that's ideally a little more fuel efficient. A Volvo V60 or similar is currently my preferred option and I'm looking at used models around the £8-10k mark. I've just bought my first house and am paying a chunky mortgage so have budgeted for no more than £225 per month for my next car. I've requested and been provided with a settlement figure on my current car of £8,500. Here's where my uncertainty of what to do begins... The options that I have as I see it are:

1. Try and take out a personal loan for £8.5k - pay the settlement figure for my car and sell it privately. This should sell for between £7.5-£8k. I then use that money to buy a second hand Volvo. Potential issues I can foresee with this are A) getting approved for a loan at a decent APR (around 3%) the faff of selling my car privately.
2. Part-ex the car with a dealership, get them to settle the outstanding finance (of which I'd no doubt need to 'top up' from their part-ex valuation) and take out a PCP with them on another car. The downsides to this are that I'd need a few £000 of readily available cash to put towards the settlement and deposit on the next car, and even then a £10k used car seems as though it's going to cost around £300p/m on a PCP. 
3. Suck it up and drive my little Abarth until the end of my term on the finance before handing it back. Another 2 years of this doesn't seem do-able from my position though... it's hugely uncomfortable and impractical for the type of driving I'm now doing.

Any thoughts/advice massively appreciated!

AdrianC

You're along the right lines, but it might make more sense to break 1 and 2 down a bit differently.

First, you need to get out of the Fiat.
You have the settlement value - £8,500 - and you have your current value - £7,500-8,000.
So you're going to firstly need to fund that gap - £500-1,000 - no matter who buys the Fiat. Who you sell it to is simply a trade-off of ease against price.

That leaves you free to fund whatever deal you want on whatever replacement car. Whether you roll the £500-1,000 into the finance (PCP or whatever) for the replacement, or keep it separate, all comes down to the numbers. Getting too hung up on monthlies is how you sign up to the wrong mileage. If there's an up-front (other than the negative equity on the Fiat), don't forget to properly amortise that.

By the sound of it, you're going to be doing a reasonable mileage. This may make PCP a bad choice, simply because you'll need to be on a higher mileage contract. But, equally, it's going to put a lot of miles on the Fiat if you keep that - what's the contracted mileage, what's the excess per mile? And what would it cost to increase the mileage on the contract now?

Nug8321

Thanks for the response - that's really helpful.

To answer your questions:
The Abarth is on a 12k mile allowance, so it's not too far off actually, but I've definitely crept over it this year and will continue to do so with ad-hoc journeys on top of my 1k a month commute. The good news is that my excess mileage is low - only £0.06 per mile so hopefully I'm not going to find myself in any scary situations with mileage surcharges.

So it sounds like I should just put a bit of effort into saving up to fund the gap on my settlement figure ASAP, regardless of the choice I take for a replacement. I suppose my uncertainty is around what my 'smartest' option would be for the next car and actually paying off that settlement figure... I'll need to fund that £8.5k somehow and selling the car privately whilst still under my PCP terms isn't allowed/would be very difficult to find a buyer. Would my finance provider allow me to return the car to the dealer and pay the difference in value vs. settlement figure? Would this be a silly move, giving them all the power?

DrEskimo

What I would advise is to treat the two cars separately. As Adrian says, you have £8,500 debt secured on the Fiat, so it's about trying to settle that by trying to get the best price possible, weighing against the ease of the sale (i.e private Vs trade). What I would do is get a nice range of prices from dealer and garages and see what your best price is as a straight buy out cost. Not against another car. 

The reason I say this is I would then move well away from focusing on monthly cost and start paying more attention to the interest cost. PCP is the most expensive way to borrow money, and used PCP also has very high rates relatively speaking.

That now focuses you on what you need to do to settle the remaining finance, what's the cheapest way to borrow money, and how you can achieve this with your budget. Generally means going for a much cheaper car to borrow less to pay a smaller monthly cost. 

The temptation is to get a more expensive car, roll the negative equity and go for another PCP, where you are just paying more and more and increasing your exposure to financial risk should you find yourself in the same situation with the new car part way through.

foxy-stoat

Love it....want money saving advice after taking out a PCP on a car that doesn't suit any more and changed mind mid way thru.....then buy another car for £9k. 

Get our of this car the cheapest way and buy a £2k car and drive it for a few year's then decide if you need a near £10k car to get to work

Jonathan_Powell

Nug8321 said:

Hello, hoping some more financially savvy people than myself may be able to offer some thoughts on my following situation.

I took out a 3 year PCP on a used car from a main dealer just over a year ago which costs me £175 per month.
The car is very small - a Fiat Abarth 595 - and is no longer fit for my usage which is to drive once a week to my office, covering very long motorway miles. I'd like to change the car to a larger, more comfortable motorway mile muncher and something that's ideally a little more fuel efficient. A Volvo V60 or similar is currently my preferred option and I'm looking at used models around the £8-10k mark. I've just bought my first house and am paying a chunky mortgage so have budgeted for no more than £225 per month for my next car. I've requested and been provided with a settlement figure on my current car of £8,500. Here's where my uncertainty of what to do begins... The options that I have as I see it are:

1. Try and take out a personal loan for £8.5k - pay the settlement figure for my car and sell it privately. This should sell for between £7.5-£8k. I then use that money to buy a second hand Volvo. Potential issues I can foresee with this are A) getting approved for a loan at a decent APR (around 3%) the faff of selling my car privately.
2. Part-ex the car with a dealership, get them to settle the outstanding finance (of which I'd no doubt need to 'top up' from their part-ex valuation) and take out a PCP with them on another car. The downsides to this are that I'd need a few £000 of readily available cash to put towards the settlement and deposit on the next car, and even then a £10k used car seems as though it's going to cost around £300p/m on a PCP. 
3. Suck it up and drive my little Abarth until the end of my term on the finance before handing it back. Another 2 years of this doesn't seem do-able from my position though... it's hugely uncomfortable and impractical for the type of driving I'm now doing.

Any thoughts/advice massively appreciated!

With Option 1,what am I missing here? Your plan is to take out a loan to buy the car then sell it for less? Why not just give the car back? 

DrEskimo

Jonathan_Powell said:

Nug8321 said:

Hello, hoping some more financially savvy people than myself may be able to offer some thoughts on my following situation.

I took out a 3 year PCP on a used car from a main dealer just over a year ago which costs me £175 per month.
The car is very small - a Fiat Abarth 595 - and is no longer fit for my usage which is to drive once a week to my office, covering very long motorway miles. I'd like to change the car to a larger, more comfortable motorway mile muncher and something that's ideally a little more fuel efficient. A Volvo V60 or similar is currently my preferred option and I'm looking at used models around the £8-10k mark. I've just bought my first house and am paying a chunky mortgage so have budgeted for no more than £225 per month for my next car. I've requested and been provided with a settlement figure on my current car of £8,500. Here's where my uncertainty of what to do begins... The options that I have as I see it are:

1. Try and take out a personal loan for £8.5k - pay the settlement figure for my car and sell it privately. This should sell for between £7.5-£8k. I then use that money to buy a second hand Volvo. Potential issues I can foresee with this are A) getting approved for a loan at a decent APR (around 3%) the faff of selling my car privately.
2. Part-ex the car with a dealership, get them to settle the outstanding finance (of which I'd no doubt need to 'top up' from their part-ex valuation) and take out a PCP with them on another car. The downsides to this are that I'd need a few £000 of readily available cash to put towards the settlement and deposit on the next car, and even then a £10k used car seems as though it's going to cost around £300p/m on a PCP. 
3. Suck it up and drive my little Abarth until the end of my term on the finance before handing it back. Another 2 years of this doesn't seem do-able from my position though... it's hugely uncomfortable and impractical for the type of driving I'm now doing.

Any thoughts/advice massively appreciated!

With Option 1,what am I missing here? Your plan is to take out a loan to buy the car then sell it for less? Why not just give the car back? 

Handing the car back can only be done either through VT or at the end of the agreement. 

I highly doubt the OP has reached 50% of the total amount payable, so to VT will cost them money. Likely far more than the difference between the settlement and the private sale value. 

Goudy

I understand your commute is a bit painful, my Abarth 595 was a lot of fun, in small doses.
I also got fed up with visiting every other petrol station along the way, they still have a tiny Fiat 500 petrol tank, yet use three times as much fuel!

You could do with testing the waters and see what the actual difference would be trading it in (and the dealer settling the finance) for your chosen replacement. Try a few different dealers, be up front about how much it owes you and what you'd like out of a possible deal (to close the finance gap). They might be able to close the gap a bit more than you first think so you don't have to refinance as much of the outstanding debt.

You don't need to take the dealers finance on the new and cover the new and outstanding, once you know what's outstanding, what the new car costs and what finance rates they offer, you could see if you can get a cheaper loan elsewhere.
So reducing the gap on the outstanding and rolling the difference into a cheaper loan might be the best result out of a poor situation.

I know it's quite difficult if you're on a tight budget, but try to look at the overall costs of what you borrow rather than what the monthly's are. Any dealer can arrange low monthly's on a deal, but if they go on for ever and a day, you'll pay more in the long run.

You could, if you've paid 50% or more, VT it, but I suspect you might be just as far away from the 50% as the difference between what you owe and what it's worth. 

I've had a few cars on PCP, these days I get a cheap deal and settle almost immediately, but I have only had to return one car mid term, luckily we knew the dealer well as our family have had a few cars off them in a short time frame. The dealership actually bought it from us (well the finance company) for their own stock as a favour, I only had a small amount to settle myself.

Probably not the best option, but highly likely, would be to leave the Abarth parked outside your home for a while.
They are particularly easy to steal and as I found out, they get stolen very regularly.
Mine got stolen last May and I soon found out through the insurance claims dept and owners forums, to a thief they are like jam to a wasp. Someone set up a Facebook page and they were going at an alarming rate.

AdrianC

Nug8321 said:

To answer your questions:
The Abarth is on a 12k mile allowance, so it's not too far off actually, but I've definitely crept over it this year and will continue to do so with ad-hoc journeys on top of my 1k a month commute. The good news is that my excess mileage is low - only £0.06 per mile so hopefully I'm not going to find myself in any scary situations with mileage surcharges.

Oh, right. Sorry, you made it sound like you were going to be doing serious mileage... 12k/year is going to cover it? Stick with the Fiat. 1k/mo commute is less than 25 miles each way... Hardly motorway-warrior on a subsistence diet of Ginsters!

treeroy

excuse my being nosey but why is the Abarth not suitable for driving on motorways? 
Also i'm not sure how much mpg they get cruising at 65mph (would have thought the mpg was quite good as lightweight and small engine?) but if you are doing this to save money on fuel... you will probably end up spending just as much from the cost of changing car. 

Penelopa.Pitstop

I suggest keeping Abarth, as it will be cheapest option. Also, Volvo may not be better on fuel. I have Abarth 124 and it's probably even less comfortable than 595. I do 80 miles commute on M25 daily and live with it. 40l tank is small, so have to go to petrol station every 4 days. But, when I don't commute, I drive to the Alps or just on B roads and enjoy the car.

Doing one weekly long drive is not that bad.