Advice needed on end of PCP finance

Taygb97

Hello,

This is my first post so I do hope I have done everything correctly!

I have a car on PCP finance that is due to end in September 2020. The balloon payment is £9,100, however, the car is only worth £7,800 now so expect this figure to drop even further come September. With this in mind, the option to pay the 'balloon-payment' isn't worth it as far as I can see.

Currently, I have found a car that I want, however, my settlement figure is £9,600 and px value is £7,800. Leaving me to pay the £1800 difference if I part exchanged it with the dealer.

Theoretically, I can wait until the end of the agreement and hand the car back with nothing to pay, letting the finance company take the hit, however, I'm not sure if it this simple as I haven't financed a car before.

My plan is to dispose of this car (part exchanging, selling or handing back) and then buy a new car on a low-interest personal loan that I will then be able to clear in a couple of years leaving me with a car that I own and loan free.

What do you think I should do in this situation, have I decided on the best plan of action?

Thanks

KimJongUn88

Wait until September and hand the car back then. 

Jonesya

Personally, assuming your current car meets your needs, hasn't had any faults or other issues, owned since new and still reasonably young (<4 years) then for the difference of £1300 between a notional market price and the balloon payment, I'd be inclined to keep the existing car.

If you've got a good reliable car that you've maintained, you know its history, I certainly wouldn't swap for something used and unknown.

Taygb97

Hi @Jonesya, thanks for your assistance, your comment is really appreciated!

I would be in exactly the same mindset, however:
The car is 9 years old, I'm the 2nd owner;
Is a 2 seater convertible (I now want 5 doors);
For the mileage I do, the running costs (service, tax, fuel) aren't worth paying and a more economical car is sought;

lopsyfa

Wait until September and simply hand back the current car. The shortfall will even higher the as you already noted. Meanwhile, the car you want to buy now should be even cheaper by then.

MinuteNoodles

Taygb97 said:

For the mileage I do, the running costs (service, tax, fuel) aren't worth paying and a more economical car is sought;

You might want to do the maths. I used to own two cars, a MX5 2.0 Sport doing 37MPG and a Mondeo diesel doing 55MPG. Doing 17,000 miles a year entirely in the highest MPG one over the other resulted in a fuel saving of just £800 over 17,000 miles even though the Mondeo did 50% higher MPG.

I doubt very much that the fuel economy of what you intend to get is so dramatically better and your mileage high enough that the fuel savings will compensate for the extra money you'll have to pay changing.

However as you said though the car no longer meets your needs and as a former MX5 owner with a family I can fully understand that. But don't for a second make the assumption that changing the car is going to save you on running costs because the finance will more than wipe any savings out.

KimJongUn88

Taygb97 said:

Hi @Jonesya, thanks for your assistance, your comment is really appreciated!

I would be in exactly the same mindset, however:
The car is 9 years old, I'm the 2nd owner;
Is a 2 seater convertible (I now want 5 doors);
For the mileage I do, the running costs (service, tax, fuel) aren't worth paying and a more economical car is sought;

You bought a used car which is now 9 years old on a PCP? What car is it?

Taygb97

MinuteNoodles said:

Taygb97 said:

For the mileage I do, the running costs (service, tax, fuel) aren't worth paying and a more economical car is sought;

You might want to do the maths. I used to own two cars, a MX5 2.0 Sport doing 37MPG and a Mondeo diesel doing 55MPG. Doing 17,000 miles a year entirely in the highest MPG one over the other resulted in a fuel saving of just £800 over 17,000 miles even though the Mondeo did 50% higher MPG.

I doubt very much that the fuel economy of what you intend to get is so dramatically better and your mileage high enough that the fuel savings will compensate for the extra money you'll have to pay changing.

However as you said though the car no longer meets your needs and as a former MX5 owner with a family I can fully understand that. But don't for a second make the assumption that changing the car is going to save you on running costs because the finance will more than wipe any savings out.

Thanks, @MinuteNoodles. 

I actually refer to mileage meaning what I do is very low (3-4k/ year) which doesn't make sense for me to be spending the servicing and tax costs that I do on it, as opposed to fuel (which you're right, makes only a slight difference). I'm currently having annual services at c.£600, whilst I will obtain a smaller engine car that will require servicing costs of less than half this.

AdrianC

Taygb97 said:

I have a car on PCP finance that is due to end in September 2020. The balloon payment is £9,100, however, the car is only worth £7,800 now so expect this figure to drop even further come September. With this in mind, the option to pay the 'balloon-payment' isn't worth it as far as I can see.

The balloon can't change - it was set when you started the PCP.

Indeed handing the car back would be the right option.

Currently, I have found a car that I want, however, my settlement figure is £9,600 and px value is £7,800. Leaving me to pay the £1800 difference if I part exchanged it with the dealer.

Theoretically, I can wait until the end of the agreement and hand the car back with nothing to pay, letting the finance company take the hit, however, I'm not sure if it this simple as I haven't financed a car before.

That's exactly how it works. The balloon's "proper" name is the GMFV - Guaranteed Minimum Future Value. It's a backstop on the depreciation for you. You've repaid the rest of the purchase price at the end of the contract - you either buy the car for the balloon or you hand it back and walk away.

My plan is to dispose of this car (part exchanging, selling or handing back) and then buy a new car on a low-interest personal loan that I will then be able to clear in a couple of years leaving me with a car that I own and loan free.

What do you think I should do in this situation, have I decided on the best plan of action?

It sounds like you've nailed it.

Taygb97

AdrianC said:

Taygb97 said:

I have a car on PCP finance that is due to end in September 2020. The balloon payment is £9,100, however, the car is only worth £7,800 now so expect this figure to drop even further come September. With this in mind, the option to pay the 'balloon-payment' isn't worth it as far as I can see.

The balloon can't change - it was set when you started the PCP. 

I meant the value of the car, not the balloon payment @AdrianC  

AdrianC

Ah. Well, that's not your problem...