What would you do? Car finance settlement options

AA9

Hi all,

What would you do and why?

Currently own a car on PCP which currently has a settlement figure of around £12,500 to fully own the car - this is broken down roughly to be £4.5k to cover the remaining 12months of £400 payments and £8k for the final optional payment, there is around a £700 in saving in interest if I paid today. I’ve already paid around £13.5k in payments to this date. 

The car is currently worth around £13.5k to the likes of webuyanycar or £14.5k to sell privately. I have the cash to pay off the finance, but was hopefully saving this cash for my next house deposit when ready to move in 18-24 months.

I no longer like the car, it’s big and thirsty, massively overkill; but keeping it isn’t the end of the world. Waiting for the end of the PCP may not benefit me as it’ll be over it’s mileage limit and incur approx £1k of penalty if I hand it back. 

There are tonnes of options here with different financial benefits, things like:

1) Settle the car finance, sell the car, buy a cheap, reliable runaround for £5k and use your £400/month saving to replenish savings

2) Settle the finance and keep the car, save the £400/month and sell it down the line, buy a rubbish runaround when doing mortgage applications so I’ve got no finance, a full deposit and a car to get to work that I can replace later on

3) keep the finance going, pay off the £8k balloon payment at the end.

etc etc.

How would you money savers and motorists approach this one? I’m only recently being more adult about finances otherwise I’m sure I would have sold it and got another expensive PCP out the same day! 

BOWFER

If you don't like the car, then IMO it would be silly not to take advantage of the current high used prices and sell it with some equity.

Grumpy_chap

AA9 said:

Hi all,

What would you do and why?

Currently own a car on PCP which currently has a settlement figure of around £12,500 to fully own the car - this is broken down roughly to be £4.5k to cover the remaining 12months of £400 payments and £8k for the final optional payment, there is around a £700 in saving in interest if I paid today. I’ve already paid around £13.5k in payments to this date. 

The car is currently worth around £13.5k to the likes of webuyanycar or £14.5k to sell privately. I have the cash to pay off the finance, but was hopefully saving this cash for my next house deposit when ready to move in 18-24 months.

I no longer like the car, it’s big and thirsty, massively overkill; but keeping it isn’t the end of the world. Waiting for the end of the PCP may not benefit me as it’ll be over it’s mileage limit and incur approx £1k of penalty if I hand it back. 

There are tonnes of options here with different financial benefits, things like:

1) Settle the car finance, sell the car, buy a cheap, reliable runaround for £5k and use your £400/month saving to replenish savings

2) Settle the finance and keep the car, save the £400/month and sell it down the line, buy a rubbish runaround when doing mortgage applications so I’ve got no finance, a full deposit and a car to get to work that I can replace later on

3) keep the finance going, pay off the £8k balloon payment at the end.

etc etc.

How would you money savers and motorists approach this one? I’m only recently being more adult about finances otherwise I’m sure I would have sold it and got another expensive PCP out the same day! 

No-one can answer this without knowing the amount of miles you cover and the type of that mileage.

AdrianC

You've already paid more than 50% of the contracted total, so you could VT now and simply hand the car back.

As you say, that would be silly - the car is worth more than it will cost you to buy it from the financier, so it's a no-brainer to retain and use that equity.

The question is one of timing. You HAVE to do something in 12 months time, before you plan to buy a house, because the PCP expires. You have to either hand the car back, or buy it from them. You don't want to keep it yourself, so you will have to buy another car within that timeframe.

Why would you not save the £700 interest, and change the car sooner rather than later? Any (debatable) effect on your mortgageability from the purchase of a non-financed car will be less 18-24 months before the purchase than 6-12 months. If you buy a £5k car, including £2k of equity from the current one, you are only reducing your savings by £3k. And, at £400/mo saving, that'll be more than replenished by the end date of the PCP, when you would be having to make this same decision anyway.

Basically, you'll get your replacement car free if you change now.

Bigphil1474

Yes they can.
If you don't like the car, get rid. The best money was is to pay off the finance, saving you the year's interest, sell the car potentially giving you £2k of cash (if your figures are right). You could either get a cheap runaround for £2k, or put a bit more to it, depending on your driving needs. If you get something less thirsty you'll be saving on fuel as well. 
Start saving your £400 a month - you may need to spend some on an older car anway, but hopefully not. In 2 years you'll have an extra £10k towards your deposit, then when you've got your house sorted, you can look at getting a nicer car if you need/want it. 

AA9

My mileage is around 15k per annum, mostly dual carriageways. @Grumpy_chap

Grumpy_chap

AA9 said:

My mileage is around 15k per annum, mostly dual carriageways. @Grumpy_chap

This is what I'd do then.

1. Sell the car, clear the finance and bag the £1k - £2k equity
2. By a cheap car that will do the trick for now
3. Save the £400 monthly towards the house deposit and other bills for setting up home
4. Buy the house
5. Only when I can then afford it, buy the new car

That is not what I did at that stage in my life but that is what the old me would tell the young me to do.