Balloon payment at end of PCP deal

Afc69

So I have my X3 on a 4 year PCP deal which ends in September 2023. The balloon payment at that stage is £20k which I assume is fixed and cannot be altered by the finance company.

I'm just thinking, given the fact that used cars are holding their value very well at the moment, does that make purchasing your car at the end of the lease period much more attractive, if the figure is indeed fixed when you get the car, and cannot subsequently be altered? Even in terms of buying and then selling it on, for a quick profit?

DrEskimo

Yes. Very few hand the car back to the finance company, which is essentially trading the car in at the pre agreed value set by the balloon payment.

Typically, people will get valuations from a wide variety of dealers, garages, online brokers and look to trade the car or sell the car to them for a higher amount, whereby the finance is settled and the additional surplus is given to you.

Think of selling/trading a car on PCP as no different to a car you own outright or have a unsecured personal loan on. PCP is simply finance to buy a car.

Additionally, there is no reason to wait till the end of the contract either. As with a car you own outright or with a personal loan, you are free to sell and settle the finance whenever you like.

Afc69

Thanks.

So forgive me if I’ve got this wrong, but as the used car market is buoyant just now, does that have the added benefit of giving the consumer a bigger gap between the GFV and the ballon payment, which is passed onto the consumer as cash for their next PCP deal?

So win/win, if you want to either (A) buy the car outright or (B) use the difference to put up against your next PCP deal?

DrEskimo

Afc69 said:

Thanks.

So forgive me if I’ve got this wrong, but as the used car market is buoyant just now, does that have the added benefit of giving the consumer a bigger gap between the GFV and the ballon payment, which is passed onto the consumer as cash for their next PCP deal?

So win/win, if you want to either (A) buy the car outright or (B) use the difference to put up against your next PCP deal?

GFV and Balloon payment are the same thing. I presume you mean gap between the settlement figure and current value?

There is no need to move to another deal. It would be far more MSE to buy a car and reduce costs, such as depreciation and interest involved with using PCP and getting new cars.

Besides, whilst you can get a good price for your car, it will mean potentially paying more for a replacement (either very long waiting times with new, or inflated costs used) so unlikely to result in any net gain I would have thought.

Afc69

So, to sum up, advice is to get out of any PCP deal pronto by either purchasing the car outright, or, hand the car back to the finance company and purchase your next car cash?

DrEskimo

Afc69 said:

So, to sum up, advice is to get out of any PCP deal pronto by either purchasing the car outright, or, hand the car back to the finance company and purchase your next car cash?

Not necessarily, depends on the deal.

If the car has more value than the current settlement, then handing back to the finance company is never a good option. You can just sell it for the higher value to a dealer/garage/broker.

iwb100

Afc69 said:

So, to sum up, advice is to get out of any PCP deal pronto by either purchasing the car outright, or, hand the car back to the finance company and purchase your next car cash?

Good god no. You have two sensible options now and a third less certain one for 2023. Either go to a dealer now see what your car is worth as a part exchange and if you have lots of equity then decide whether you want to part exchange for a new deal. If you have considerable equity you could save a lot of money if you want a new car.

Or sell it via one of the websites who will settle your finance and pocket the equity as cash to do with what you like. 

Third option is to buy your car at the end of the deal IF it’s still a good deal considering the market value at that time.

Either one of those would be sensible on a PCP. Handing the car back if it’s worth more than GFMV is silly and so is not capitalising on the ridiculous second hand car market now.

Ask your finance company for a settlement figure and get your car valued on the various online valuation services for a starting point to see what equity you have .

Afc69

So, to put some meat on the bone with some figures….

To settle up today, would cost me £22256. To continue paying £200 per month for 17 months and then settle up, £23414 (which includes the £20140 balloon payment)

Quick valuation is £31500 from webuyanycar, albeit we know they will reduce that figure.
Plan was always to buy the car, at end of the term.

Even buying the car then flogging it looks an attractive option

iwb100

Afc69 said:

So, to put some meat on the bone with some figures….

To settle up today, would cost me £22256. To continue paying £200 per month for 17 months and then settle up, £23414 (which includes the £20140 balloon payment)

Quick valuation is £31500 from webuyanycar, albeit we know they will reduce that figure.
Plan was always to buy the car, at end of the term.

Even buying the car then flogging it looks an attractive option

If you walk into a dealer to part exchange they will almost certainly pay you more than wbac. From personal experience dealers were offering us over their valuation for our car as part exchange as they were so desperate for second hand car stock. 

born_again

Afc69 said:

So, to sum up, advice is to get out of any PCP deal pronto by either purchasing the car outright, or, hand the car back to the finance company and purchase your next car cash?

Well that is going to depend on if they have the car you want in stock.

I know someone who did this. Traded car in earlier this year for cash, and was awaiting their new car to be delivered. Have now been told that due to delays (Ukraine conflict) that there will be at least 12 week delay before car turns up. To say they are not happy is putting it mildly. But it was their choice to sell car when they did rather than wait till they go the new car.

DrEskimo

born_again said:

Afc69 said:

So, to sum up, advice is to get out of any PCP deal pronto by either purchasing the car outright, or, hand the car back to the finance company and purchase your next car cash?

Well that is going to depend on if they have the car you want in stock.

I know someone who did this. Traded car in earlier this year for cash, and was awaiting their new car to be delivered. Have now been told that due to delays (Ukraine conflict) that there will be at least 12 week delay before car turns up. To say they are not happy is putting it mildly. But it was their choice to sell car when they did rather than wait till they go the new car.

Precisely. Theres a reason they are inflated. Fine if you don't need a car, but if you do you could be without a new car for months, or just end up using that money to buy an equally inflated used car.