PCP and trade-in values, positive equity used as deposit

theoneandonly1

Hello forum,

My partner is buying a new car and trading in her current car which is part-way through a PCP.

She signed the vehicle order form in February, which showed a trade-in value of £18,350 and a PCP settlement of £15,418.88, giving her £2,931.12 of positive equity to be used as part of the deposit for the new car.

She went back last week to finalise the paperwork, and her latest settlement letter which showed an amount of £14,831.82. She'd have expected the difference (£587.06) to increase the deposit, but it seems that none of the figures previously agreed (monthly price and final balloon payment) have changed. The paperwork has not been updated to reflect the new settlement figure, and there is no mention on the vehicle order form that the value of the car would be revised. Apparently the dealer explained to her what would happen with the difference but she didn't really understand and didn't want to ask any further questions.

We phoned the dealer the next day to ask for clarification, and the explanation was vague but my understanding is that they have effectively frozen the equity figure such that the movement in the final settlement figure was taken off the value of the car, so the agreed deal would not change.

Is this standard practice? While I can understand what they are doing, we feel this wasn't explained properly at all and it left us very confused. Do we have any leg to stand on with regards to claiming that difference?

DrEskimo

You don't have to P/X with the same dealer. You are free to sell and settle the outstanding finance with any dealer,local garage or online broker (e g., WBAC) you like. Get a range of quotes and go with who ever offers the best price.

You then just use any equity as part of the upfront payment.

The important thing is ensuring you got a good discount on the new car. Did you compare with other dealers and online brokers?

Although the more MSE thing is likely to be just to settle the current finance and keep your existing car.

Herzlos

Is the new deal with the same lender? If not, then they'd have no idea that the settlement figure would have changed, and they'll essentially overpay the settlement which will then get refunded to you in a month or so.

It may be worth going back in and going through it with the dealer and making sure you are satisfied, before picking up the new car.

theoneandonly1

@DrEskimo, this dealership offered the best price (by far) of all the places we tried, and they gave us a generous 'dealer contribution' towards the new car, so in our view we got a great deal. It was just their treatment of the equity difference that has confused us a little.

@Herzlos, the new deal is with a different lender, but they did specifically ask for a copy of the latest settlement figure. When we spoke to them last week they said that they knocked that difference off of the value of the car as 'depreciation' so that the agreed deal would remain the same.

Herzlos

The car shouldn't have depreciated at all in the intervening time, and certainly not by £300/month.

When do you pick up the new car? Do you have time to try and source a fresh PCP?

theoneandonly1

Car is being picked up on Saturday. I agree the implied depreciation is excessive (they are taking the full £587 as depreciation) but I fear they will just say we're getting the same deal we signed up for, so what is the problem.

theoneandonly1

Update:
The dealer principal called and acknowledged that things weren't explained to us properly, and offered to spread the difference over the monthly payments, so happy ending.

iwb100

Yes the current standard is for dealers to shake hands on a deal based on freezing the equity. So let’s say your car is worth 20K with 15K outstanding finance. They shake hands on that and if you then pay off say a further 1K of the car they reduce what they pay down to 19K to ensure your equity is the same. This is simply because they can’t guarantee when a new car will be ready so trying to adjust an offer for the cars age and miles and also the settlement figure is impossible in the current climate, 

Now of course there are scenarios where the market stays high and you lose out. But with the wait time on new cars currently the risk is more on the dealer side probably.

In your case because the car was ready for pick up quickly after and a payment fell in between then obviously you lose out and your dealer really should have adjusted there and seems like they have. 

motorguy

theoneandonly1 said:

Hello forum,

My partner is buying a new car and trading in her current car which is part-way through a PCP.

She signed the vehicle order form in February, which showed a trade-in value of £18,350 and a PCP settlement of £15,418.88, giving her £2,931.12 of positive equity to be used as part of the deposit for the new car.

She went back last week to finalise the paperwork, and her latest settlement letter which showed an amount of £14,831.82. She'd have expected the difference (£587.06) to increase the deposit, but it seems that none of the figures previously agreed (monthly price and final balloon payment) have changed. The paperwork has not been updated to reflect the new settlement figure, and there is no mention on the vehicle order form that the value of the car would be revised. Apparently the dealer explained to her what would happen with the difference but she didn't really understand and didn't want to ask any further questions.

We phoned the dealer the next day to ask for clarification, and the explanation was vague but my understanding is that they have effectively frozen the equity figure such that the movement in the final settlement figure was taken off the value of the car, so the agreed deal would not change.

Is this standard practice? While I can understand what they are doing, we feel this wasn't explained properly at all and it left us very confused. Do we have any leg to stand on with regards to claiming that difference?

You can certainly claim the difference - it should be paid directly to you.  

BUT, it is also quite likely the value of the car has changed as prices have dropped a little.