End of pcp - handing back car

user1997

I need a new car and am thinking about getting a new one with PCP finance. I think I’ll go with PCP because the payments are lower. I’m going to trade in my current car and use that as the deposit. 

At the end of the PCP if I don’t want to pay the end balloon payment and hand the car back, I wouldn’t get anything for handing the car back would I, like a trade in? So I’d have to save along side so that when the PCP has ended, I’ll have some money for a deposit for a new car again.  

I know I probably sound stupid but I haven’t financed a car before so just want to clarify this. 

On-the-coast

Just get a PCH and choose the appropriate number of months up front. Eg 3/35. 
much simpler if you’re never intending to keep the car. 

Wonka_2

user1997 said:

At the end of the PCP if I don’t want to pay the end balloon payment and hand the car back, I wouldn’t get anything for handing the car back would I, like a trade in? So I’d have to save along side so that when the PCP has ended, I’ll have some money for a deposit for a new car again.  

So you're planning to have another car again after this one ? If so then your worst case scenario is that you have to hand the car back/walk away/start again but there's a potential (though far from guaranteed) position that you could just trade the car in against it's replacement and it might be worth more, but can't be worth less. You also have the flexibility of a few months to play with leading up to the end of contract/new car to plan for this so you don't have to pay the balloon payment

Herzlos

At the start of the PCP, you agree a predicted final value for the car, which is the same as the balloon payment.
At the end of the PCP, the car has some value.

If the current value is less than the predicted value, then you hand the car back and walk away leaving the finance company to take the hit.
If the current value is more than the predicted value, then you can use that difference as equity if you trade it in. If the current value is higher and you're not getting another car, then you'd need to buy the car for the final value and then sell it to access the difference.

Goudy

Yes, you can hand the car back to the finance company, not the dealer.
This means you need to arrange this with the finance company a month or more before the final payment (the balloon) is due.
If you do nothing before that, the finance company will take that payment like all the others.

They will sometimes send someone around to collect/inspect it but other times you might need to deliver it to their handlers.

It also needs to be within their terms and conditions regarding wear and tear and contracted mileage, otherwise they will charge you.
Excess mileage charges will be in the contract.
Most will follow BVRLA's fair wear and tear guidelines, but what they actually charge in terms of price for these things is up to them.

These are pretty much the same for a lease/PCH.


With a PCP though you have more options apart from handing it back.

You can pay the finance off at any time, including letting it run and paying the balloon and the car is yours.

You can also trade it in.
As mentioned already there maybe some equity in the car (or you can try and squeeze some out of it) very near the end of the contract before you pay the balloon. It's unlikely to be any before that point as your payments are linear but depreciation isn't.
You can use this towards a deposit on a new car.

There was a time when it was highly likely what they valued the car for trade in was less than you still owed and the dealer tried to tempt you into rolling over that outstanding part of the original loan into a new loan and I guess some will still try it, but you can shop around and push them on trade in value.

They'll know what you still owe and you know you have the option of handing it back without this short fall in trade in, so you can use this to your advantage and push for a better trade in if they want your custom.

PCP deals tend to work out better on new cars as interest rates on used cars are generally higher.
Check around for cars that depreciate less than some of the others as they tend to have a higher balloon so you pay slightly less on the monthlies.

Obviously look at the interest rate offered, it's a loan after all but also check for offers with deposit contributions.
Contributions aren't as high or as common as they once were, but some are starting to creep up.

daveyjp

Its incorrect to think PCP has lower payments.

The headline payments to the finance company are lower, but the cost to the buyer may not be as the buyer needs to save funds for a deposit on the next vehicle, or save to pay the balloon.

Once you take those extra payments into account work out how much it will actually cost to fund a new PCP vehicle.  You then have a realistic monthly payment to compare against taking a loan to buy a used vehicle outright.

Herzlos

daveyjp said:

Its incorrect to think PCP has lower payments.

The point of PCP is to offload some of the payments to the end of the deal, so it definitely results in lower monthly payments during the term, but more interest (since interest is charged on the full amount) and then you need to fund the rest later if keeping the car.

If you can afford it, it's almost certainly better to go for HP - the monthly payments will be higher but you'll pay less interest and the car is yours at the end to do whatever you want with.