Exercising VT option due to negative equity

motorguy

Goudy said:

I think the term future is important.
I wouldn't VT if I was considering a mortgage or other large loan anytime soon.

I wouldn't take any notice of the "usually's" and "shouldn't's". I just wouldn't want to risk it.

I think for £15K i would.

That said, theres no evidence the O/P needs to change their car now, so i'd be letting it run to the end of term and handing it back.

Herzlos

They said they don't need to change car, but can now use a salary sacrifice scheme to get a newer equivalent with lower monthly payments. I'd be inclined to go for it unless there's only a few months left to run.

Goudy

motorguy said:

Goudy said:

I think the term future is important.
I wouldn't VT if I was considering a mortgage or other large loan anytime soon.

I wouldn't take any notice of the "usually's" and "shouldn't's". I just wouldn't want to risk it.

I think for £15K i would.

That said, theres no evidence the O/P needs to change their car now, so i'd be letting it run to the end of term and handing it back.

The £15K is here nor there really. They aren't saving it as the OP doesn't have to suffer it if they just hand it back, one way of the other.

As I wrote earlier, if they really are near the 50% mark (paid 50% of what was borrowed, plus interest and any fees), that will almost certainly be near the point the GFV is due anyway.

Question has to be asked, why has it depreciated some much/why has finance company got it so wrong?
Finance companies haven't been getting it wrong often, until lately.

I have my suspicions why as there are plenty moaning on other forums about this problem and used car auction prices seem to back this up.

I guess others might have the same suspicions as no one has dared ask what BMW it is yet.
There seems to be some charged feelings either way on here about a certain type of car.

motorguy

Goudy said:

motorguy said:

Goudy said:

I think the term future is important.
I wouldn't VT if I was considering a mortgage or other large loan anytime soon.

I wouldn't take any notice of the "usually's" and "shouldn't's". I just wouldn't want to risk it.

I think for £15K i would.

That said, theres no evidence the O/P needs to change their car now, so i'd be letting it run to the end of term and handing it back.

The £15K is here nor there really. They aren't saving it as the OP doesn't have to suffer it if they just hand it back, one way of the other.

As I wrote earlier, if they really are near the 50% mark (paid 50% of what was borrowed, plus interest and any fees), that will almost certainly be near the point the GFV is due anyway.

Question has to be asked, why has it depreciated some much/why has finance company got it so wrong?
Finance companies haven't been getting it wrong often, until lately.

I have my suspicions why as there are plenty moaning on other forums about this problem and used car auction prices seem to back this up.

I guess others might have the same suspicions as no one has dared ask what BMW it is yet.
There seems to be some charged feelings either way on here about a certain type of car.

I literally said that - theres no evidence the O/P "needs" to do a deal now to change a car, so just wait to the end of term.

Depending on what deposit they put down, they could be a year away from the end of the contract (and i suspect they are, as thats when the dealers usually start to reach out).  

Your original statement was "I wouldn't VT if I was considering a mortgage or other large loan anytime soon.  I wouldn't take any notice of the "usually's" and "shouldn't's". I just wouldn't want to risk it." - IF it was an opportunity to save £15K i would be going for it, which is what i said.

I dont think the question has to be asked at all RE: how have the finance company got it so wrong.  Sometimes it happens.  Their problem, not the O/Ps.

Goudy

Can you explain how they will save 15K?
At the minute the difference between what they owe and what the car is worth is 15K, but that is just on paper.

This doesn't mean at the end of the agreement it will be work 15K less.
Finance payments are linear, depreciation isn't, so the car will lose more than the OP can make payments early on and then steady out as the car gets older.

The OP will only suffer this 15K shortfall if they pay off the finance now, at this figure and decide to sell it/trade it in soon after.

They have an option to hand it back at the end of the agreement or VT it, so at the moment they can happily still use the car without paying out or suffering from the 15K difference in valuation, so they have saved nothing.


I think it is an important question as to why it has lost so much money.
Thousands take out PCP and many come onto the forum asking about various ways to finance a car.

If certain cars lose a high percentage of value in the first few years, that helps making a decision on the finance package.
Yes, the finance company have got this wrong this time and as it's a PCP the OP can simply hand it back or VT, but they don't get it wrong that often.

So it seems it being on a PCP is helpful in this scenario (where the value has currently dipped more than the finance company planned) but that isn't always the case if the finance company get the GFV right, which they do more often than not, otherwise they'd go out of business with these sorts of loses.

A car with a high depreciation rate usually costs more on PCP than one with a lower depreciation rate.
Put simply, two £35,000 cars can work out very differently if one loses 45% in three years and the other loses 65 or 70% as we are seeing with some models.

The monthly payments are worked out on the difference between purchase price and GFV (with interest).
The car with the lower GFV means it has larger monthly payments than the car with the high GFV.

Now factor in monthly payment matching.
Dealers may try to match monthly payment expectations by increasing the finance period, which adds on more interest on the loan as it is now much longer, which also means a lower GFV at the end.

So for the sake of "money savings" it's an important question as it's a major factor in getting a "good deal".

Ok there's never a good time to buy a high depreciating car, but with just a simple calculation (purchase to GFV) you can work out what's likely to be the better deal

facade

Goudy said:

Can you explain how they will save 15K?

Now the OP has clarified, yes.

The OP wants to get into a new car today, before their current PCP ends and they can hand it back and walk away from the negative equity.

If they do it now, and trade in the current car, the difference between the trade-in value and the settlement (£15k) will have to be paid by the OP, or rolled into the finance for the new one.

If they can VT now, they start the new car with nothing owed from the current one.

The OP doesn't want to VT solely because of the negative equity, but since they don't want to carry negative equity over to another car they need to VT to drop the negative equity onto the Finance Company.

Goudy

So they would save £15k they never needed to pay or suffer anyway. That doesn't sound much of a bargain.

They are never legally liable to pay the GFV on a PCP or the other <50% if VTing it and suffer the extra £15k depreciation.

There is always the option just to hand it back to the finance company and has already established, they can VT it at the 50% mark.

I wouldn't be tempted to VT it if I was about to apply for a mortgage or other large loan as it is not fully clear what effect that may or may not have on the application.
As there is another option that is probably not that far away if they are near the 50% mark anyway (hand it back to the finance company) that would certainly not effect that application, I would perhaps take that option as there's no real saving doing that than the other.

One option has a possible risk.
The other doesn't.

So I wouldn't suggest VTing it to save £15k they were never liable or likely to pay that could, however small a chance ruin a mortgage/loan application.

Obviously easy to recommend an action when it won't have any effect on yourself.

I also think it's important to understand the differing depreciation rates of certain models when buying a car.
In reality this depreciation is the largest cost to ownership, particularly on a new, expensive car.

The difference between a £40k car with 50% depreciation and a £40k car with 67% is nearly £7000.