Car Finance Deal - is there a way out?

CluelessIndividual

Hi,

I currently possess a car I purchased in November 2023. I like the car so am in no rush to dispose of the car but I dislike paying for it ! However, I have been offered a company car, which in my role, would greatly outlay the car allowance I receive plus I travel a lot for work so any servicing/mileage wouldn't affect myself directly. So it's something I wish to pursue.

The problem I have is, the car value is ~14k, but the finance deal is a PCP which has an early settlement of 17.1k. Therefore, the finance includes nearly 3.1k interest on top of the car value which I am reluctant to pay out of my own pocket. Despite the company car deal serving me savings over a long-term, it's not feasible for 3.1k outlay.

My question is this, is the settlement agreement legal that there is this much interest sat within the agreement that exceeds the car value by this amount? With my deal being 15 months old also, is there usually a midway point in an agreement that the finance company will offer me a "get out" option? My previous deal with Stellantis, they offered me a chance to return/p exchange the car at 24 month mark. Is this common with all PCP agreements?

Penguin_

There is a 50% voluntary termination figure which should be stated somewhere on your paperwork. On a PCP, this includes the balloon payment, which is a large lump sum that you have borrowed but do not repay until the very end of the agreement.

Ayr_Rage

Why on earth do you think there is anything illegal going on?

It's just the way PCP contracts work.

Even if you wait until the 24th month there may still be a shortfall between trade in value and finance settlement figure.

Hoenir

CluelessIndividual said:

The problem I have is, the car value is ~14k, but the finance deal is a PCP which has an early settlement of 17.1k. Therefore, the finance includes nearly 3.1k interest on top of the car value which I am reluctant to pay out of my own pocket. 

Sounds like the market value of the vehicle has declined substantially. 

Goudy

Have you asked them for this settlement figure or just worked it out on based on payments left to make?

Legally the settlement figure should only contain around 56 days worth of interest on the capital still outstanding (the GFV is part of this capital).
Yes, all the payments you have already paid would have been made up of capital and interest, this interest already paid you won't get back.

What you are looking for is the point where what you owe equals the cars current value.

This point though, where what you owe and what the car is worth is usually around the point the GFV is due.
Because depreciation isn't linear (new cars lose more early on and less as they get older) but your payments are linear plus they include the interest, the time when it all starts equalling out is around the time the GFV is due.
But at this point you are free to just hand the car back to the finance company anyway.

Or you could voluntary terminal the contract.
You would have needed to have paid 50% of the total.
Basically 50% of everything borrowed, including the GFV portion.
Again this is usually around the time the GFV is due, or there about's.  

The only other way is to make up the difference between what you can get for the car and the settlement figure, but that doesn't sound too attractive, not unless you can easily make it up by what you'd save with the company car.

If it was me, I would plan on keeping this car a while longer and using some/most/all of the car allowance you currently get to over pay.

This would speed things up to get to the point where what you owe equals what the car is worth.
Remember the cars depreciation is slowing and it's value will be higher in say six months than it would be in a year or two when the GFV is actually due.
Plus you'll be clearing what's owed faster, so you'd be closing in from both ends.

Grumpy_chap

CluelessIndividual said:

Hi,

I currently possess a car I purchased in November 2023. I like the car so am in no rush to dispose of the car but I dislike paying for it ! However, I have been offered a company car, which in my role, would greatly outlay the car allowance I receive plus I travel a lot for work so any servicing/mileage wouldn't affect myself directly. So it's something I wish to pursue.

The problem I have is, the car value is ~14k, but the finance deal is a PCP which has an early settlement of 17.1k. Therefore, the finance includes nearly 3.1k interest on top of the car value which I am reluctant to pay out of my own pocket. Despite the company car deal serving me savings over a long-term, it's not feasible for 3.1k outlay.

My question is this, is the settlement agreement legal that there is this much interest sat within the agreement that exceeds the car value by this amount? With my deal being 15 months old also, is there usually a midway point in an agreement that the finance company will offer me a "get out" option? My previous deal with Stellantis, they offered me a chance to return/p exchange the car at 24 month mark. Is this common with all PCP agreements?

Is the "settlement figure" you have been provided definitely the figure for clearing the finance now?  Sometimes call centres or online tools will give the current outstanding balance which may assume the term runs to natural (original) completion and include the future interest not yet accrued.

Have you considered the BIK tax arising from switching to a company car?
Have you considered the change (if any) in business mileage rates that may be reimbursed from switching to a company car?
Do you have any choice over when you make the switch to the company car?
Do you receive a car allowance instead of the company car in the mean time?

DrEskimo

CluelessIndividual said:

Hi,

I currently possess a car I purchased in November 2023. I like the car so am in no rush to dispose of the car but I dislike paying for it ! However, I have been offered a company car, which in my role, would greatly outlay the car allowance I receive plus I travel a lot for work so any servicing/mileage wouldn't affect myself directly. So it's something I wish to pursue.

The problem I have is, the car value is ~14k, but the finance deal is a PCP which has an early settlement of 17.1k. Therefore, the finance includes nearly 3.1k interest on top of the car value which I am reluctant to pay out of my own pocket. Despite the company car deal serving me savings over a long-term, it's not feasible for 3.1k outlay.

My question is this, is the settlement agreement legal that there is this much interest sat within the agreement that exceeds the car value by this amount? With my deal being 15 months old also, is there usually a midway point in an agreement that the finance company will offer me a "get out" option? My previous deal with Stellantis, they offered me a chance to return/p exchange the car at 24 month mark. Is this common with all PCP agreements?

Your understanding here is incorrect, as outlined above. It isn't £3.1k of interest that is explaining the difference between your cars current value and your finance settlement (do double check that it is definitely the settlement figure). It's just that the car's value has depreciated faster than the finance has been paid off.

The total interest charges will be clearly outlined in your finance documents you signed at the beginning. You can easily calculate it by just adding the total amount of payments (including deposit, monthly payments, and GFV) and minus that from the invoice price of the car when you bought it.

Yes, you have the option to part exchange or straight sell the car whenever you like, and anywhere you like, just as though you didn't have PCP finance - this isn't a 'offer'. But any shortfall between the cars value at that time and the finance settlement will have to be paid. The ability to return to the car to the finance company can be done through voluntary termination (paying 50% of the total amount payable) or at the end of the finance term.

flashg67

Depends on the market, the car model and how much deposit you put in at the start, but I've found it's between 24-30 months , on a 3 year PCP before you 'break even'. PCP are designed ideally to run their course - settling early will usually mean a shortfall as you've found

Goudy

flashg67 said:

Depends on the market, the car model and how much deposit you put in at the start, but I've found it's between 24-30 months , on a 3 year PCP before you 'break even'. PCP are designed ideally to run their course - settling early will usually mean a shortfall as you've found

It's not just PCP.
On HP you will still pay interest and have the same non linear depreciation. 
You would still have the problem of not paying off the finance fast enough to match depreciation/interest in the earlier  years. You'd still have to wait until roughly the same time as the PCP to see it all start breaking even.

Even paying cash you would suffer in the early years, drive a new car off the forecourt and it's worth far less than what paid even on the day of collection. You wouldn't get anywhere near what you just paid for it.

The choice is you either pay the shortfall.
Hang on until the value vs loan naturally equals out (or you can just hand it back when the GFV is due).
Or speed that point up by over paying.

As mentioned, by over paying you will reach this equal point sooner, not just with the over payments but because the car will lose more the old it gets, so it's value will be higher as it's younger.

Ayr_Rage

You also need to do model-specific research, some unpopular models will never be worth more than the settlement figure at any time or the balloon price at the end of the contract.

What is the exact make and model?

Was it purchased new or used?

How long is the contract and what is the interest rate?

Will you exceed the agreed mileage?

Lots of variables to consider!

Mildly_Miffed

If you're just 14 months into the deal for a new car, then it's no wonder the very steep initial depreciation has left you "upside down" on the PCP, especially if you paid a very small initial sum.

Give us a bit of detail to work with...