Car Finance Deal - is there a way out?

DullGreyGuy

Goudy said:

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.

The breakeven point however is earlier on a HP because your paying off more of the capital whereas with PCP (which is just a marketing name for HP with a balloon anyway) there is a big slug of the capital, the balloon, that you are not repaying but just clearing the interest on. 


As to the OP... I assume you have considered the Benefit In Kind tax you'll be paying on the company car? Your questions suggest you may be new to all this and have seen some people come unstuck as they weren't aware of BIK

Goudy

The time might earlier but the point in repayments will be the same with both, you have to pay off whatever depreciation the car has suffered. Plus any interest.

But I get what you mean in terms of capital, though there are some other factors at play like interest rate and size of deposit will effect both HP and PCP.

With a health deposit contribution on a PCP that time could actually be earlier than HP as it soaks up some of the depreciation before you even have the keys in hand.
Deposit contributions don't really effect residuals which are based on invoice prices and the invoice will be full but show a deposit off what you (eventually) pay.

MEM62

Grumpy_chap said:

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?

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?

Absolutely this!  Even when I had a 90-mile per day round trip commute, it was cheaper for me to run my own car than have a company car.  

DullGreyGuy

Goudy said:

With a health deposit contribution on a PCP that time could actually be earlier than HP as it soaks up some of the depreciation before you even have the keys in hand.

It would be the same if you made the same sized deposit on HP... I assume when comparing HP and PCP that we take the other variables to be equal otherwise you arent comparing the finance methods but the difference the size of the deposit makes etc.

paul_c123

Did you take out GAP insurance? Were you offered it, understood it but declined?

CluelessIndividual

Penguin_ said:

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.

At this stage then, my settlement figure is currently £15,493.37. Which would be my optional balloon payment £10,013 plus remaining balance (minus early settlement rebate). So how exactly would the 50% voluntarily termination work?

CluelessIndividual

Ayr_Rage said:

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.

Legal is probably the incorrect term to use, I probably meant common. But its not uncommon for people to be mis-sold finance deals by car manufacturers and financiers.

But to respond to your 2nd/3rd statements, does that not essentially mean people are always trapped in car deals from start to finish without disposable cash lying around?

CluelessIndividual

Goudy said:

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.

Re-visiting this after some time as I forgot to come back to this forum!

So the settlement was requested from them - I have updated settlement documents as of yesterday:
Remaining balance (including interest on credit): £18,088.88
Minus Early Settlement Rebate (Minus the interest): £15,493.37
New Car Valuation: £13,000

So from what I think I understand is, the deal I agreed to in 2023, yields the car in higher value than the car does now (with the ~£2.5k discrepancy). The car's depreciation has happened quicker than the finance deal anticipated?

Therefore, I'm essentially hands tied until the car reaches the GFV point where the value of the car is equal to the deal of the finance which could be at the balloon payment point after 47 months?

I really wish I took some form of economics at school/college at this point because as my name states, I'm clueless.

CluelessIndividual

Grumpy_chap said:

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?

Appreciate the response.

Yes, I've contacted Northridge for new finance settlement directly so I presume this value is the true value of Early Settlement (now £15,493.37).

Yeah, the BIK is relatively low which is why I wish to pursue a company car, as they're electric (very low) or hybrid (very low until 2028 at least).
I get 0.12p per mile expense currently compared to 0.40p per mile on a company car, again, in favour of swapping over.
Yes and no, I have been offered a company car twice already but had to reject which just puts me to the back of the staff list, but I can request one if I know I need from a specific date.
Lastly, yes, I do still receive car allowance for the foreseeable, it would only stop upon the delivery of a company car but it does not cover the full outlay of a personal car (servicing, repairs, recovery and business insurance) which would otherwise be covered by my employer.

CluelessIndividual

DrEskimo said:

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.

Thank you for the response. Yeah, this has been made more clear to me. I've requested a new settlement relevant to today which I will outline below:
Remaining balance (including interest on credit): £18,088.88
Minus Early Settlement Rebate (Minus the interest): £15,493.37
New Car Valuation: £13,000

So the difference between the balance/settlement figure is the actual interest. And the difference between the settlement/valuation is the discrepancy in valuation due to depreciation. So in theory, the car financier predicted the car value at this point be worth £15,493.37 but in reality, the market suggests my car is worth £13,000?

I have a better understanding of it now perhaps.