Car Finance Deal - is there a way out?

molerat

CluelessIndividual said:

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?

Those numbers are of no relevance.  On your agreement there will be a "total amount payable", the half way point is 50% of that which is made up of your deposit and monthly payments.

CluelessIndividual

Ayr_Rage said:

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!

Hi mate, sorry, wasn't aware of what information was relevant at the time.
Peugeot 208 GT
Brand New (10 miles at purchase)
48 month contract (47x£310, 1x£10k) and interest is 10.39% Fixed.
Mileage is 8k per annum, I'm on 13.2k after 22 months so unlikely based on pro-rata.

So realistically a common car with usually decent value.
Not sure what the other information may provide you with.

CluelessIndividual

CluelessIndividual said:

Ayr_Rage said:

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!

Hi mate, sorry, wasn't aware of what information was relevant at the time.
Peugeot 208 GT
Brand New (10 miles at purchase)
48 month contract (47x£310, 1x£10k) and interest is 10.39% Fixed.
Mileage is 8k per annum, I'm on 13.2k after 22 months so unlikely based on pro-rata.

So realistically a common car with usually decent value.
Not sure what the other information may provide you with.

Mildly_Miffed said:

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...

See above for the details of the car and finance.
Initial sum paid was £1,800 (I p/ex my previous car and was in positive equity of £1,800 which covered deposit for the new car.

CluelessIndividual

molerat said:

CluelessIndividual said:

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?

Those numbers are of no relevance.  On your agreement there will be a "total amount payable", the half way point is 50% of that which is made up of your deposit and monthly payments.

Okay, so total amount payable is £26,167.88.

So the early termination is 50% of that value, so why does the balloon payment matter then if the figure is simply 50% of total amount payable? Was that not relevant neither?

Do my payments that I've already made account for any of the 50%?

DrEskimo

CluelessIndividual said:

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.

The finance company only make one prediction on the value, at the end of the term (I.e. the GFV). How the loan decreases over the term is purely a function of the term length and interest rate, and will decrease linearly between the start and getting to that GFV. It will have no relation to the market value of the car. 

In a typical scenario, cars generally depreciate at a non-linear rate. The value will drop steeply at the beginning and then start to level off. In contrast your loan payments are fixed and linear. This is why you generally have a shortfall right up until the end of the agreement.

facade

CluelessIndividual said:

Okay, so total amount payable is £26,167.88.

So the early termination is 50% of that value, so why does the balloon payment matter then if the figure is simply 50% of total amount payable? Was that not relevant neither?

Do my payments that I've already made account for any of the 50%?

The total amount payable is to purchase the car by making all the monthly payments plus paying off the balloon at the end (so it includes the balloon/GFV).

Their Plan is that you borrow the GFV/balloon, and never pay it back (or pay it at the end if you want to keep it) so you pay 4 years interest on that GFV/balloon whatever you do. (You chip away at the rest of the loan, so the interest on that part gradually reduces each month)

If you settle the finance (and buy the car outright) you pay what you actually owe today, including the balloon, so you save a fair bit of future interest.

Your payments and deposit add up towards the 50% yes.

However, the balloon is usually set so high that you won't be anywhere near that 50% mark until the final year.

For 50% you need to have paid £26,168.88 / 2 = £13,084.44 , 

You paid £1,800 deposit      leaving £11,284.44  to reach 50%

so at £310 a month, you need to make 36.4 payments to hit 50%.

(As I said, the final year...)

You can VT at any time, by paying them cash to make up what you have paid to that £13,084.44, but that isn't sensible as you might as well keep using the car and paying the monthlies until you get to £13,084.44, you can't save anything!

The only times that the actual value of the car matters are at the end, when you don't buy it if it is worth much less than the GFV, and when you want to settle the finance- if the car is worth a lot more than the settlement figure WBAC or someone will buy the car, settle the finance and you end up with the few pounds that are left over. 

Otherwise if their car is worth a lot less than they estimated with the GFV, you smile sweetly when you hand it back (and they desperately try to claw money out of you for "damage" and any excess mileage- hence you smile sweetly, and reserve the guffaws of laughter for after the car has gone back)