Negative equity pay off

Oenai

Hi

I'm looking for some opinions on our car's negative equity. 
In short we swapped out our PCP agreement for a different car, the old one unfortunately had negative equity due to the drop in its value we owe £3000. Currently we are financing this over 4 years. 

I'm wondering whether we try and pay it off sooner through voluntarily paying lump sumps. Would this put us in a better financial situation (i.e. we will be paying less per month/reducing the term) or is it better to to leave the finance agreement and ride it out?  

Thank You 

Barmstonbud

We asked about paying our car finance off earlier, we was only going to save £65 so we didn't bother, have you asked for a repayment quote? 

henry24

That's a big drop in value, what car is it?

vacheron

Hopefully the new car is one that will retain a little more value, otherwise you could end up with two shortfalls to pay off on your next exchange! How long did you own the first car for before swapping over?

Mildly_Miffed

Oenai said:

Hi

I'm looking for some opinions on our car's negative equity. 
In short we swapped out our PCP agreement for a different car, the old one unfortunately had negative equity due to the drop in its value we owe £3000. Currently we are financing this over 4 years. 

I'm wondering whether we try and pay it off sooner through voluntarily paying lump sumps. Would this put us in a better financial situation (i.e. we will be paying less per month/reducing the term) or is it better to to leave the finance agreement and ride it out?  

Thank You 

I presume you chose to terminate that PCP early?

Because if you'd left it to expire, you would have just handed the car back, and not had to pay off that negative equity.

Goudy

vacheron said:

Hopefully the new car is one that will retain a little more value, otherwise you could end up with two shortfalls to pay off on your next exchange! How long did you own the first car for before swapping over?

A PCP deal is arranged to protect unexpected shortfalls in value, which is where the term guaranteed future valve (GFV) comes in, but the you need to see the contract out (or very close).

A cars depreciation isn't even, it tends to lose more in the first year or two then start to even out.
But repayments are even. They are a set amount each month and it isn't until close to the end of the contract that the cars value and repayments start to even out.

At this end point, if the car's value unexpectedly drops, you are covered as you can hand it back.
If it's worth more, you can trade it in or sell it and pocket the difference.

The trouble comes when you swap mid or early in the original contract.
The value of the car has dropped below what you still owe.
Your monthly payments weren't all capital, there was interest included and they didn't keep up with the initial depreciation at this point.

To me it looks like the OP took out a four your PCP and want out way before the end of that contract, which is why there is £3000 negative equity.

But the contract hasn't put them in negative equity, it's what it costs to get out early of a contract that they signed.
It's just what they owe. They took out a loan and want to settle it early. It just so happens that the collateral they want to use to settle this loan doesn't cover it, no yet but it would eventually.