Dealer buy out of PCP deal

[GreyMack]

Hi

Like many of us i have been WFH for best part of 9 months and according to my work even when things do return to normal most of all us will only be required to go to the office once or twice a week.

That brings me to my car. I took out a PCP deal with Ford 18 months ago on a new Focus and i love the car however i have only done 700 miles in the last 9 months and this got me thinking.

When i took out the PCP deal i agreed to 12k per year so right now i should be around 18k on the clock but i'm actually sitting at 8k. With the prospect of not returning to the office at all until summer i spoke to the local dealer on what options i may have and he offered to buy the car of me if i pay £250 cash and handover the keys and i would have no more payments. Great i thought because even if I have to go back in say July (and no one really knows right now) i would have 5 or 6 months of no payments saving approx £1500 and then i could start again.

Now i have never been really sure on how PCP deals fully work but my understanding is at the end of your term and providing you stick to your agreed mileage and look after the car you should end up with small amount of equity, say £1000. But what if i keep the car and at the end of the 3 year term i have a car that's well looked after and has say 18k on the clock rather than the 36k it should be, would my equity be so much better than the money i would save by getting rid of it now and starting again?

I hope i have explained that clearly and i would really appreciate any advice you may offer.

Thanks

[Luke4efc]

PCP works by having an agreed "guaranteed future value". This should be on your paperwork somewhere and the figure quoted will be less than what the value of the car actually is after the 3 year term.

The equity is built into the price. If you do less miles then the dealer is better off if you decide to hand it back as the car will be worth more, but you've paid the cost of the car from new to that agreed value over the course of the term.

[Guy Heaton]

Your situation sounds exactly like mine.  I'm going to see what it costs to buy out when my 2 year service comes up.

The gvf is just a guarantee of trade in if you PCP again and you might have equity if you do this.  But no dealer is going to give you money back if you don't renew.  

I want out because I'm paying 300 a month and could lease the equivalent or better car for less 

[GreyMack]

Hi guys

I must admit i'm still non the wiser, I am going to need a car come summer or later in the year (we all hope) but right now i could save in the region of £1500 if i hand it back to the dealer. To be clear it's not a deal with ford finance it's the dealer taking it of my hands. Of course i'm instantly suspicious as he must think there's money in it for him and of course why not.

Bottom line is and maybe no one can answer this but if my car at the end of 3 years has done half the mileage i agreed to then there will surely be more positive equity but is it more that the £1500 i'd save right now by handing it back.

With the pandemic the way it is there is no guarantee that i'm doing the right thing at the right time 

[Guy Heaton]

Yes there will be positive equity but you will only realise it if you renew the PCP.

The dealer will take your car now, and sell it for 4 or 5k over your settlement figure.

In that sense I'd forget the figures and do what's right for you.

As to whether it's more or less than 1500, it doesn't work like that.  Dealers massage figures to get you to sign

 

[GreyMack]

Yeah that's true it's just difficult to know what to do for the best.

I could let the car go now and make some instant savings but if i had to get a 'new' car again say in July/August i'd be starting with zero equity and back to square one.

Decisions, decisions 😉

[Guy Heaton]

That's why I'm looking at leasing.  Less deposit needed and no worries over equity.

[Eric Bloodaxe]

Pretty sure there's at least one other thread on this topic somewhere. As usual can't find It when you want it.

Did spot this some time ago:

https://www.leasingoptions.co.uk/advice/pcp-other-finance/options-for-ending-a-pcp-early

No doubt there'll be lots of similar articles on the web which will come up with a bit of googling.

[Guy Heaton]

There is I guess one potential way of realising equity at the end of a PCP, if you were to sell the car privately for more than the GVF but that brings its own set of hassles too.

[GreyMack]

Good article but as ever it comes down to personal circumstances and right now mine are all over the place.

Just done some research on my predicament. To pay of my current credit deal (settlement fee)  it would be 14.5k, now as i said earlier my dealership have offered to buy the car in full from me as long as i give them the car and pay them £250. I have just searched online and there are variations however the current approx value of my car is around £16.5. So i can see why my garage are happy to take the car, a relatively easy 2k+ profit.

I also checked webuyanycar, that came back at a laughable 12.75k but then they always quote alot less.

So i can keep paying my monthly fee and at the end of the 3 years (18 months to go) i should be in positive equity giving me a head start on another vehicle or i can get rid of it now, save a bit of cash but would be starting on a new pcp or lease with zero equity

No further forward lol

 

[Eric Bloodaxe]

 

1 hour ago, GreyMack said:

No further forward lol

Yes it's a very difficult time for taking decisions and making plans.

I was giving some thought to residual values in wondering whether to swop mine at 3 years as originally planned or go longer. (Purchased outright, so no PCP etc in my case).

On the one hand, you might assume that lower mileage might increase the value. On the other, I can see an argument that says cars that have been stood around during lockdown will have other issues - rusty brake discs, battery problems, tyre "flats" etc.

Then no-one knows what effect WFH in future will have on demand for used cars, which could also be influenced by shortages of new cars. As well as issues due to Covid and changes in import/export rules post-Brexit, it appears the motor industry is facing a chip shortage (the electronic variety) as they compete with the mobile phone etc industry for supplies.

Crystal ball, anyone?😀

[Guy Heaton]

I wonder if all the different dealers would give the same value?  I.e. would you get the best value going back to the same maker or is there not much difference?

 

[TomsFocus]

It's not just the cost, but the hassle to think about as well.  Knowing my luck I'd only 'gain' £500 by handing back and then having to go through the process all over again in a few months time...  By which point Covid and Brexit may have pushed prices up and there may be even longer waits for new cars if you want a factory build.

Honestly, unless you actually need the money now (missing mortgage payments for example) then I'd keep it and see how things pan out over the next few months.  

[GreyMack]

I think you might be right Tom, that's certainly the way i'm leaning right now

[The Finance Guy]

You'll have a guaranteed future value-based final payment which is based on the 12k mileage. So your final payment is expected to be covered by the value of the car. 

By the sounds of it your circumstances have changed a little (just like everyone's....) and you should find that at the end of your PCP deal the car is worth more than the final payment. That's your positive equity....so you've been given a GMFV of let's say £10,000, and your car would be worth £10,000 with the expected mileage on it. You should find that your car is instead worth £12,000, so that's £2,000 in your pocket to go to the next car. You could take that to any dealer as a trade in and they'll pay the final payment on the finance and put the leftover into your next purchase. 

Personally I would hang on and see what happens over the next few months, and just look forward to that equity at the end. You'll lose money in early repayment penalties I would think (oh the beauty of the PCP trap!).

 

[Guy Heaton]

I guess the dealer doesn't want you to trade early?

I went to Ford a month or so ago, just to see if trading down to a Fiesta would save me money on the monthlies.  My Focus is 18 months into a 38 month 12k PCP.  Mileage should be 18k, it's 8k.  Car is in excellent condition, with just one scratched alloy which would cost less than £200 to fix.

Dealer tells me there is negative equity on it, so I leave.

This is why I want out of PCP.  What actual guarantee do I have that my car will be worth any more than the GVF at the end, even if it will likely have only done a third of the agreed mileage?

 

[GreyMack]

Thanks for all the advice and comments, i have made the decision to keep the car and let it play out.

Tough decision really because life at the moment is unpredictable but i can afford the payments and i'm still saving on using so much less fuel so i'm still in equity so to speak 🙂

When i explained this to the dealer he was fine with it and said he'll probably be in touch in about 5 month, i said why's that and he said we will try and keep you with a new car and tied into ford credit.................got to admire his honesty :):)