If your PCP balloon payment is more than the car value?

[Aunty Pasty]

So with PCP, traditionally you get to the end of your PCP term and you have some equity in your car to use as a deposit for your next one. Or you pay the ballon payment and keep the car.

Over recent years with the prices as they are this may not always be the case so what happens on the finance side? Does the finance company offer a smaller balloon payment to incentivise you keeping the car instead of taking the car and selling it for less?

Or is it just a case of jacking the car in and buy another one on the 2nd hand market?

I understand that the PCP protects the buyer from unexpected depreciation so it's good in that respect.

[BlackTails]

Not been in that position but I would assume the finance co wants every last penny and it is the car owner’s problem to solve.

So either pay x+y to the fin co for a car worth x to keep it, or sell the car for x and pay x+y to the fin co, or hand the car back to the fin co and pay y to it.

PCP is based on estimates and is designed to make expensive cars affordable at the front end of the deal. The back end may work to provide you with a deposit for the next PCP deal, but it may not.

[Hustle_]

They probably don't particularly want the original PCPer to buy it at the end. They want the original PCPer to give it back in pristine condition, and then sell it themselves, ideally with another finance product attached to it. Two bites at the cherry.

I bet the proportion of PCPers who at some point buy the car is the minority.

[PM3]

well, "Motorway" agree with your supposition saying " In the UK, around 80% of PCP customers return their car at the end of their contract and sign up for a new deal "
Not a worry of mine, I have never had a car loan ( outside of for a few days then settle to get a contribution ) in my long driving life

[Deep Thought]

Aunty Pasty said:

So with PCP, traditionally you get to the end of your PCP term and you have some equity in your car to use as a deposit for your next one. Or you pay the ballon payment and keep the car.

Over recent years with the prices as they are this may not always be the case so what happens on the finance side? Does the finance company offer a smaller balloon payment to incentivise you keeping the car instead of taking the car and selling it for less?

Or is it just a case of jacking the car in and buy another one on the 2nd hand market?

I understand that the PCP protects the buyer from unexpected depreciation so it's good in that respect.

Normally, no. You would just arrange to hand the car back to the finance company.

You "could" ask them if there is a value they will sell the car to you directly for, but i'd by 99.99999% confident they will just quote you the residual value. I would have thought strategically they cannot be seen to be fielding and accepting offers lower than the residual as then the whole thing starts to collapse.

They will have a mechanism for dealing with returned cars. They may well go straight to auction, they may go to a holding / prep centre or they may be auctioned and private franchise only auctions. You could perhaps ask whoever picks it up where its going next.

[Deep Thought]

PM3 said:

well, "Motorway" agree with your supposition saying " In the UK, around 80% of PCP customers return their car at the end of their contract and sign up for a new deal "
Not a worry of mine, I have never had a car loan ( outside of for a few days then settle to get a contribution ) in my long driving life

I dont think their wording of that is accurate.

I think most people return to the / a main dealer and trade the car in against another car. The amount of people who return the car at the end of the term to the finance company would be tiny.

[Mandat]

Deep Thought said:

I dont think their wording of that is accurate.

I think most people return to the / a main dealer and trade the car in against another car. The amount of people who return the car at the end of the term to the finance company would be tiny.

+1.

I think that more people will part exchange the car for a new car, rather than just hand the car back to the finance company and walk away.

[omniflow]

Aunty Pasty said:

So with PCP, traditionally you get to the end of your PCP term and you have some equity in your car to use as a deposit for your next one. Or you pay the ballon payment and keep the car.

Over recent years with the prices as they are this may not always be the case so what happens on the finance side? Does the finance company offer a smaller balloon payment to incentivise you keeping the car instead of taking the car and selling it for less?

Or is it just a case of jacking the car in and buy another one on the 2nd hand market?

I understand that the PCP protects the buyer from unexpected depreciation so it's good in that respect.

If the value of the car is less than the balloon payment, then you have no equity. It's as simple as that. You don't owe anyone any money, but neither does anyone owe you any money (ignoring any damages / excess mileage charges).

[Terminator X]

Hustle_ said:

They probably don't particularly want the original PCPer to buy it at the end. They want the original PCPer to give it back in pristine condition, and then sell it themselves, ideally with another finance product attached to it. Two bites at the cherry.

I bet the proportion of PCPers who at some point buy the car is the minority.

I'm sure most just trade the old car for a new one and some equity.

TX.

[blueg33]

Hustle_ said:

They probably don't particularly want the original PCPer to buy it at the end. They want the original PCPer to give it back in pristine condition, and then sell it themselves, ideally with another finance product attached to it. Two bites at the cherry.

I bet the proportion of PCPers who at some point buy the car is the minority.

We always buy, then sell privately. usually secure several thousand over the balloon

[LooneyTunes]

Aunty Pasty said:

So with PCP, traditionally you get to the end of your PCP term and you have some equity in your car to use as a deposit for your next one. Or you pay the ballon payment and keep the car.

Over recent years with the prices as they are this may not always be the case so what happens on the finance side? Does the finance company offer a smaller balloon payment to incentivise you keeping the car instead of taking the car and selling it for less?

Or is it just a case of jacking the car in and buy another one on the 2nd hand market?

I understand that the PCP protects the buyer from unexpected depreciation so it's good in that respect.

We had exactly this scenario with MrsLT's Taycan - which we'd put on PCP to limit the maximum depreciation - where at the end of the term the balloon was more than the trade in value of the car, so handed it back. I was a bit surprised given the reports on how many Taycans were in the dealer network that VW finance didn't offer some incentive to buy it.

Porsche were, at that time, still pricing used cars on their forecourt quite ambitiously so you couldn't hand it back and buy a used one and be quids in.

It's the largest hit we've ever taken on a car but would have been worse if it had not been on a PCP.

[Dimebars]

So little understanding of PCP on show............

PCP works best when you run the full term. If you want out early, then be prepared for it to cost. And always assume that the equity situation at the end of the term is £0. Then you won't be disappointed.

Your options at the end of your term

1. Pay the balloon/GFV and keep the car
2. PX or sell privately/via Motorway etc and buy a new car (this happens when value > GFV)
3. Hand the car back to the finance co (this happens when value < GFV)

With option 3, you may have to pay charges for excess mileage and damage beyond fair wear and tear

The vast majority choose option 2 I'd imagine, purely for convenience.

[Mandat]

Dimebars said:

So little understanding of PCP on show............

PCP works best when you run the full term. If you want out early, then be prepared for it to cost. And always assume that the equity situation at the end of the term is £0. Then you won't be disappointed.

What kind of costs do you think will be involved?

If anything, settling the finance earlier than full term would see a saving in costs, since you won't need to keep paying interest on the balloon.

[Wills2]

BlackTails said:

Not been in that position but I would assume the finance co wants every last penny and it is the car owner’s problem to solve.

It's the finance companies issue to sort, if the car books at less than the GFV it's their liability, the customer has zero liability with regard to the GFV when it comes to disposal.

[BlackTails]

Wills2 said:

BlackTails said:

Not been in that position but I would assume the finance co wants every last penny and it is the car owner’s problem to solve.

It's the finance companies issue to sort, if the car books at less than the GFV it's their liability, the customer has zero liability with regard to the GFV when it comes to disposal.

Doesn’t that depend on whether the balloon is expressed to be a GFV? If it is, then it is the fin co’s problem if the car is worth less than the balloon/GFV.

If though the balloon is expressed to be a final payment due under a finance agreement and no more than that, it is the car owner’s problem.

[Ari]

Deep Thought said:

PM3 said:

well, "Motorway" agree with your supposition saying " In the UK, around 80% of PCP customers return their car at the end of their contract and sign up for a new deal "
Not a worry of mine, I have never had a car loan ( outside of for a few days then settle to get a contribution ) in my long driving life

I dont think their wording of that is accurate.

I think most people return to the / a main dealer and trade the car in against another car. The amount of people who return the car at the end of the term to the finance company would be tiny.

Well yes, exactly as it states. 80% return their car to where they got it from (the dealer), set up a new deal for a new car and carry on.

Obviously never stopping to consider what it's actually costing them to keep swapping out of their two year old 8,000 mile Corsa for a brand new but otherwise identical one over a 10 year period, versus simply keeping the first one for ten years, gawd bless 'em! (Probably four times the cost).

[Alfa numeric]

We handed back a Leaf when the PCP ended as the balloon was more than the value of the car. All we had to do was ring them and arrange a pick up date- a few days after it was collected we got a letter saying that the credit agreement had ended. Dead easy.

Apparently it happened a lot in 2008/9 when the Credit Crunch decimated the values of used cars.

[Deep Thought]

Ari said:

Deep Thought said:

PM3 said:

well, "Motorway" agree with your supposition saying " In the UK, around 80% of PCP customers return their car at the end of their contract and sign up for a new deal "
Not a worry of mine, I have never had a car loan ( outside of for a few days then settle to get a contribution ) in my long driving life

I dont think their wording of that is accurate.

I think most people return to the / a main dealer and trade the car in against another car. The amount of people who return the car at the end of the term to the finance company would be tiny.

Well yes, exactly as it states. 80% return their car to where they got it from (the dealer), set up a new deal for a new car and carry on.

Obviously never stopping to consider what it's actually costing them to keep swapping out of their two year old 8,000 mile Corsa for a brand new but otherwise identical one over a 10 year period, versus simply keeping the first one for ten years, gawd bless 'em! (Probably four times the cost).

Thats not what it says. You'd added words that arent there. I was making the point that people dont "return their car" (we are in a thread discussing what can be done when people return their car to the finance company at the enf of the term)

[Dimebars]

Mandat said:

What kind of costs do you think will be involved?

If anything, settling the finance earlier than full term would see a saving in costs, since you won't need to keep paying interest on the balloon.

The cost of negative equity

[Dimebars]

BlackTails said:

Doesn’t that depend on whether the balloon is expressed to be a GFV? If it is, then it is the fin co’s problem if the car is worth less than the balloon/GFV.

If though the balloon is expressed to be a final payment due under a finance agreement and no more than that, it is the car owner’s problem.

There are many different ways of naming the GFV/balloon, but with PCP they all mean the same thing and you have the same rights regardless of naming, one being the ability to hand back with no further payment at the end of the term.

There are other finance products out there similar to PCP where the owner is on the hook for any shortfall in residual value and actual value.