Any way of retaining equity in PCP car when downgrading to a cheaper second hand car?

Scarfacé · 20 Jul 2019 at 18:59

hi guys,

As per title really.

Wife has a focus st-3 on pcp (bought brand new from Ford in march 2017, which comes to an end in March 2020. Although pcp has been great, our circumstances have changed, have a child that is nearly two years old we now went to replace it with a cheaper second hand family car, like a ford kuga.

Now in theory I could just give the focus back to ford and buy a second hand kuga and the simple as that.

however, I’m almost certain that there is positive equity in the car and I would lose it if I just give the car back.

Does anyone know if a dealer would let me unlock the equity by trading in the car against a cheaper second hand car.

In a made up example if the balloon was 11k but the car trade in value was 13k, would they let me buy a 5k second hand car by trading the car in plus 3k. So they would effectively be buying the car off me for 13k, paying the 11k pcp loan off and using the 2k equity toward a deposit on the second hand car.

Any other suggests on best way forward appreciated. Thanks

paradigm · 20 Jul 2019 at 19:26

Trade in value is the trade in value. If you are trading in for a used vehicle and the finance gets settled by the dealership on trade in, the difference between the settlement and the trade in value is still owed to you (in this case as a deposit towards to used car).

xs2man · 20 Jul 2019 at 23:36

As said above, you don't lose any equity built up. If the trade in value is more than the outstanding, then you get the difference, most likely towards the next car. If they are the same value, then you start afresh. If the outstanding is more than the trade in value, then you have to top that up.

You can't just "hand it back" and walk, until you are at the end of the agreement. So you will have to call up the finance company and request a settlement figure. This will let you know exactly where you will sit when working out the man-math for the next car.

Hyburnate · 21 Jul 2019 at 01:17

xs2man said:
As said above, you don't lose any equity built up. If the trade in value is more than the outstanding, then you get the difference, most likely towards the next car. If they are the same value, then you start afresh. If the outstanding is more than the trade in value, then you have to top that up.

You can't just "hand it back" and walk, until you are at the end of the agreement. So you will have to call up the finance company and request a settlement figure. This will let you know exactly where you will sit when working out the man-math for the next car.

You can usually hand it back and walk once you've progressed at least 50% of the agreement, providing that you haven't exceeded mileage etc.

xs2man · 21 Jul 2019 at 01:46

Hyburnate said:
You can usually hand it back and walk once you've progressed at least 50% of the agreement, providing that you haven't exceeded mileage etc.

Yes, once you have paid 50% of the total amount payable you can hand it back and walk. Assuming no excess mileage, car in good condition etc... But on a 3 year PCP, you are unlikely to be at the 50% mark until near the very end of the agreement, if ever. The OP however, seemed to suggest that he could just waltz up at anytime, hand it back, and walk. Which is not really the case. If there is indeed equity in the car, he could sell it outright if the dealer wanted to simply buy it. Or sell it to WBAC or similar. But there is more to it than what he seems to think. Which is what I was getting at.

The simplest solution is for him to trade it against another car. They "might" not be so keen for a car of lower value, but I'd think so long as they can turn a profit on both ends, they should go for it.

iaind · 21 Jul 2019 at 09:27

I did exactly this. Dealer valued the car at an amount higher than the pcp settlement about mid way through the term. Took the car back, walked away with a cheque for the difference and finance cleared. Ended up being equal to the deposit I started with pretty much. All depends on the equity though

jpaul · 21 Jul 2019 at 14:21

just wondering - exiting the PCP seems to be a cost free experience, but is that really true :

As part of the 'downgrade' cost analysis ...
even if there is 'equity', above the 50% value (that you have to pay them for contract termination), you nonetheless have to write-off those monies up to the 50% point,
where you could still have been using the car, for 'free', (maintenace/insurance excluded)

Also, the equity, does it give the same value when invested in the new car ? if the residuals on the new car turn out to be less than st-3
you could instead, view the current equity as representing a reduced monthly payment during the remainder of your current PCP, if, it still remains. eg no bad brexit consequence

Quartz · 21 Jul 2019 at 14:40

Scarfacé said:
Although pcp has been great, our circumstances have changed, have a child that is nearly two years old we now went to replace it with a cheaper second hand family car, like a ford kuga.

Why don't you discuss this with your PCP provider? You're likely not the first person in this situation.

Scarfacé · 22 Jul 2019 at 20:46

I think people are confused or I’ve not been clear ... the pcp is up in March so not long to go.

I want to go down to a second hand kuga.

Question is will they take the focus which will be worth more than a second hand kuga and pay off the pcp?

paradigm · 22 Jul 2019 at 21:08

Scarfacé said:
Question is will they take the focus which will be worth more than a second hand kuga and pay off the pcp?

As I already said, yes. The value of your Focus is irrelevant, any equity you have in it is yours, and will be usable as the deposit on a second hand Kuga.

jpaul · 22 Jul 2019 at 21:24

indeed the question was already answered ..

I was just interested about the economics of doing it ... which I think depends on how much the PCP settlemnt costs, and having to pay monies that would otherwise have represented additional months of ownership.

iaind · 23 Jul 2019 at 08:46

Scarfacé said:
I think people are confused or I’ve not been clear ... the pcp is up in March so not long to go.

I want to go down to a second hand kuga.

Question is will they take the focus which will be worth more than a second hand kuga and pay off the pcp?

Do you have a current settlement figure from the finance company?

If that is less than the value of the car, you'll get the difference back in cash or as a deposit/contribution for something else.

If it is more than the value of the car, you'll need to stump up the rest to settle it

Without knowing the settlement and p/x value, you dont and cant know the answer

Scarfacé · 24 Jul 2019 at 01:08

iaind said:
Do you have a current settlement figure from the finance company?

If that is less than the value of the car, you'll get the difference back in cash or as a deposit/contribution for something else.

If it is more than the value of the car, you'll need to stump up the rest to settle it

Without knowing the settlement and p/x value, you dont and cant know the answer

Not got a settlement figure it I wanted to end the agreement right now but the ballon/settlement at the end of the pcp (March) is Less than £11k (think it’s about £10,500). It’s a fully specced st3 with only about 20k on the clock, and I know from looking at trade in values and auto trader that a three year old mint conduction low mileage focus st3 is worth more than 10-11 grand.

I do know that I could use any positive equity towards another pcp. I could even do that at another dealer by trading the car in and getting them to pay the balloon.

However, I didn’t think what you have said about them stumping up cash for any positive equity was true? I thought that if I choose to give the car back at the end of the pcp term then that’s that e.g if the car trade in value was 13k, I didn’t think they are obliged to give me the £2500 as cash? If that is really the case then that’s amazing and I’ll just take any positive equity and put it towards buying a second hand family wagon. Then I can hang on my BMW M4 for longer

iaind · 24 Jul 2019 at 09:30

Scarfacé said:
Not got a settlement figure it I wanted to end the agreement right now but the ballon/settlement at the end of the pcp (March) is Less than £11k (think it’s about £10,500). It’s a fully specced st3 with only about 20k on the clock, and I know from looking at trade in values and auto trader that a three year old mint conduction low mileage focus st3 is worth more than 10-11 grand.

I do know that I could use any positive equity towards another pcp. I could even do that at another dealer by trading the car in and getting them to pay the balloon.

However, I didn’t think what you have said about them stumping up cash for any positive equity was true? I thought that if I choose to give the car back at the end of the pcp term then that’s that e.g if the car trade in value was 13k, I didn’t think they are obliged to give me the £2500 as cash? If that is really the case then that’s amazing and I’ll just take any positive equity and put it towards buying a second hand family wagon. Then I can hang on my BMW M4 for longer

Yeah you're probably right, I'd just want a settlement figure so I would know for sure - takes 5 mins to call and ask and means you can actually start working out numbers.

I think you're getting mixed up with the different options and ways of settling. Its not wrong because I've done it

. The things you can do are

Voluntary termination at 50% of repayments made. You just hand the car back and walk away. Sort of pointless with PCP as 50% of payments is near the end anyway
Termination at the end of the agreement. You hand the car back and walk away (condition and mileage applies obviously). Useful if the value of the car is actually lower than the balloon payment - hence the "guarantee" part
You can part ex the car at the end of the agreement. Basically the p/x pays the balloon payment and the difference (the equity) becomes the deposit for the next one
You can sell the car during the agreement and cover the settlement. Often tricky because it needs the finance company's permission but it's basically the same transaction as option 3 (sell car, settle finance). You could sell to a dealer or privately, doesnt really matter except for the amount you'll get

I took a car midway through a PCP back to the supplying dealer, they bought it back at trade price and settled the finance for me, giving me a cheque for the balance. You're thinking about option 2 which is not one you'd normally use.

Bearing in mind the sort of dealers who will want to buy your Focus are unlikely to stock decent "couple of grand" cars, your best bet is to sell it and take your money elsewhere. You could try for a private sale for maximum return - ask the finance company first but if the value is clearly higher than the settlement they shouldn't have an issue with it. HPI check would show outstanding finance while you list it but your buyer would just pay the finance off direct to the company and send any balance onto you, that way they know it's been settled. I've bought a car like that before, its no big deal. Having just been looking at 16-17 reg ST-3s quite a lot myself, I'd say if its petrol then it's probably in the 16k region on a private sale. You could take it back to ford and they'll settle the finance for you directly - it's quick and simple but you'll get a grand or two less. If you have the time, I'd take a punt on a private sale - just put a line in the ad along the lines of "finance to be settled directly with proceeds of sale" as autotrader will flag up the outstanding finance.

Mercenary Keyboard Warrior · 24 Jul 2019 at 11:34

iaind said:
Yeah you're probably right, I'd just want a settlement figure so I would know for sure - takes 5 mins to call and ask and means you can actually start working out numbers.

I think you're getting mixed up with the different options and ways of settling. Its not wrong because I've done it . The things you can do are

Voluntary termination at 50% of repayments made. You just hand the car back and walk away. Sort of pointless with PCP as 50% of payments is near the end anyway

Termination at the end of the agreement. You hand the car back and walk away (condition and mileage applies obviously). Useful if the value of the car is actually lower than the balloon payment - hence the "guarantee" part

You can part ex the car at the end of the agreement. Basically the p/x pays the balloon payment and the difference (the equity) becomes the deposit for the next one

You can sell the car during the agreement and cover the settlement. Often tricky because it needs the finance company's permission but it's basically the same transaction as option 3 (sell car, settle finance). You could sell to a dealer or privately, doesnt really matter except for the amount you'll get

I took a car midway through a PCP back to the supplying dealer, they bought it back at trade price and settled the finance for me, giving me a cheque for the balance. You're thinking about option 2 which is not one you'd normally use.

Bearing in mind the sort of dealers who will want to buy your Focus are unlikely to stock decent "couple of grand" cars, your best bet is to sell it and take your money elsewhere. You could try for a private sale for maximum return - ask the finance company first but if the value is clearly higher than the settlement they shouldn't have an issue with it. HPI check would show outstanding finance while you list it but your buyer would just pay the finance off direct to the company and send any balance onto you, that way they know it's been settled. I've bought a car like that before, its no big deal. Having just been looking at 16-17 reg ST-3s quite a lot myself, I'd say if its petrol then it's probably in the 16k region on a private sale. You could take it back to ford and they'll settle the finance for you directly - it's quick and simple but you'll get a grand or two less. If you have the time, I'd take a punt on a private sale - just put a line in the ad along the lines of "finance to be settled directly with proceeds of sale" as autotrader will flag up the outstanding finance.

Just to clarify point 3. What your doing in this example IS paying the balloon, but the dealer is doing it as part of the transaction on your behalf, so in effect buying it off the PCP company on your behalf, and then giving you the difference in value between what they would have paid you, and what they did pay the PCP (finance) company.

Waiting until the end of the PCP if you don't intended to buy it and keep it is pretty much a non reason. If you never intend to keep that car as the owner then the timing of making the switch should be based on all the other factors rather than the ending of the PCP term. Unless, the car is going to be worth less than the balloon. In these circumstances you should see the PCP out, and indeed walk away.

The other option to consider is taking an unsecured personal loan, paying off the outstanding and then you own the car. You can sell the car, trade it in etc and then pay off the loan when ready. This way there is no outstanding finance to be flagged up, no worried buyer basically. Depends on the APR% on the PCP of course, if its a 0% or something then your going to be worse off. Equally, if you need some finance for the replacement car, you could in effect use this same loan, just pay back the bit you dont need for the new car. A lot depends on personal circumstances, if you can borrow with personal loans cheaply, its almost always going to be cheaper than low value car finance. You often get better rates on £10-20k loans as opposed to £2-5k as well, so you may secure a good rate and end up with a small loan (after selling and buying new one) compared to borrowing a small amount for the new one.