Finance agreement ‘trap’

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This topic contains 3 replies, has 2 voices, and was last updated by Stuart Masson Stuart Masson 1 year, 2 months ago.

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  • #94043 Reply

    Chris

    Hi Stuart,

    I will try and be very concise with regard to my issue

    I have a Mazda 2- £175pm with 6 months remaining on agreement

    Dealership where we purchased valued car at £3,900 yesterday. Slight paintwork damage

    We have £4,500 remaining on finance

    We have a family now so require a larger car. Have been looking at used cars and and the total value of cars we are looking at are in and around £4,500/£5000

    We have £2000 cash and then plan to put the remaining amount to purchased our new card on a no interest credit card ( 15 months no interest) and plan to spend the previous £175 payments per month on the credit card.

    Our current Mazda is due its first MOT and service so there will be a significant spend there

    Basically we want out of the agreement. In simple terms is the only way to do that right here right now is to pay the negative equity and I’m sure some sort of early exit cost to the finance company?

    The car dealer was very unclear about it all.

    I don’t really want to stay with Mazda and would rather go to ford or Kia.

    Use Kia as an example, could I approach their dealership and they make their own assessment of the Mazda and I then enter a new agreement with them?

    Am I right and thinking if I were to do this there would have to be some sort or PCP agreement?

    Let’s say the used car was £4,500. Am I better putting a £4000 deposit down ( cash/credit card) and then having a very small PCP agreement?

    My thinking here is that by doing this I won’t be ending my current PCP agreement and would hope any new deal will help me avoid the costs of negative equity, servicing, early exit charge.

    I accept I could be talking absolute rubbish here.

    Hope you can help

  • #94047 Reply
    Stuart Masson
    Stuart Masson
    Keymaster

    Hi Chris. The first thing you need to do is get a precise current settlement figure from the finance company for your Mazda. If you are settling early, you will save some interest but pay an early termination fee. With six months to go, they probably balance out. You have to settle the current PCP as part of selling the car.

    You can go to any dealership from any manufacturer you like to try and get a better deal. They will assess your current vehicle, and if they are prepared to offer you more money for it then great.

    There is no requirement to have another PCP agreement, but every car dealer will try to get you into another one because they get paid more for selling you a car with a PCP than for a car without one.

    If you want another PCP, there will be a maximum deposit you can put down and a minimum amount that needs to be borrowed. So you won’t be able to pay £4,000 and take a PCP for £500.

    If your service and MOT are due before you sell your current car, you will have to pay for those. If you change your car before that, you will have some negative equity but will avoid those costs. You need to decide what the best option is for your situation.

  • #94060 Reply

    Chris

    Thanks for the reply Stuart.

    Your answer has offered me some much needed clarity in comparison to what I got from the dealer, although I’m still not sure what is the best option is.

    An option I seemed to have not considered however is something think you alluded to at the start of your response. Correct me if I have got this wrong.

    The precise figure outstanding is £4,635.So is an option I haven’t considered ( the one is think you alluded to) is to use the £2000 cash and then put £2,635 on the credit card so we have paid off the agreement and own the car out right?

    Then go to another dealer (I’ll use Kia as an example) and look at a part exchange for a bigger used car now we own the Mazda outright.Mazda valued our car at £3,900 yesterday, I imagine that figure could change from dealer to dealer and circumstances to circumstances. If Kia see I’m not tied into a current PCP deal, would that work in my favour?

    So let’s say there is a ‘used Kia’ for £5000, Kia part exchange our Mazda and value it at say £4,000. I therefore stick another £1000 on the credit card taking it to a total of £3,635 after settling off the old PCP agreement. I would then pay the money off the CC each month like I would on a PCP deal with a similar amount of £175. Does that sound like a realistic option?

    Please tell me if I’m being incredibly short sighted/overthinking it /out rightly foolish.

    Thanks

  • #94114 Reply
    Stuart Masson
    Stuart Masson
    Keymaster

    If Kia see I’m not tied into a current PCP deal, would that work in my favour?

    It shouldn’t make any difference to the dealer. It just means that instead of paying you for the whole value of the car, they pay you part of the value and the finance company part of the value.

    We can’t advise you the best way to finance your car, as that is a decision you need to make for yourself based on your circumstances and the options available to you. Yes, you can use your credit card to pay for the vehicle; like any finance agreement, you need to look at the APR and T&Cs of your credit card agreement and compare them to your other options.

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