Car finance: How do I settle a PCP early?

Car finance advice
How to settle your car finance (PCP) early

Most car dealerships are rubbish at explaining how various car finance products works. This is clear from the number of search enquiries we receive every day.

Today we are answering one of the most common PCP finance agreement questions: What if I want to terminate the agreement and settle my PCP early?

There is a lot of confusion about ending a PCP agreement early, but in reality it’s quite simple. You can settle the agreement early, but it will probably cost you to do so.

What is a PCP?

Graph of PCP - depreciation vs finance outstanding

Figure 1: depreciation vs finance outstanding (click to enlarge)

To understand how to settle a PCP early, let’s firstly look at what happens if you finish the agreement as per the original contract.

Let’s take a theoretical three-year PCP and run it for the full three years.

Take a look at this graph (Note: example only; actual results may be affected by many factors).

For the purposes of this example, we’ve ignored both interest and any deposit, so we have a £30,000 car and £30,000 financed. The blue curved line represents your car’s depreciation over time, while the red straight line represents your finance settlement over time.

The finance company calculates the depreciation of your new car over three years, and comes up with a value of what the car should be worth at the end of that period.

This figure is called the Guaranteed Minimum Future Value (GMFV). This is the value for your car that the finance company is prepared to guarantee in three years’ time, as long as:

  • You keep under the mileage in your contract
  • You have your car serviced on time, every time by an official dealership
  • You keep your car in good condition

What you repay over the three years is the depreciation of the car from its new price down to the GMFV.

So in our example, the car cost £30,000 new and the finance company sets a GMFV of £15,000 after three years. Your monthly payments over three years are repaying £15,000 of depreciation. If you want to keep the car then you still owe another £15,000 to pay off the rest.

Your monthly payment is the same each month. That means the finance remaining (red line in the graph) follows a nice straight line. It decreases by £5,000 each year to reach £15,000 after three years.

However, your car’s value (blue line in the graph) does not follow a nice straight line. It does not depreciate at exactly £5,000 per year.

Depreciation is a curve. You lose a lot of value early on, and then the curve flattens out over time. As a result, the car’s value drops well below the settlement in the first year, then starts to gradually catch up again until they meet after three years.

So, at the end of the agreement, everything comes together nicely. The settlement figure is £15,000 and so is the car’s value.

But wants happens if you are not able to wait until the end of the agreement and need (or want) to change your car early?

The segment of the graph marked out in grey, between the two lines, is called negative equity. This is the difference between what your car is worth and what you still owe to the finance company.

You can see that at any point before the end of the agreement, the car’s value is less than the amount owing. This means if you want to sell the car, you will not have enough to cover what you owe. Therefore you will have to pay the difference owed to the finance company to settle the finance.

What if I have a large deposit?

If you want to settle a PCP early, you will have to pay any negative equity

Figure 2: depreciation vs finance outstanding with a large deposit (click to enlarge)

As mentioned, the above example assumed no deposit, which almost never happens.

The more deposit you put in up front, the smaller the negative equity issue is going to be during the term of the agreement.

Have a look at the second graph (right). Having a large deposit to start with means that the settlement graph starts off well below the car’s value.

The car’s rapid initial depreciation means that its value still drops under the settlement figure during the agreement, but only slightly.

So if you wanted to settle a PCP early and have put in a large deposit, you will probably only have a minimal negative equity position.

Will my car ever be worth more than the settlement?

The whole point of a PCP is to guarantee the value at the end of the agreement (Guaranteed Minimum Future Value – GMFV).  This means that if the car’s market value is less than the GMFV, the finance company will lose money. As a result, they will want to make sure they are not setting the GMFV too high.  So it is possible that the car could be worth more than the GMFV at the end of the agreement.

This means that if your car’s market value is less than the GMFV, the finance company will lose money. As a result, the finance company will want to make sure it is not setting the GMFV too high. So it’s possible that your car could be worth more than the GMFV at the end of the agreement.

It certainly used to be the case that finance companies were quite conservative in their GMFV predictions, and customers would end up with a car that was worth a handy sum more than the settlement figure. This money would almost certainly be used as a deposit for another PCP agreement.

However, as the market has become more competitive, the situation has changed. More finance companies appear to have increased their GMFV predictions, which makes your monthly payments lower but makes it much less likely that you will have any equity in the car at the end of the agreement.

It is now very unlikely you can ever settle a PCP early and be in a position where your car is worth more than you owe.

Other factors to consider when settling a PCP early

These simplified examples show the relationship between a car’s value and its outstanding finance. However, the exact position will be different for each case.

Factors affecting a car’s depreciation curve include:

  • Mileage
  • Condition
  • Specification
  • Model cycle (for example, when a manufacturer launches a new model, the old model will drop in value)

The factors affecting a PCP early settlement figure are generally interest and fees. The more interest you are paying on the finance, the greater the negative equity amount is likely to be.

Your termination rights

Every PCP agreement has a clause built in outlining your termination rights. This provides you with the right to give the car back once you have paid off a certain amount. Voluntary termination is looked at in detail here.

Should I settle a PCP early or keep it until the end?

A PCP agreement is set out to be financially optimal to run it all the way to the end of the agreement.

The reality is that most times, you’ll have to pay out a substantial sum of negative equity to settle a PCP early.

Whether or not it is worth paying to settle the finance depends on how important the need is to change your car or get rid of it.

Circumstances change, and the cost of paying to get rid of the car now may be better than paying more to keep it for the rest of the agreement.

Alternatively, your car may no longer be suitable for your needs, and the cost to change may be worth it to you.

Is it simply impatience that makes you want to change your car early? In that case, understand that you’ll be paying a high price to settle your PCP early instead of finishing it as scheduled.

The dealer who sold you your car will often contact you several months (or even a year) before your PCP is due to finish. They will try to entice you to buy a new car ahead of schedule with an early upgrade offer.

Sometimes these offers are advantageous. But usually they’re a bit of smoke and mirrors, and not really worth it.

You should plan your purchase carefully to make sure you are not destined for an expensive problem in a few years’ time.

If you choose to settle a PCP early, you are responsible for paying off any negative equity

Stuart Masson
Stuart is the Editor of The Car Expert, which he founded in 2011, and our new sister site The Van Expert. Originally from Australia, Stuart has had a passion for cars and the car industry for over thirty years. He spent a decade in automotive retail, and now works tirelessly to help car buyers by providing independent and impartial advice.

445 Comments

  1. Hi Stuart,

    A quick question if I may on GAP Insurance. I Bought a LR EVOQUE for £29K, I added another 2-Years Warranty for £1k & some Alloy Wheel Cover for £250.00. I received a £1K Dealer Contribution by taking the LR PCP Finance, Which I will be cancelling, having missed-out on the 14-Day Option, by believing that this occurred, after you’d received a Copy through the Post, instead of from the moment you signed the Finance Deal…My Fault, But 1-Month’s PCP Payment is better than 48-Month’s worth. I have Re-Financed using a Personnel Loan at a heavily Discounted Rate than that which I got from LR Finance…

    My Question is, If you take out a PCP Loan, It is all in B & W, that it was used to Purchase a Car, So any shortfall, if the worst happens, can be claimed on the GAP Insurance to payoff any Settlement Figures…

    But what is the situation with a Personnel Loan, as it’s not “clear”, You state on the Application that it is for a Car, But You don’t really need to use it to Purchase a Car, do you???

    So in that case, which is Best? Which type of GAP insurance do I take out, which would also cover me for the Personnel Loan & Interest, together with the Cost of the Car & the Extra’s mentioned above…

    Thanks for any guidance…

    Peter

  2. Stuart Masson

    Hi Peter. To the best of my knowledge, the finance shortfall component of GAP insurance (if you have it, and not all GAP policies do) only applies to secured car finance (ie – a PCP or HP) rather than a personal loan.

    The type of GAP insurance you would be looking at is “Return to Invoice” rather than “finance shortfall”. Also, there are plenty of GAP insurance offers on the internet which are generally massively cheaper than those offered by the dealer. One of the reason that dealers push their GAP cover so hard is that they have massive profit margins on it…

  3. Thanks Stuart,

    Have just paid off the PCP using the Personnel Loan, so now will have a search for some “Return to invoice” Policies, with the Money saved on the LR Finance!!!!

    Thanks a lot for your advice…

  4. Hi Stuart, excellent information and I am looking for some advice please. Bare with me as this might take a while but I’ll try and keep to the point. I am completely new to financing a car in this way so appreciate your expert advice to help me come to a decision.

    I have paid a £1000 car order deposit on a Lexus IS300H F-Sport with Premium Nav, Full Leather and metallic paint. The total price is £37550. Due end of June.

    I was considering a Contract Hire as this will be through my business but didn’t like the idea I will have to just hand the car back and be in the same situation with having to finance another car.

    The PCP option comes with a dealer contribution is £1925 and Finance contribution of £1500. The deposit will be made up of PX I have been offered of £2025 plus £6250 so total deposit of £8275 plus the 1500 finance contribution = £9825.

    Focusing on the PCP for now I have had a few quotes:-

    A 3 year PCP with the above deposit/contribution this is a monthly payment of £350.72 x 35 and a GFMV of £14871.60 with a permitted mileage of 30,000 over the 3 years. 12p a mile excess charge

    A 2 year PCP with the same deposit etc and a monthly payment of £398.02 and a GFMV of £17876.35 with a permitted mileage of 20,000 over the 2 years. 12p a mile excess charge

    I have always just paid cash for second hand cars but as I run my own business I need a car that is reliable and is fuel efficient more so than my smelly diesel IS220D.

    I don’t know what will happen in 1, 2 or 3 years so want to try and understand which of the two PCP options is best if I am looking for flexibility and lowest cost.

    I have in my mind I might want to keep the car after the PCP term but at the same time this may not suit my business needs not my needs.

    On one hand I want to keep the term short as possible but can’t afford to pay for the car out right and don’t like to sound of a 17k final payment should I choose to keep the car.

    Another consideration is that Lexus debuted a face lift model of the IS earlier this year which has no release date yet but expect it will be in the new year if not end of 2016. Does this effect how I should perceive the GFMV? Would Lexus consider a lower GFMV based on the fact there will be a newer model out soon?

    Appreciate you help as you have done so with so many on this subject.

  5. Stuart Masson

    Hi Richard. We can’t provide a recommendation on which way you should go or how you should spend your money. All we can do is point out the relevant issues you need to be aware of.

    With either PCP or PCH (personal contract hire), you usually end up giving the car back at the end of the agreement. With contract hire you don’t have a choice anyway, but with PCP most people don’t have the cash available to settle the balloon/GMFV amount and so they simply start a new PCP.

    You say you are looking for “flexibility and lowest cost”, but those things are usually incompatible. It’s a bit like buying a plane ticket – the cheapest tickets are the least flexible if you want to cancel or change your flight. If you want a ticket with more flexibility, it will cost you more money.

    PCH is often cheaper on monthly payments, but is the least flexible if your circumstances change and you need/want to return the car before the end of the agreement. A PCP also has costs if you want to return the car early, but those costs are usually lower. You also have the option to buy the car outright at the end, and if your car is worth more than the balloon at the end then you can keep that equity. With contract hire, you simply rent the car for the term and then give it back.

    If a new model is launched later this year as you suggest, it is more likely to affect a shorter-term agreement (2 years) rather than a longer one (3-4 years), as the immediate effect of the devaluation of the car when the new model is launched is spread over a longer period.

  6. Hi Stuart, thanks for the reply. So is a PCP really a bit pointless if most people give the car back anyway over a PCH?

  7. Stuart Masson

    No, it’s certainly not pointless. A PCP is always much better than PCH if your plans change and you want to change your car before your contract is up. Penalties for breaking a PCH contract can be enormous. Plus if you have equity at the end of your PCP agreement (ie – your car is worth more than the GMFV), you get to keep or use that equity. With PCH, you give the car back and the finance company gets the benefit when they sell it.

    Plus, a PCP has voluntary termination rights, whereas a PCH doesn’t, which can be a massive benefit if you need to change your car once you are in the latter stages of your agreement.

  8. Hi Stuart, so as I am a director of my own limited company, does it benefit me or the company to make the final payment so it becomes a Capital Asset and what does that actually mean?

  9. Thanks for clarifying. I am leaning back towards PCP.

  10. Hi Stuart
    I want to buy a used car and I want to pay it cash, however the dealership guy suggested to try PCP finance which means I get £500.00 of the price + two free services, and he said ( off the record) that after 3 months I can practically pay all outstanding amount in a lumpsum, and walk away without any fees or penalties, except intrests incured during that 3 months, It sounds too good to be true, so I wonder what is your view about this?, many thanks and regards,

  11. Stuart Masson

    Yes, you should be able to do this and you certainly don’t need to wait three months – you can cancel the finance within 14 days and incur no fees or interest. Have a read of our article about deposit contributions.

  12. Hi Stuart
    You may already have answered a similar query apology if you have, there have been a lot of comments submitted here, too many to sift through for a response.
    I am about to hand back my vehicle based on the VT and pay just over 1000pounds to make up the shortfall, I have a new vehicle waiting to be picked up but the new dealership has put terms on the new finance agreement. The terms are that the current finance company have to supply a letter stating that they have ‘no further interest’ in my current vehicle before I can collect the new vehicle.
    My current finance company want to collect, and inspect the vehicle first, determine if it is in good condition, put it up for sale at auction and once sold will supply the letter of no interest, in the meantime I will be without a vehicle. Is this normal?
    Surely if I terminate the agreement under the VT terms which in the agreement only state that if I wish to do so I only need to pay at least half of the finance, that should be the end of it. Why are the current finance company now adding additional terms to the agreement?
    I am self-employed a rely on my vehicle for work. Once the car is collected on Wednesday I will be unable to travel for work, so I need the letter of no interest as soon as the car is collected because as far as I am concerned that is where the agreement ends.
    Thanks in Advance

  13. Stuart Masson

    Hi Carmen. It is unusual for a finance company to insist on getting this confirmation from your existing finance company. Obviously, your credit rating will show that you currently have a finance agreement in place, which you would be paying £X/month towards, and this is an area of concern for them.

    Your current car belongs to your current finance company, so they will retain a financial interest in the vehicle until they sell it, which is normal. Once you VT the agreement, there is nothing else you should need to pay unless there is damage over and above normal wear and tear.

    It may be that the new finance company is concerned that either: a) you are overstretching your finances according to the information you have provided, and therefore they are not prepared to finance you until you confirm that you have no further commitments to your existing vehicle; or b) you are applying for an Accommodation Deal, and that the new vehicle will be for someone other than you. If you have two finance agreement for cars for yourself, this is immediately suspicious and finance companies are taking it very seriously.

  14. Hi Stuart,

    Apologies if a similar question has already been answered…
    I have a PCP with Audi and am 22 months into a 46 month contract.
    The Hire Purchase is £19,120.00 with a final payment of £9951.25.
    i have agreed 8,000 miles a year with the final mileage being no more than 51,000 miles. Due to unforeseen travel over the last year I already have around 45,000 miles on the clock.
    I am worried about the excess mileage charges at the end of the contract and am exploring options in terms of when to end it to minimise the cost to myself. as I will definitely be doing more than 6,000 miles over the next 2 years.
    I have read that Audi don’t charge excess mileage if, at the end of the contract, you give the car back to them and take out a new PCP contract. Not sure how true this is without asking them (I will be doing this)
    I am just wondering what any early termination options could be with as little extra cost to me as possible, if any, or whether to see out the full term of the contract?
    Obviously if I take the car back to them with higher mileage than agreed the car will be worth less and I won’t have any equity in it so I would have to potentially pay the excess mileage and a deposit on a new car (which will be a lot of money all at once).
    I should probably note that I am probably looking to get another Audi after this one but don’t want to lease from a company as they are more strict on the excess mileage. I will most likely go for another PCP deal as I am now based in one location (military) and shouldn’t be travelling around as much.
    Hope this makes sense.
    Thanks,
    Joe

  15. Stuart Masson

    Hi Joe. If you are planning on running the car for its full 46 months, you should be able to call Audi Finance (contact details here) and ask them to bump up your mileage allowance. This will increase your monthly payent, but would cost less than paying an excess mileage charge at the end of the agreement.

    I am not aware of Audi Finance waiving excess mileage if you take out another PCP. This may have happened in the past on occasion, but it is not normal. Alternatively, it may have been that a dealer had covered any mileage charges or settled the finance and sold the car separately. Normally finance companies don’t offer to waive charges, so I wouldn’t bank on this happening for you – especially when your mileage will be significantly beyond your allowance.

    If you voluntarily terminate the contract after paying back 50% of the total amount payable, you will probably end up in an argument with the finance company about whether you have to pay excess mileage (in short: there’s no definitive answer – probably not, but the finance company will get very grumpy).

  16. Hi Stuart,

    Excellent article, tried my best to understand it. Still a little confused though and wondered if you could oblige? I started a PCP deal with BMW in June 2015. I paid a £2500 deposit and £257/month for a supposed 48months. I want to change cars before the 48 months is up, as i find the £257 quite expensive. Im still slightly confused with how the ins/outs of the PCP works and was looking for some advice to end this agreement without being screwed by another Multinational Conglomerate

  17. Stuart Masson

    Hi Calum. Depends on your definition of “being screwed by another multinational conglomerate”. If you want to break your legally-binding contract, they are entitled to charge you as indicated in that contract.

  18. wrong choice of phrase. I am aware of this fact. to find out termination costs would it best to speak to the dealer then ?

  19. Stuart Masson

    You will need to speak to the finance company, not the dealership. Once the dealer hands over the keys and waves goodbye, the finance is no longer anything to do with them and the car belongs to the finance company. If the finance was done with BMW Financial Services, you can find their contact details here.

    You are 14 months into a 48-month PCP. If you settle the agreement now, you will save on 34 months’ of interest payments, but will pay an early settlement charge. The main issue is likely to be that the settlement figure is still likely to be higher than the market value of your car, which means you would need to sell the car and find some extra cash to pay off the finance.

  20. 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

  21. Hi Stuart.

    I am 13 months into a 42 months pcp agreement, I am looking to change cars.

    I phoned the finance company and asked how to change they all they kept saying was the settlement figure is £8500.
    So if I went to a dealership and wanted to part exchange this car what is the deal with the £8500 do I have to pay that? does the dealership pay that?

    Thanks in advance.

  22. Stuart Masson

    Hi James. £8,500 is the amount you need to pay the finance company to settle your current agreement, regardless of what you decide to do with the car.

    If the car is worth more than the settlement figure, you can keep the difference or use it towards your next car. So if the car is worth £9,500 as a part exchange, the dealer will pay your finance company £8,500 and you can use the remaining £1,000 on your next car. However, if the car is only worth £7,500, you would have to pay £1,000 to settle the outstanding amount before worrying about your next car.

  23. Hi Stuart

    I am 18 months into a 48 month PCP with VW. I agreed a mileage of 12,000 a year (which was more than sufficient at the time) but due to a change of job, I am now doing 20,000 a year in commuting (plus any extra weekend mileage).

    As the mileage isn’t currently too much higher than the agreed run rate (22,000 vs 18,000) I have tried to do the right thing and move into a more appropriate PCP (with higher annual mileage agreed) but the negative equity is significant (c. £7,000). I expected some negative equity at this stage because of the way depreciation and PCPs work, but not this much. I wonder whether the VW emissions scandal has also harmed the value as at c. £15,000, my 18 month old car is worth less than 50% of the new car value.

    Anyway, I’ve worked out that if I wait another 16 months I will be able to voluntarily terminate the agreement and be prepared to fight any excess mileage charges (I estimate that I will be 15,000 miles above the agreed amount at that stage). I can’t see any reason why I should go past this point as I know that the car won’t appreciate over time and it’s already worth less than the amount that will be owed in 16 months. Also, as I know I’m not going to pass this point, I don’t see the benefit in increasing the monthly payments to account for higher mileage.

    The ideal solution for me is to terminate today and I will move on and take a deal out that’s appropriate for my circumstances. However, as I don’t think that will be possible, it seems to me that the best thing to do would be absolutely nothing and then hand the car back in 16 months time.

    I feel that I’m missing a possible solution, what would you recommend I do?

    Thank you very much for your help

    Andy

  24. Stuart Masson

    Hi Andy. Normally, the finance company will allow you to bump up your mileage allowance to cover your increased driving. So basically you would pay more per month to ensure you are back on target by the end of 48 months and not have to pay off any negative equity.

    You can terminate the contract now, but you will have to pay the balance of the 50% owed to do so, which will probably be thousands of pounds.

    If you carry on and VT once you have paid off 50%, you will have to fight the finance company over the excess mileage. They will almost certainly come after you hard, as you will be a long way over and it will be quite a chunk of change to try and claim.

  25. Thanks Stuart. I will give VW Finance a call to see how much more it will be per month to avoid the fight (it does make sense to try to avoid the fight, particularly if they will fight hard!)

  26. Hey Stuart,

    Great website and very informative!

    On the subject of PCP Financing, do you think my grandfather would be likely to be approved for the financing?
    He’s 75+ with an income of about £12,000 – £13,000 from pensions/investments. He owns his own home outright and has significant sums of cash and investments.

    If he is approved, our plan is to use the PCP financing to haggle for a better deal on a used VW Golf from the dealer, then cancel within the 14 day cooling off period and pay the borrowed amount with cash.

    Thanks for your help!

  27. Stuart Masson

    Hi Anish. The finance company will be looking at guarantee of income as well as likelihood of expenditure, which are both likely to be fairly consistent. They will also be looking at affordability, so your grandfather will need to make sure the repayments are not too high a percentage of his declared income.

  28. Hi Stuart, I spoke with VW Finance today and they have said that I can’t increase my monthly payments to cover the increased mileage. It was a “computer says no” reason rather than anything sensible. Do you know any reason why that would be?

    I think I will just put some cash to one side each month instead and see what happens on VT.

    Thank you again for your help

    Andy

  29. Stuart Masson

    Er, no idea. It may be that it tipped the agreement too far in a direction they didn’t want to go, which may not have been approved had it been submitted that way in the first place. It may be a policy from VW Finance not to allow amendments after a certain point or beyond a certain level.

    If you plan to see the contract through to the end, you should be able to calculate what your excess mileage charge would be, as the mileage fee will be listed in your paperwork.

  30. Hi Stuart,
    Love all your professional advice, but would appreciate advice on this one in light of your general guidance.

    Basically bought new Toyota with £1000 deposit contribution on offer if I signed up for PCP, which I did. I have now contacted Toyota finance with the 14 days cool off and advised I wanted to withdraw.
    They have got back to me saying I have to options 1) to ‘withdraw’ but the credit sum owing pay back would include the £1k contribution or 2) ‘settle’ for a sum which does not require paying back the deposit but they have added around £130 which looks like a fee equiv to two months PCP payments and must be a fee.

    Are they trying it on, there is no reference in the PCP contract paperwork anywhere regarding loosing the contribution if withdraw within 14 days?

  31. Stuart Masson

    Hi Dave. It would depend entirely on how the contract has been written. Unless the contract states that the deposit contribution is contingent on you taking and keeping the PCP agreement for a period of time, there’s probably not a lot they can do.

    The other alternative, as they have stated, is to settle the finance early rather than withdrawing from the agreement. There is always an admin charge, and it is is usually equivalent to a couple of months’ of payments, so that sounds about right.

  32. Hi
    We’re 24 months into a 36 month PCP contract with Ford. We’re about to take a lease car through my wife’s work and want to VT the contract with Ford. We paid a deposit of £2544 and the termination fee is £4631.89. Will we be allowed to VT the contract?
    I was wondering if we could pay the remaining 12 months (we pay £91 a month) and hand the car back straight away?

  33. Stuart Masson

    Hi James. If you have paid back more than 50% of the total amount payable, you should be able to VT the car. For more information, have a read of our article about voluntary termination of a PCP.

  34. Thanks.. I have just had a settlement figure of £3971.68 so presumably, as this is less than the £4631.89, quoted by Ford we are within our rights to VT the agreement?

  35. Stuart Masson

    Two separate ways of settling. The numbers quoted by the finance company are to settle your finance in full and own the car outright. This is generally what they would prefer you to do, regardless of whether it is best for you.

    If you want to VT the car and give it back, you have to have paid 50% of the total amount payable. This figure should be written down in your finance contract, or the finance company should tell you if you specifically ask for it. Often, finance companies will wilfully misundertand references to VT unless you are very clear and specific.

  36. hi stuart i bought a car from john clark on pcp. due to employment changes iam going to pay of the agreement and make up the negative difference. the finance company is northridge i have obtained the figure. do i have to inform john clark once i pay it off? the car is under one of there service plans that supposedly came free

  37. Stuart Masson

    Hi Neil. No, you don’t need to inform the dealer about settling your finance – it has nothing to do with them once they have sold the car.

    It shouldn’t affect your servicing plan, but if you end up selling the car then it probably can’t be transferred across to the new owner.

  38. Hi Stuart. We are in major financial difficulty and can no longer afford the car payments. We could even end up defaulting on the payments. I am getting a company vehicle so we no longer need the car. The car is a Ford Focus 2012 plate bought for £9600. We only put about £100 down as a deposit. We are worried sick about it and we have a growing family. A two year old and just had twins. My partner no longer works so we have complately lost her salary. We need some help and advice. My partner is considering bankruptcy. Can you help?

  39. Stuart Masson

    Hi Simon. There is usually no provision in car finance agreements for financial difficulties. If your finance is a PCP or HP and you have paid off more than 50% of the total amount payable, you can voluntarily terminate the agreement and give the car back.

    However, if you have not yet paid off 50% (and can’t afford to make up the difference) or you are not on a PCP or HP, your options are not as good. If your car’s value is more than the settlement amount, you can sell the car and use the funds to pay off the finance company. If the car is worth less than the finance settlement, you would have to pay out any negative equity from your own pocket.

    Alternatively, you could ask your employer to give you additional salary in lieu of a company car, and use that extra to cover your finance payments.

    If you are genuinely considering bankruptcy, you should discuss with an accountant or financial expert who can explain the full implications for you. It is usually a last-resort option.

  40. If we can no longer afford the payments will they not just take the car anyway?

  41. Stuart Masson

    It is likely that the value of the car will not cover the debt owed, as the car will depreciate faster than you are paying it off in the early stages of the agreement and you don’t catch up until the end. For more information, have a read of our article on depreciation.

  42. Hi Stuart… advice would be appreciated! Took out a PCP plan on my car in July 2016 with a 25,000 millage limit each year. Now have a new job with a company car. However, I have exceeded my millage and I am now on 33,000 – do you know where I stand? Ideally I’d be happy to just hand straight back or do you think I would be best to keep it and don’t use it until my millage meets again hopefully once I hit 2 years? Thank you!

  43. Stuart Masson

    Hi Lucy. If you want to settle the PCP now, you will almost certainly have a significant amount of negative equity, which means you will have to pay a fair chunk of money to get rid of your car. If you keep it, you will be paying off smaller chunks every month until your settlement is the same as the car’s value (which won’t be until about the end of the agreement; two years is highly unlikely).

  44. Hi Stuart – great article – I have read all the comments but can’t seem to find an answer to my query. I am never used car finance so it maybe a silly question so bear with me!

    Example:
    I have seen a car that is £38000, I have £6k deposit, the GFV after 4 years is £18000 apr of 10%
    Can i pay off all the 4 years monthly payments by means of deposit & borrowing from my bank at 3% and drive the car fee free for 4 years? The idea being to lower the monthly payments.

    Am i missing something here? Thanks

  45. Stuart Masson

    Hi Kammy. Most finance companies will let you make overpayments – some will charge and some will not. In theory you can do this, assuming the finance company allows overpayments, but check how much it will cost in fees since you will be paying interest and fees on a bank loan – the combination of both may add up to more than you are paying now.

    The other thing to remember is that it may not be that easy to get a bank loan if you have just taken out a PCP for a £38,000 car, so you may have it all worked out and then find that the bank says no – or the interest rate offered is not 3% after all.

  46. Hi
    Thought I’d give a quick update. Ford have now taken the car and there was nothing for us to pay in the end! It appears, to me, that the jargon on the original agreement was to try and scare into not taking this course of action. The figures suggested that we’d have to pay thousands to them as I described above but there was no way of knowing the exact figure without actually phoning them as I did.

    They did give us some apocalyptic warnings about what would be recorded on our file.

    Also, I wouldn’t describe them as unhelpful but it’s fair to say that they obviously tried to dissuade us from handing the car back. They weren’t over enthusiastic about the termination.

    We just had to write a letter. I didn’t use any of the stock ones available just a simple one of my own.

  47. Stuart Masson

    Hi James. Glad it all worked out well for you. As you found, while the finance companies can’t stop you from carrying out a voluntary termination, they usually won’t go out of their way to be helpful about it.

    Your credit file should not be affected, as you are carrying out a perfectly legal termination to your contract. It should not affect your chances of being offered credit from other providers in the future.

  48. Thanks for all the advice – it was very helpful. Regards

  49. HI,I bought a car for the value of R303000.00 and i plan to settle the car in 2 years ,i want to know if im still going to pay all the interest as indicated on the contract of which my interest will be R147000.00 in 72 months and i also want to know if is a good thing to keep a car

  50. I we bought a new car in march this year, but we are thinking of changing to an older 4×4 to tow our caravan and would like to give up the car. Can you just take it back, as they say you can just leave the car and no further finance? Thank you

  51. Stuart Masson

    Hi Shirley. No you can’t. You have to settle what you owe to the finance company, and your debt is almost certainly significantly more than what your car is worth.

  52. Hi, we are in a position to buy an Audi second hand for approx 22K, luckily we have the cash available to just pay for it. We’ve been offered a PCP over 18 months with a 50% deposit (mostly us and a £500 deposit contribution), small final payment (about 2/3 months worth) and a couple of free services thrown in. Is there a possibility to pay the PCP off early after say 6 months, to get the benefit of the deposit contribution and the services, or are we likely to get hit over the head with some sort of early exit fee? Much obliged.

  53. Stuart Masson

    Hi Dave. Yes, if you settle the finance early, you will almost certainly have to pay some kind of early settlement fee. This is usually equal to about a couple of months’ of payment. However, you will save interest on the outstanding finance, as you are not borrowing the money over the whole term. Ultimately, you need to work out whether the costs are more or less than the savings.

  54. Much obliged, pretty much as I thought, will see what they say.

  55. Hi Stuart
    I’m thinking of buying a £46k car for on a PCP for £41k over either 2 or 4 years with a £5k deposit. I will then pay it off in 4 months time when I am due to receive enough money to do so. What will I end up paying? The dealer say they can’t advise me of what that will be.

  56. Stuart Masson

    Hi Mark. The dealer simply plugs numbers into the finance company’s computer programme to tell them how much you will be paying, and the system generally doesn’t allow them to predict early settlements (because the finance company doesn’t want you to settle early).

    Effectively you will only be paying for four months of interest, plus fees.

  57. Very many thanks for your helpful and prompt reply, much appreciated

  58. Hi Stuart
    great site by the way, I’m new to owning a new car but went for the PCP option on a car worth £26,500 , I was probably too quick to do this – as the thing is I can pay this in full so wondered if I should. The total finance cost is over£30k and the settlement figure is £22.4k . It seems a no brainer so have I missed something?

    Thanks

  59. Stuart Masson

    Hi Alex. Your monthly payments to repay the Total Amount Payable (the £30K+ in your case) are based on paying interest over the whole period. However you are wanting to settle the agreement early rather than letting it run its full course. So if you settle six months into a 48-month PCP, you would basically only pay interest on six months (plus an early settlement fee, usually).

  60. Hi Stuart, this is a wonderful site, answered alot of questions I had. Would be grateful if you give me your views on this: I am thinking of buying a brand new mercedes for just over 20k through one of the main sites that give you the best price, recieve your deposit, then introduce you to the dealer. The price is alot better if I pay using Mercedes Benz finance, but I do have the cash in hand. Would it be any issue if I took the finance then payed off the balance + penalty within the first few weeks (or cancelled it altogether within 14 days)? I believe this should generaly be OK, but have you any specific knowledge if this would work with Mercedes Benz finance? I am fine paying a penalty of 1-2 months worth of interest (£300-£400), but is there any chance they could use any fine print and demand a penalty payment of more than this? Appreciated.

  61. Stuart Masson

    Hi Usman. Have a read of our article on deposit contributions. Unless there is anything in your vehicle or finance contract, they can’t stop you from cancelling in the first 14 days without penalty.

  62. Thanks Stuart, this is good to hear and article is most useful. As far as I can tell there is no deposit contribution on my quoted price. But I will double check this before agreeing to any finance.

  63. Hi Stuart

    Quick question as regards early settlement if you don’t mind.

    I have an option to buy a tesla 60d for 70k. As my limited company is new rather than go through traditional tesla pop I have ended up with an offer from Hampshire trust who will match tesla finance 620 a month x 48 months with 35k balloon. There are no mileage restrictions which seems like a good deal. My concern is that the broker has told me that the deal is front end loaded with the interest which I understand but my question and concern is around early settlement – I am paying 16k deposit and if I chose to change the car after sat two years does this mean that I would effectively have to pay 4 years interest back at this point and are they allowed by law and tcf to do this? I would expect a small penalty of a few months but in this example I am ending up out of pocket it seems ? Thanks for advice

  64. Stuart Masson

    If you settle early, the settlement figure should be recalculated to reflect you are no longer borrowing the money over the full period.

    Your interest will be calculated daily. Front-loading means that the finance company calculates the interest on each payment first, followed by the balance – as opposed to a fixed split between balance and interest on every payment. This means you are paying more interest early on in the agreement (and more interest in total). However, if you settle that agreement early, the numbers are recalculated to determine the total interest payable based on the actual period you have borrowed the money (eg – two years instead of four).

    Of course, you need to check all T&Cs carefully and make sure this is what they are doing. If this finance company is offering an HP or PCP or LP, that’s how it should work. If it’s a personal loan or any other form of finance, the above may not apply.

  65. Hi Stuart, what a great site.
    Apologies if you have answered this before. If I order a new car now for delivery in 3 months time, when will I sign the PCP agreement, and when does the 14 days start? Many thanks, Richard

  66. Stuart Masson

    Hi Richard. You should sign the agreement just before your car is ready for collection – no more than 48 hours in advance. The 14-day cooling-off period should only commence once the contract is activated – which means when the finance company pays the dealership (which should be the day or day before you take delivery of your car). This is to stop the dealer or finance company sitting on your signed contract for 15 days before activating it and denying you the right to withdraw.

  67. Hi Stuart. Happy New Year. Bit of a strange question. If I were to change my current PCP car/deal and change it for a new PCP car/deal, I understand that any finance left over from the previous deal gets carried over to the new deal. I believe I get a 14 day period with the new deal, if I took the option to hand the car back and walk away, what happens to the finance? As it’s a new deal, can I just walk away or is the old finance still left to pay?

  68. Stuart Masson

    Hi Paul. If you cancel the finance within the 14-day cooling-off period, it doesn’t cancel the vehicle purchase. It just means that you need to find another way to pay for the car as the finance company will be invoicing you for the amount you borrowed (which will include the negative equity carried over from the old car).

  69. Cheers. I did think as much.

  70. Hi Stuart,

    I’m coming to the end of a 36 month PCP on my (their) Mazda CX5. The car is worth between £16,500 and £18,000 depending on whose valuation site you look at and there is a balloon payment due of around £12,000. I like the car and would like to keep it. Would the finance company consider extending the PCP if I asked them?

  71. Stuart Masson

    Hi Clive. Most finance companies will not allow you to extend a PCP, although they may allow you to take out another finance agreement on the outstanding value (or you can go to a bank and get a loan).

    Be aware that you have already paid interest on the balloon value as part of your monthly PCP payments, so if you take out a new finance agreement on the balloon then you will be paying interest on it all over again.

  72. Hi Stuart,

    I bought an Audi A3 1.6 Sport 5DR in March 2014. When I signed up the contract was 4 years (and agreed 8k miles per year). I was sceptical of mileage but was told, by the salesman, that my options during the contract would be as follows:

    After 3 years you have the following options:

    Hand it back – cost will be £0 to do so. At this point they would check the mileage. If we are within the 8k per year (24k total) then the total cost will be £0. If we are over the mileage then they charge between 10-15p per mile.

    Or

    Trade it in for another car. – Cost will be £0. They do not check mileage for trade ins so wouldn’t matter.

    After 4 years (contract end)you have the following options:

    Hand it back – cost will be £0 to do so. At this point they would check the mileage. If we are within the 8k per year (32k total) then the total cost will be £0. If we are over the mileage then they charge between 10-15p per mile.

    Or

    Trade it in for another car. – Cost will be £0. They do not check mileage for trade ins so wouldn’t matter.

    Or

    Buy the car. At this point they would say you can buy the car for 6838.00 (The trade in value). You can either give them the cash to cover remainder of the contract or sell the car privately and then pay clear the finance (If you had run up a million miles one the car by year 4 and didn’t want to take another contract then this is what we would do).

    However, today I enquired about trading in after the 3 year mark and was told that I would need to pay for excess mileage. Upon complaining they indicated that the salesman had misinformed me on mileage. I would never have agreed to such low mileage else.

    I looked on webuyanycar also and it indicates that my car is worth £7210.00 currently. I find it hard to believe that in March 2018 (when due to return) that it will be worth the £6838.00 they want me to pay for it. What happens in this situation if I simply wanted to hand back and get a trade in?

    Any suggestions on what is the best way to get out this contract for year 3 or year 4?

  73. Should also mention car was bought for £14,043.00

  74. Stuart Masson

    Hi Barrie. If you have a PCP and that is what you were advised for settling early, then it’s wrong. You can’t simply give the car back to the finance company before the end of the agreement unless you are voluntary terminating the contract – and the issue of excess mileage is disputed.

    If you are part-exchanging the car, it is simply a matter of what the dealer is prepared to pay you for your current car and what your settlement figure is to pay off the finance company (and mileage is irrelevant). You will only know whether this works in your favour by getting a dealer to value your car and getting the latest settlement figure from the finance company (it will change every month, and it’s not linear).

    Next time around, never agree to a lower mileage than you know you will need, regardless of what the salesman says.

  75. Thank you. Have you ever heard of a situation where the car value is less than the price to buy at end of PCP? If the car is currently worth 7k then it is likely to be massively lower of the £6838 agreed on contract in 14 months time. It looks like I am stuck to pay excess mileage as I doubt the car company are likely to give me a price of 6838 or better at the end, are they?

  76. **It looks like I am stuck to pay excess mileage as I doubt the car company are likely to give me a price of 6838 or better at the end, for a trade in, are they?

  77. **It looks like I am stuck to pay excess mileage as I doubt the car company are likely to give me a price of 6838 or better at the end, for a trade in, are they?

  78. Stuart Masson

    Yes, these days cars are worth less than the GMFV most of the time, even without excess mileage.

  79. Hi helpful site! I am wondering if you can offer me some advise on my current situation…

    I have a fiat 500 on pcp since May 2014. The total amount payable plus interest and other costs is £13134.

    So far I have paid £4046 (deposit+fiat privelige discount) and 31 monthly payments of £93.45 making the total amount I have paid to date £6942.95

    £13134 (total amount payable)-£6942.95 (total amount paid)= £6191

    I have therefore paid back more than 50%

    The final payment is £5818.00 due after the next 5 monthly payments.

    I no longer need the car and am wanting to hand it back to the finance company. Am I in a position where I can voluntary terminate my pcp?

    I look forward to your response. Thanks

  80. Stuart Masson

    Hi Lana. Yes, based on those numbers you should be able to voluntarily terminate the agreement.

  81. Hi
    I have a 3 year pcp with Jct600 can i hand my car back in with out any payments? I have had the car for 15months

  82. Stuart Masson

    Hi Michaela. It’s unlikely; have a read of our article about voluntary termination for more details.

  83. Hi Stuart,
    Sorry to pester you although you seem like an expert. If i wait until the end of my 4 year PCP and completely pay it off, does that mean that i have the £8,000 (price of the car – £12,000 after Interest) to spend on another car. Or do i need to sell the company back the car at whatever price the car is worth after the 4 years? They also sold me something about depreciation insurance? I’m not sure if this stops the price of the car falling but I though’t i’d get your input.

    Thanks.

  84. Stuart Masson

    Hi Dale. At the end of the PCP agreement, you are unlikely to get anything back. If your car is worth more than the GMFV (balloon), you can sell it or part-exchange the car, but you will only get to keep whatever the car is worth over and above the GMFV. For more information, have a read of our article about how a PCP works.

    The ‘depreciation insurance’ is GAP insurance. It is only activated if the car is stolen or written off, so that you should end up being paid the original value of the car rather than whatever it is worth when it is stolen/written off. Have a read of our article about GAP insurance.

  85. Hi Stuart

    Thanks for the great site! Please could you give me some advice?

    I’m 18 months into my PCP with Mazda / Santander on a Mazda 6 (manual), 15 plate. I’m paying £339 a month. I originally committed to do 6,000 miles per year. A year ago I changed jobs and have found myself commuting further. In the 18 months I’ve done 20,000 miles. Due to the different commute with much more heavy traffic, my knee is causing me pain & I’d like to look at changing the car and getting an automatic. I’m extremely happy with the car and I was originally intending to save for the balloon payment to pay it off at the end of the contract (until my knee pain started).

    Do you think that I would be able to arrange a swap and pay the excess millage charges? From what i’ve been reading, I think I’d have to pay negative equity and then be subject to higher monthly payments based on my current millage.

    Any help or clarification would be great.

    Kind Regards
    James Gibbard

  86. Stuart Masson

    Hi James. You can’t swap your car for another one under the same finance agreement. You would need to settle the existing agreement and start a new agreement on another car. You’re probably correct that you would be in negative equity after only 18 months and with much higher mileage than originally agreed.

    And yes, for the same car with a higher mileage, you would pay more per month as the GMFV/balloon amount is less. If you are getting a more expensive car (automatics are usually £1-2,000 more than equivalent manuals), your payments will be higher again.

  87. Hi,

    Just wanted to ask, if i pay the final payment on my car of £4000, but have excess millage. Will they still charge me for the millage?

    Thanks for your help.

  88. Stuart Masson

    Hi Tom. If you make the final GMFV/balloon payment, the car becomes yours and the mileage is irrelevant. They will only charge you for excess mileage if you are giving the car back to the finance company at the end of the agreement.

  89. Hi Stuart, I’m so glad I have found this site. We have just ordered a new car from Skoda and the salesman wants us to use credit in order to get 2000 pounds off the price. We would rather pay cash but we like the idea of the reduced price, so if I understand this correctly from 2014 comments, we can take out the PCP and cancel within 2 weeks and just pay the loan immediately with no penalties. Is my understanding correct? Thank you.

  90. Stuart Masson

    Hi Elizabeth. As long as there are no clauses in the contract, you should be able to do this. For more information about this, have a read of our article about deposit contributions.

  91. Hi Stuart, sorry if this has been answered before. If I plan to take out PCP to take advantages of incentives but plan to cancel within 14 days and pay in full, are there any problems doing this if the finance is provided by the manufacturer themselves rather than a third party (e.g. a bank)?

  92. Hi Stuart, I’d be very grateful for your advice on my situation. I purchased a Merc Cla on PCP yesterday but I’m having second thoughts now on the financing. The total price for the car is 24591 pounds, I paid 1591 in cash, 7000 was taken off as deposit and the amount borrowed is 16000 pounds for 48 months with a balloon payment of 9685 pounds at the end of the term.The total charge for credit is 8883 pounds with total amount to pay of 33474pounds. I am planning to take this car abroad in 10 month’s time so I have to settle the finance before I go (or it would be stealing!). I don’t have enough funds currently to settle it now but would be able to settle it in 10 months with no issue. I have to buy the car now due to legal import laws for the country I am exporting the car. Would it cost me signficantly to continue with the PCP, as I paid in a significant deposit and will be paying monthly of 316 pounds? I am concerned with how much interest I have to pay (I find the figures confusing) and the rate of early settlement.A ny advice is much appreciated. Thank you.

  93. Hi,
    My daughter entered into a shared car loan (pcp I think) with her (now ex) boyfriend. The agreement is in her name as he has been bankrupt in the past and said he could’t get finance. He was, however, paying half of the expenses. The relationship has broken down and now my daughter is stuck with a lot of debt that she is struggling to repay. I was wondering if the loan company would allow me to buy the car outright and then we could sell it privately? She is only two months into a four year agreement.
    Thanks.

  94. Stuart Masson

    Hi Alex. It only applies to manufacturer finance – a bank is not going to give you a deposit contribution to buy a particular car.

  95. Stuart Masson

    Hi Izzie. If you settle the finance in ten months’ time, you will only pay interest for those ten months, plus an early settlement fee (which is usually equivalent two about two months’ interest).

  96. Stuart Masson

    Hi Sophie. There is generally no such thing as a shared PCP. What has most likely happened is that your daughter has a PCP in her name, but her boyfriend was informally paying half of the monthly bill. In legal terms, he has no responsibilities.

    Yes, you can give her the money to settle the PCP now and then you can do whatever you like with the car. Bear in mind that the settlement figure will be considerably more than the car will be worth, so you are likely to take a fair loss on it.

  97. Hi stuart ive ordered a toyota AYGO X PRESS i paid deposit £3.128.50 to get 42 monthly payments at £99 it is the first time i’ve use pcp. he quickly talked about extras gap. smart policy.toyota protect i ended up with 2 invoices .1 for £2.000 car deposit and 1for extras £1.128.50.when all i want is the £3.128.50 to be taken of the car .the delivery date is said to be 20th of March i am retired.all i want is the car ..i would be grateful for any advice thanks..JILL

  98. Stuart Masson

    Hi Jill. Car dealers will always try to sell you GAP insurance and other assorted extras because they make an enormous profit margin on them. They are not remotely interested in your wishes or best interests.

    You are perfectly within your rights to advise the dealer that you do not want these extras, and that you would like them removed from the contract (do this in writing, email is fine). They will probably fight hard to keep them in there, because they get a handsome commission on them, but that’s not your problem.

  99. Hi Jason

    We are 15 months into a 36 month PCP agreement for a c4 Cactus. Cash price for the car was 18350, we are paying 259 a month and we initially put down an advance payment of 3250. They added interest at the beginning of 1676 and I forgot VAT which added another 3k so according to the paperwork the total amount payable was 20k. We were looking at the price of the car now and it only reckons about 8k even though it only has 17k (Depreciation is annoying!)… i checked the termination and it states 50% which is 10k but even after paying all of it for three years we still wouldnt have paid over half to give it back… is this correct and if so it would cost more to terminate than just letting in sit on your driveway doing nothing than give it back? (Might be missing something very obvious here so apologies!)

    Cheers

    TJ

  100. Stuart Masson

    Hi TJ. You need to include your deposit in your calculations. If your total amount payable is £20,000 and your initial payment was £3,250, then you have £16,750 left. Your VT point is £10,000, so you have to pay off £6,750 to VT the car. This is just over 26 months at £259/month, which seems about right for a three-year PCP.

    *Updated answer* Check your contract to see what your total amount payable and VT point are. The finance contract may show the total amount payable as £16,750 (so deposit not included). In that case, your VT point would be £8,375, which you would hit after 32 months.

What are your thoughts? Let us know below.

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