Personal contract purchase (PCP) is a popular car finance option that is generally taken on monthly payment plans of 36 to 48 months. Over that time, circumstances can change and the car might be too expensive, too small, not very economical or you might just change your mind.
If it no longer fits the bill, the car can be part exchanged during or at the end of the PCP contract. Most car dealers will happily accept a PCP car for part-exchange and handle the outstanding finance costs. The car does not need to be part-exchanged with the original dealer.
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How does it work?
When you buy a car using a PCP finance agreement – regardless of whether it’s a new or used car – you are entering a three-way agreement:
- You buy the car from the dealership
- The finance company pays the dealership for the car
- You repay the finance company over a period of (usually) three to four years
So although the dealer is supplying the car and arranges the loan from the finance company on your behalf, they have no responsibility for your finance agreement once you drive out the door. From then on, your relationship is directly with the finance company.
That means that when it comes to changing your car, there’s no obligation whatsoever to go back to the same dealership. You need to settle your finance agreement with the finance company, but you can do that yourself or any other car dealership can help you part-exchange your current car and settle your PCP.
Some people choose to go back to the same dealership anyway because it’s convenient for them, but many other people return to the same dealership because they incorrectly believe that they have to. And it’s entirely possible that the dealer may have helped with that little misunderstanding…
So any car dealer can settle my PCP car finance?
Yes, although they’re not doing this because they’re kind-hearted souls who are just trying to help – they need to be able to do it so they can sell you your next car.
At the end of a PCP contract (or at any point in the agreement, if you want to change your car before the contract finishes), the finance company requires payment of whatever is still owed. This will include the ‘balloon’ final payment, but could be significantly more if you’re settling early. Once that’s cleared, you own the vehicle in clear title.
However, the balloon is usually several thousands of pounds and most people don’t have that sort of money readily available. As a result, around 80% of PCP customers will part-exchange the vehicle and start again with another new car.
If you’re part-exchanging the car at a dealership, the dealer is buying your vehicle and agreing to pay out your outstanding finance. To do this, the dealer will value the vehicle and you need to provide the exact settlement figure for the outstanding finance, so they can work out whether the car is worth more or less than what is still owed.
Usually, the finance manager or salesperson will call the finance company while you’re there, so you can speak to them and get the precise figure and due date. The finance company will also then provide this in writing (email) to the dealership.
Again, any dealership can do this. So you can part-exchange a BMW at an Audi dealership, a Ford at a Vauxhall dealership or a Mercedes-Benz at a Mazda dealership. Or, you can part-exchange a car from one BMW dealership at any other BMW dealership. Or a car from one Audi dealer at ano… OK, you get the idea.
Check your dates
When a finance company provides you with a settlement figure, that number will normally be valid for 30 days. That’s because you repay your finance monthly, so next month the settlement figure will have changed. So it’s very important that the settlement is paid off before the expiry date listed on your settlement.
You need to make sure you are handing the car over to the dealer at least a few days before the finance settlement is due, so that it can be paid on time. If you leave it too late, you run the risk that the dealer won’t have processed the balloon payment before it falls due.
If the dealer doesn’t pay off the balloon before it’s due, the finance company will automatically try to take the money from your account by direct debit – and since you probably won’t have enough in there to pay them, it will cause a default. Even if you do have enough money available, you don’t really want the finance company taking it from you if you’ve already sold the car to a dealer and they’re supposed to be paying it.
When should you consider part-exchanging a PCP car?
If you’re wanting to change cars, part-exchanging your car at the dealership where you’re buying your next car is certainly convenient. One dealership to sort out your current finance agreement, take your old car off your hands and set you up with a new car, and new finance agreement, is generally the easiest option.
If the car is worth more than whatever you still owe the finance company, part-exchanging would be a good option to consider as you can use whatever’s left over (called equity) towards your next car. If you’re looking to get another PCP contract, this can help to keep your monthly costs down as it’s less money you have to borrow.
Part-exchanging may be a better option than simply handing the car back to the finance company. Mileage, service and condition charges could be high if the car has done excess mileage over the agreed figure or if the vehicle has damage. Part-exchanging could be the most cost effective solution if the vehicle does not meet the requirements to hand it back to the finance company without incurring additional costs.
When is this option not ideal?
If the car is worth less than whatever you still owe, part-exchanging could cost you money. Instead of trading in the car and handing the dealer extra cash for a new vehicle, it might be better to hand the car back to the finance company.