Car finance: the early upgrade myth

Had a call from the car dealer with the "good news" that you can have an early upgrade on your PCP? It may be better news for the dealer than for you...

If you have had a car on a PCP finance agreement for a few years, you may have received a phone call from the dealership with the “good news” that you are eligible to change your car several months before your contract runs out. Wow, an early upgrade – good news indeed, right? Well, possibly but not necessarily.

Let’s say you are two years through a three-year PCP.  One day, the dealer calls you out of the blue with the fantastic news that you are one of a lucky group of customers who have been selected to receive a special early upgrade offer (actual script may vary, but it’s more or less the same thing).

Why exactly do you think you have been chosen for this amazing opportunity? Unfortunately, it’s because it suits the dealer, not because they think it suits you.

Sorry, it’s not because you’re special

The simple reason for offering you an early upgrade is that the dealer or finance company is trying to get you back into the showroom to sell you another car. By calling you up with the promise of a fantastic offer on an early upgrade of some sort, they are setting out the terms of the negotiation (which are always designed to suit them, not you) rather than waiting for you to decide you’re ready for a new car and what you might like.

Dealers love to be in control of the negotiation – their whole process is based around controlling the customer. What they are trying to achieve here is to come up with an offer that sounds appealing enough to entice you in, before you’ve really started to look around at your options.

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So how does it work?

The early upgrade spiel usually follows the same sort of script: it targets existing customers who are in the last third of their PCP agreement and therefore will be looking to change their car over the next year; it is a finance offer that usually works out slightly more expensive than what you are paying now; and the offer is always limited to a specific car or choice of cars.

Targeting existing customers
   

As I said earlier, the exact script will vary depending on circumstances.  You may have been ‘chosen’ because you’re ‘a loyal customer’, or maybe because you’ve had a problem with your current car and the manufacturer has ‘approved a special offer to make up for the inconvenience’, or maybe ‘we have a shortage of used car stock right now, and the boss is prepared to pay more for your part-exchange’.

The actual excuse for calling you is irrelevant; all they want is to get you into the showroom to take a shot at selling you another car.

The new offer is never cheaper than the old one

Again, the excuse for this will vary, but you are unlikely to be offered a new deal that sees you paying less than your current car. It’s always about the same or slightly more.

Why is this so?  Because they know that if you’re happy enough with your current car and ready to consider another one, you’ll probably shell out a few more quid per month to upgrade. And since the whole thing is being pitched as an ‘early upgrade’, of course it will cost more. You expect to pay a bit more for an upgrade, don’t you?

So straight away, you’re receptive to the idea of paying more than you do now, which is the exact opposite of what most people want when looking at car finance offers.

It’s only on certain cars

The early upgrade offer is never as simple as a nice discount on anything in the range. It’s always a specific finance offer on certain specific vehicles, as decided by the dealer or manufacturer, not by you.

Why is this so? Because these cars are inevitably ones that they really need to get rid of right now – they may be old models, or just very unpopular at the moment, or maybe someone made a typo when ordering stock from the factory, and the dealer ended up with 22 green cars instead of two. Regardless, the dealer presents you with a small selection of cars with some fantastic-looking offers, rather than asking you what sort of car you would like.

Getting an early upgrade on your PCP car finance might not be a good idea

How good are these early upgrade offers?

The carrot being dangled in front of you will vary according to whatever the dealer wants to offer you, and often there isn’t any special saving over and above their normal offers – it’s simply dressed up to sound special (even at their so-called “VIP events”).

Whether any deal is a good one depends on whether what’s being offered suits your needs. If you’re not that keen on your current car and the offer happens to be a good deal on just the sort of car you’re looking for, then it may be a good opportunity. But if you are simply changing a perfectly satisfactory car for a newer version, it’s probably not in your best interests – regardless of how the dealer spins it.

PCP agreements are designed to work over a set period of time. You pay a deposit up front, and your monthly payments are worked out to meet up with your vehicle’s depreciation at the end of the agreement.

If you want to change the car before the agreement is up, you not only have to find another deposit earlier than planned, but also potentially have to clear any negative equity, meaning you won’t be able to carry over any value into your next car.

The early upgrade offer being presented might go some way to helping with that, but it’s still a deficit that needs to be paid for, so it effectively means paying more on your next car.

There will always be another opportunity

When calling you up to pitch their early upgrade offer, the dealer is simply trying to get you into the showroom, and they are hoping that that they can work out a “great deal” for you once you’re in their lair. If the numbers simply don’t add up, it gives them an excuse to stay in touch over the next few months to try again when the numbers might work out better.

What you need to keep in mind at all times is the overall cost of any offer, not just the cashflow aspect. Having to come up with another large deposit, or pushing the term out for another year longer, might make an early upgrade a very expensive exercise.

Remember that they are making you this offer for their benefit, not yours. If it also happens to work well for you, then great. But always be mindful of what you are wanting to achieve, rather than accepting what a dealer tells you.

Disclaimer

Most car finance agreements in the UK are regulated by the Financial Conduct Authority, and anyone involved in the selling of car finance must be accredited by the FCA.  You should always consider the terms and conditions of any agreement carefully before taking out any form of car finance, as you are making a substantial ongoing commitment and there may be significant costs if you change your mind or are unable to meet your commitments at a later date.

This article was originally published in October 2015. Last updated November 2019.

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Stuart Masson
Stuart Massonhttps://www.thecarexpert.co.uk/
Stuart is the Editorial Director of our suite of sites: The Car Expert, The Van Expert and The Truck Expert. Originally from Australia, Stuart has had a passion for cars and the automotive 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.

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40 COMMENTS

  1. We have had three Citroen DS3s in a row on PCP, having an early upgrade every 2 years (same spec car and same monthly payments). However I am now getting a bit bored and want to change car. Will a different dealership (i.e Audi) be willing/able to pay off the reminder of our Citroen PCP after 2/3rd of the term as always have? I commute 2 hours a day with no public transport options so I’m a bit worried about how we would co-ordinate changing over cars without having any period of either having to pay finance payments on both or being without a car – seeing as cars rarely seem to be delivered anywhere near the date they’re expected anyway!

    • Hi Kate. With any dealership (Citroën or otherwise), it comes down to how much you owe on the car and how much it is worth. It is quite likely that Citroën has been subsidising your early upgrades (via money from the manufacturer and/or finance company and/or dealer) to get you in another DS3 and keep you on board. If your car is worth less than your current finance settlement, either another dealership would have to cover that (rather than giving you a discount on the new car, they cover your negative equity) or you would have to cough up the cash. Ultimately it would come down to how generous their profit margins are and how much they want your business.

      Most likely, you are better off waiting until the end of the agreement to change, if your only reason for changing is that you are bored. Boredom usually turns out to be very expensive…

  2. Hi Stuart I have a quick question . I am planning to change my car which is on PCP with Audi with other brand. Is it possible to do ? like buying any new car on same PCP/PCH from other dealer even though my current Car has another 2 years on the contract ?

    Can you give me some idea or solution around this please.

    • Hi Kumar. Yes, you can get your next car from any brand and dealership. The next dealer will settle the finance on your current car if you are part-exchanging it. However, if you still have two years to go on your current PCP then you will probably have significant negative equity on your finance agreement.

  3. Hi Stuart
    I’ve been offered a deal from my current car dealership to upgrade about 8 months early. Apparently I am in small amount of negative equity. I’ve been going slightly over my mileage allowance.
    Is it better to wait until the end of my current finance deal? Am I likely to be in more or less negative equity by then? Any advice would be appreciated.
    Many thanks.

    • Hi Francesca. If the numbers work out well for you to change the car now, then it’s worth considering. Bear in mind that you will presumably need to come up with another deposit to change the car, so it’s never as attractive as it sounds.
      There will always be another dealer later on, so despite with the sales executive tells you, this is unlikely to be the deal of a lifetime. Dealers offer early upgrades to suit their needs, not yours.

  4. Hi Stuart
    My PCP is due to end in October this year, I have had calls from the garage about trading in etc but its always for a newer model, I cannot pay the balloon payment so I would need a car, can I get an older model or does having PCP mean I have to upgrade to a new car, I have had mixed opinions on it and I cant find any information anywhere
    Thanks

    • Hi Kayla. When your current agreement ends, you will be expected to pay the balloon, unless you either give the car back to the finance company or part-exchange it on a different car.

      If you part-exchange it and decide to take another PCP, you can get a new or used car from any brand you like. You don’t have to take another new car, you don’t have to stay with the same brand and you don’t have to go back to the same dealer. You can take out a PCP on a cheaper car with lower payments than you had last time if you want to save some money.

      Dealers are very good at trying to lead you down the path that suits them, but it’s entirely up to you to decide how to spend your money.

  5. Hello Stuart,
    I am currently coming up to the last year of my 3 year pcp, Can the contract be ended and is it a final payment needed if this can be done?

    • Hi Darrell. Yes, you can settle your PCP at any time. You will have a settlement figure to pay off and then the car is yours to do with as you wish. If you prefer to part-exchange it for another car, the dealer where you buy your next car would settle the finance as part of the deal and you will either have equity (yay, money towards your next car) or negative equity (boo, you have to pay off the difference).

  6. Hi Stuart,

    I took out a 48 month PCP in December 2016, which means I’m currently 8 months into my 48 month agreement.
    However, I’ve found that the car was definitely not what I imagined it would be, I’m not exactly bored of it, but I have seen another model which would be much more suitable.

    I currently pay £189 p/m, and have £10,500 remaining on my plan. The car I’m interested in is valued at £21,000. The garage selling the car have offered me £9200 for my current car, which I would obviously put towards my loan, but in your opinion would that be a good route to go down if I can agree a finance deal with the new dealer?

    Thanks!

    • Hi James. If you’ve been offered £9,200 and your current settlement is £10,500, then you will have to pay £1,300 just to get rid of your current car so you can start again from scratch. That’s before you start worrying about a deposit for your next car. And of course, you won’t get back any deposit you put in up-front on this car.

      If the dealer offers to finance your negative equity by adding it to the loan for the new car, you are heading down a dangerous path. If you get bored again in eight months’ time, you will have a much larger negative equity problem than you do now.

  7. Hi Stuart, I went into my Ford dealership with an issue with my car I have had for 11months I have ended up walking out signing for a new one.
    I am now confused what happens do they add on what is left to pay for my old car on to the new car finance price? Or is it they just pay that off and it’s a fresh start. The option I took was £10 more pm for a newer model I wasn’t keen on the colour I chose last time but now am confused what happens with old finance and now new.
    Basically, i wasn’t expecting to swap and I just thought £10pm more doesn’t seem a bad deal haha.

    • Hi Lindsay. Your contract should spell out how the money is directed, or the dealership should be able to explain it if you contact the business manager.

      If your old car is on a secured finance agreement (like a PCP or HP), the dealer should have taken that into account when working out their calculations. If it was an unsecured loan (like a personal loan), it won’t have shown up on their vehicle search and the new contract won’t make any allowance for it.

      Assuming that the dealer has included your current finance position into the calculations, they will settle the outstanding amount as part of the sales process when you part-exchange your current car.

  8. Hi Stuart. I am now into my last 6mnths of my PCP plan it’s looking that my final balloon payment will be more than the cars value. Can I just return the car to he dealer or do I have to pay the difference.

  9. Hi Stuart,
    I bought a car on PCH from Stoneacre. I am 2.5 years into the contact and my negative equity is still very high. I want to get out of the contract, I am unhappy with the car and it doesn’t suit my needs anymore, I was told I could VT it and I tried to do this but now I’m being told I can not. I feel as though I was misold, I have contacted Stoneacre and the finance company and they just brush me off. I don’t know what to do. Should I increase the monthly payments?
    Thanks Grace

    • Hi Grace. If you have a PCH (personal contract hire), then you don’t have VT rights. PCH is leasing, so it’s a simple rental. If you want to end the agreement early, you will liable for whatever your contract says.

  10. Hi Stuart, PCP question – If I put a larger deposit on a new car (say £2,000 instead of £1,000) will that make any difference to my Guaranteed Future Value (assuming that all other factors like interest and number of months stay static)?

    It’s never really clear if putting down an extra £1,000 deposit actually equates to £1,000 less on the monthly payments.

    Many thanks

    • Hi James. No, the GFV is based on the car’s predicted value at the end of the term. If you pay more up front, you pay less per month but you’re still getting to the same end point (the GFV).

      You should pay less overall if you put in a higher deposit, because you are borrowing less money and therefore paying less interest. Of course, this assumes that the interest rate does not change.

  11. Just been to the FIAT dealer. He offered me a good deal on PCP on an eighteen-month-old car. And said I can take it out over four years to keep the payments down and then change to another car in two years’ time with no financial penalty.
    Seems too good to be true.
    Whats the catch?

    • Hi Kevin. It almost certainly is too good to be true.

      After two years of a four-year PCP, you will almost certainly have significant negative equity that will mean your finance settlement is much more than your car’s value. So you would therefore have a large financial penalty.

  12. Hi Stuart,

    Just stumbled across your website – as I have always been an HP customer, rather than PCP.

    While I had my reservation about PCP – with mileage limit, you don’t own the car until you settle etc, but i have asked myself a question ‘why do i need to own a car?’ – when i will be looking to changer after 3-5year.

    So, my questions in order to remove any concern about PCP are:

    1) If the car valuation is worth more than the GMFV, which means i have equity, and i turn down the option to pay the balloon payment, but wants to take the equity to buy a new car, can i ask the dealer to give me the cash equity and i can decide to spend it as i like OR the dealership will only hand the cash to the next dealership i’m buying car from?

    2) I know the Block Exemption Regulation allows cars to be services from independent garages as long as they comply with manufacturer rules – so it ensures warranty isn’t invalidated

    Does this apply to ‘car servicing’ as well on a PCP deal?

    3) Would you say PCP is the way to go?

    • Hi Ola. I’ll start with 3) first. We can’t tell you whether PCP is the way to go or not, as we are not financial advisors. All we can do is explain how the various finance products work, point out the pros and cons and give you all the information you need to make an informed decision based on your circumstances.

      You can ask a dealer to buy your car without you buying another vehicle, but they won’t be particularly interested unless they feel they’re getting your car for a fantastic price so they can make a nice profit from selling it on. As a rule, the important bit for the dealership is selling you another car, not buying your current one. However, fewer and fewer cars end up with significant equity at the end of a PCP agreement these days, so it’s probably a moot point.

      The Block Exemption rules apply to warranty, but the manufacturers tend to use PCPs to dodge that. With a PCP, the finance company (usually owned by the manufacturer) can insist that you service the car with their authorised dealerships if you want to give the car back and claim the GFV at the end of the agreement. Note that this only applies if you are claiming the GFV – if you plan to pay off the balloon and keep the car, it doesn’t matter.

      For more information, have a read of our article explaining your options at the end of a PCP.

  13. I have 12 months left on my Dacia and I’m thinking about an upgrade but unsure how to go about it, can I go to any dealer? Do I have to speak to my car finance company first? And what happens next.

    • Hi Shelley. You can go anywhere you like for your next car. You will have a settlement amount on your current finance agreement (£X), and your Dacia will be worth £Y. If £X is greater than £Y (so you owe more than your car is worth), you will need to pay any difference to the finance company as part of your part-exchange process. If £Y is greater than £X (your car is worth more than what you owe), then that extra (which is called equity) can but put towards your new car.

      For more information, have a read of our article about settling your car finance early.

  14. If I know what I can afford to pay each month, and I know the deposit I have, is there a way I can figure out what sort of car values I can look at for my next car? Is there a rule that can help me here? If I had a cash amount I’d know what I could buy, but with PCP, I have no idea!

    • Hi Alex. You’re right, it is difficult to work out what you can or can’t afford.

      Because the PCP payments are determined by both the starting price of the car and the balloon value at the end of the agreement, it’s impossible to have a general rule that works across different cars.

  15. So glad I found your helpful article, Stuart. I’ve just been called out of the blue by Ford to offer me an upgrade this week-end on my Ford Focus, having just completed two years of the three year PCP period. My current account balance is £15k, having put down a £4K cash deposit. The caller told me I’d be paying £27 a month less than my current £285. Sounds too good to be true, especially as I don’t want to fork out another deposit at this stage. Reading your clear exposition punctures any ridiculous feeling that I might be “special”! Edward.

    • Hi Edward. They may have an offer that suits you, especially if it’s on another Focus because that model is now in run-out mode with an all-new model due to be launched later this year. But you need to properly assess whether it suits you rather than simply suiting the dealer!

  16. Hi there.. I have a motorbike on pcp. When my 4 year deal ends. I would like to keep the bike. Instead of paying lump sum am I able to take the bike out on finance to pay the rest of the balance?

    • Hi Gerald. Yes, you can borrow money from a bank to pay off the balloon amount on your PCP. The bike’s finance company may allow you to refinance the balloon, but this isn’t common anymore.

  17. Hi Stuart,

    I took out a 3 Year PCP on an Audi S3 in August 2017…I love my car, can afford the payments fine but have had some body work damage. This damage has happened on 5 seperate occasions (only 1 of which was actually me!) since I have taken the PCP (1 year 4 months).

    I feel that myself and the car is cursed…Insurance rocketed to over £2000 in August..where I have only just paid it off…now some extra bodywork damage from someone else which happened yesterday is proving to be expensive…

    I’m getting to the point now where I’m really struggeling to pay for these extra unforseen circumstances…I don’t know what to do…contiunue forking out for repairs and insurance, where I am really struggeling, or alternativly cutting my loses for the past year and seeking a new (less expensive) car.

    Sorry for the long story,

    James

    • Hi James. We can’t advise you to go one way or the other. All we can do is help you understand what the implications of each option will be so you can make an informed decision that meets your financial needs.

  18. Hi Stuart
    My PCP is coming to an end after four years I will be wanting to trade it in for a new one hopefully, could you tell me whether I would need to put another deposit down? or can I just exchange for around the same price range.
    Caroline

  19. Hi Stuart
    My PCH is coming to an end this October, unfortunately the vehicle is currently impractical for my daily life now. Is it possible to upgrade my current vehicle for another vehicle within the same car manufacturer? My vehicle is currently an MX-5 and I ideally would like to upgrade to CX-3 or CX-5, so still staying within the Mazda group.
    Many Thanks
    James

    • Hi James. PCH is usually expensive to get out of ahead of the end date, so you’ll need to speak to the finance company about what you’d owe. With PCH, you don’t own the car and have basically signed a contract to rent it for x months. If it’s the same finance company, they may be happy to negotiate an acceptable deal if you are taking another car.

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