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.
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.
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.
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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.