22 December 2017 at 11:48 am #125689
So I have just spoken to Mercedes and have been left very surprised!!
I am almost 2 years through a 4 year agreement with Mercedes Finance and thought I would enquire what my rights are to VT, as I want to reduce monthly payments. Having VT’d a few times I always thought that by 2 years through a 4 year deal I would be close to hitting the 50% mark in order to do it.
So I was told that the 50% marker for VT in 50% of the total amount borrowed, which is fine as I would expect that. Problem being I am only able to cover half that amount with my payments it seems. I had thought that they use the residual of the car after 2 years (or half the 4 year residual) to settle the rest of the amount owed to VT. No came back the answer from Mercedes!! So in order to hit the VT 50% I estimate that I will actually need to pay the monthly for c43 months out of the 48…..
My question is, is this right? Why are they not using the value of the car now towards the VT??
I am really bemused by this as I had assumed all VT’s did this.
Thanks in advance to anyone who can help.
23 December 2017 at 4:21 pm #125766
Hi James. Voluntary termination is available if you have paid off (or are happy to pay off whatever you need to get to) 50% of the Total Amount Payable – which is not the same as the total amount borrowed. The total amount payable is the cost of the car plus interest and fees associated with the finance agreement.
If you have a PCP, which by the sound of things you do, then you need to factor in the balloon value at the end of the agreement (since you are borrowing this amount but never paying it off if you give the car back or part-exchange it).
Your monthly payments do not make any dent in your balloon payment, and you are effectively only covering the car’s depreciation (plus interest and fees). That’s why it takes so long to repay 50% of the total amount payable. 43 months to reach the VT point sounds fairly normal for a 48-month PCP, and probably suggests you put in a reasonably small deposit.
If you had a regular hire purchase (HP) agreement, where you pay off the whole borrowing with no balloon, then the VT point is about halfway through the agreement.
For more information, have a read of our guide to voluntary termination.