According to figures from motorway.co.uk, around 80% of new cars on the road have been bought via a PCP (Personal Contract Purchase) deal, while 80% of these people end up returning the car and taking out another PCP agreement.
PCP agreements require you to make repayments for a car based on its depreciation over the term of your deal, plus interest. Because interest is already factored into car lease payments, it’s often better value to lease a brand-new car for a few years. This way you’ll be paying for your use of the car, as opposed to borrowing the value of the car, minus your deposit.
Want to find out how to switch from PCP to car leasing in three simple steps, and what benefits you can get from this? Discover this and more in our handy guide.
Want a new car but tied down by your current financed vehicle? Our Car Change Calculator is the simple way to find the best solution to settle your finances and drive away in a brand-new car!
Technically speaking, you can end your PCP agreement the minute you’ve paid 50% of your total outstanding finance on the car. But don’t think that this means you can return the car after getting halfway through your agreement; it also includes the final balloon payment too, plus any interest and fees that may apply.
If you want to cancel your PCP deal early, the car must also be in good condition (i.e. no considerable damage on the vehicle that could be constituted as being more than ‘fair wear and tear’).
Not in a position to end your contract early? Don’t worry! At the end of a PCP deal you can hand the car back and walk away once you’ve made all your monthly repayments and settled any additional mileage/damage charges (if they apply).
Already paid the balloon payment on your car and own it? Moneyshake offers a simple solution where you can sell your current model and lease a brand-new vehicle – in the same day!
Once you no longer have any overheads for your old PCP model, you can start to search for a lease car that’s within your budget and is on a term that fits your requirements.
With car leasing, your monthly payments will be determined by how much initial rental you put down, the mileage you do each year and the length of your contract. Remember that advertised prices are likely to be for the cheapest available terms (i.e. 48-month contract, 8,000 miles per year and nine months’ deposit), so be sure to choose your preferred term to get a good indication of what you’ll be paying each month.
After you’ve found a car that you like and can afford each month, the next part is easy. All you need to do is submit an enquiry to the leasing provider, who will then contact you at a time you specify to confirm the vehicle spec and pricing.
The provider will then ‘broker’ the deal for you (i.e. contact the funder whose car it is and deal with all the paperwork involved), so all you need to do is fill out the finance application. Don’t worry, this is a very straightforward credit check to prove to the funder that you can afford the monthly payments.
You’ll often hear back from the funder and leasing provider within 24 hours of submitting your finance application, confirming approval or rejecting finance if you have bad credit or an unfavourable credit report (e.g. County Court Judgements, Individual Voluntary Agreements, bankruptcy etc.)
At this point – subject to the credit check being approved – you’ll be given an expected delivery date for your new car, along with all the finance details of your agreement.
Negative equity refers to a situation in PCP car finance agreements whereby the loan amount outstanding on the vehicle is more than what it’s worth.
This is more common than you might think, as unexpected changes in the market or problems arising from your use of the car can mean that it’s no longer worth the GMFV set out at the beginning of the agreement.
If you’re not sure how much outstanding finance there is on the car versus its value, you can contact your lender to get this information. Alternatively, there are plenty of online calculators you can use which value your car when you input details (including the make and model, registration year and number of miles on the odometer).
When finding out this information from your lender, make sure that you differentiate between loan payoff amount and current loan balance. The payoff amount should be a more accurate representation of how much money you owe on the car because it will include any interest owed up until the point you intend to pay off your loan.
There are two options available to you if you want to switch from a PCP deal to car leasing, but you’re in negative equity on your current motor. These are:
This option is one you should take if you’re in a rush to get in a new car and want a quick way out.
The good news is that you won’t need to pay the final optional balloon payment if you decide that you want to settle the negative equity so that you can lease a car. This amount is only payable if you want to own the car outright, so the dealership who sold you the car will cover this.
You’ll be responsible for covering any outstanding monthly repayments on the loan, plus the interest.
Delaying the return of your PCP car will give you enough time to do one of two things:
Remember to speak to your lender or the dealership that supplied you with the car about whether you can delay trading it in.
Want a new car but tied down by your current financed vehicle? Our Car Change Calculator is the simple way to find the best solution to settle your finances and drive away in a brand-new car!
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