Audi A1 Sportback - Return car on a PCP plan - paul45

Hi - my question is in relation to my nephew who purchased an Audi S1 back in October on a PCP.

He's a bit of workaholic (strange for a 19 year old) and has saved more than 15% for a house deposit, but, because he has a car on PCP, all the mortgage companies he's tried have said no. Their reasons are all the same, you cannot have the extra burden of debt whilst you still have a car on PCP.

This is not about affordability, he can afford both the car and the mortgage, but the rule based decisioning rejects him. The Audi dealer has already stated that he cannot return the car - which seems slightly strange, given he's only done 2500 miles since October, and the car is in perfect condition. He uses his previous (fully paid for) car to drive to work etc.

So, has anyone had experience of returning cars on PCP, and what are the pitfalls etc., I haven't read his contract at this stage, so I cannot be sure what the T&C's state, and he's OK in terms of wanting to give it back as he's set his heart on buying his first property.

Any experience / Advice / help gladly received.

Thanks

Audi A1 Sportback - Return car on a PCP plan - daveyjp
He can return the car on payment of the finance settlement figure.
Audi A1 Sportback - Return car on a PCP plan - RobJP
He can return the car on payment of the finance settlement figure.

As said.

Basically, he phones up the finance company (NOT the local dealer, nothing to do with them), and obtains a settlement figure.

If that figure is acceptable to him, he then pays that sum and arranges for the car to be collected.

However, he's likely to be in heavy negative equity, this early into a finance deal. Make sure he's sitting down when they give him the numbers !

Audi A1 Sportback - Return car on a PCP plan - Leif

However, he's likely to be in heavy negative equity, this early into a finance deal. Make sure he's sitting down when they give him the numbers !

Presumably by that you mean that the car is worth much less than the sum he has paid? Looking on the bright side, if he pays off the PCP early, he will pay little in the way of interest, so will pay close to the dealer car price. I would have thought his best bet would be to keep the car, and carry on saving, given his young age, or sell the car and take a large hit. If he is renting accomodation, then the second option might be cheaper in the long run, since the savings in rent might be greater than the loss from selling the car.

He is young to buy a house. And young to buy such a posh car!

Audi A1 Sportback - Return car on a PCP plan - TheGentlemanThug

I would have thought his best bet would be to keep the car, and carry on saving

That's what I'd suggest he does. Settling a PCP this early on will cost a small fortune.

Not to teach him how to suck eggs, but has he considered whether or not he can still afford to run the car whilst paying a mortgage and other bills? I hate to think how much his insurance is!

Audi A1 Sportback - Return car on a PCP plan - RobJP

However, he's likely to be in heavy negative equity, this early into a finance deal. Make sure he's sitting down when they give him the numbers !

Presumably by that you mean that the car is worth much less than the sum he has paid? Looking on the bright side, if he pays off the PCP early, he will pay little in the way of interest, so will pay close to the dealer car price. I would have thought his best bet would be to keep the car, and carry on saving, given his young age, or sell the car and take a large hit. If he is renting accomodation, then the second option might be cheaper in the long run, since the savings in rent might be greater than the loss from selling the car.

He is young to buy a house. And young to buy such a posh car!

A PCP works by averaging out the depreciation over 2, 3, or 4 years. In reality, the depreciation is usually worst in year one, not so bad in year 2, and a lot more gentle in years 3 and 4.

Here's a completely fictional example - that ignores interest rates, etc.

The depreciation on a car is expected to be £10k over 4 years. Broken down into individual years, it'd be £5k in year 1, £2.5k in year 2, £1.5k in year 3, then £1k in year 4.

If you take out a 4 year PCP, then you will basically pay that £10k over 48 payments - so the payments would be £208 per month.

One year in, you decide you don't want the car any more. You've paid £2496 (12*208), but the car has actually depreciated by £5k. So you are in negative equity to the tune of £2504. You'll have to pay that figure - basically the next 12 monthly payments, in a lump sum, and hand the car back to get out of the deal.

Audi A1 Sportback - Return car on a PCP plan - leaseman

Hi Paul45.

Please totally ignore the previous posts. A PCP Agreement is not, as such, defined in law, so responses are speculative.

It will probably be a Hire Purchase or Conditional Sale agreement, both of which are defined in law, but without reading it (and you need to before taking any more interest in this Forum) no-one can possibly advise you.

In all probability, the debtor will need to establish the exact settlement figure to clear the debt and establish what is the trade value of the car on a cash purchase basis. The difference will be his liability in discharging the debt and move forward with his mortgage application. But that is pure speculation on my part.

Get hold of the Agreement, read it carefully to see what the underlying legal agreement specifies and then, by all means, revert with the fiull information and I'm sure we can assist.

Audi A1 Sportback - Return car on a PCP plan - colinh

One of the big problems is the commission that would have been paid to the dealer for selling the finance package - in addition to the normal charges of interest, etc., this will have to be covered in a settlement figure - this can be a fairly high figure

Audi A1 Sportback - Return car on a PCP plan - Leif

One of the big problems is the commission that would have been paid to the dealer for selling the finance package - in addition to the normal charges of interest, etc., this will have to be covered in a settlement figure - this can be a fairly high figure

That was not the case with my PCP. Evidently it will depend on the contract.

Audi A1 Sportback - Return car on a PCP plan - Manatee

One of the big problems is the commission that would have been paid to the dealer for selling the finance package - in addition to the normal charges of interest, etc., this will have to be covered in a settlement figure - this can be a fairly high figure

Early settlement calculations on regulated credit agreements (which it most likely is) follow rules that do not take account of any commissions paid. The lender will either take the hit or, according to whatever agreement governs the relationship with the introducer, claw back some of the commission.

Audi A1 Sportback - Return car on a PCP plan - Leif

However, he's likely to be in heavy negative equity, this early into a finance deal. Make sure he's sitting down when they give him the numbers !

Presumably by that you mean that the car is worth much less than the sum he has paid? Looking on the bright side, if he pays off the PCP early, he will pay little in the way of interest, so will pay close to the dealer car price. I would have thought his best bet would be to keep the car, and carry on saving, given his young age, or sell the car and take a large hit. If he is renting accomodation, then the second option might be cheaper in the long run, since the savings in rent might be greater than the loss from selling the car.

He is young to buy a house. And young to buy such a posh car!

A PCP works by averaging out the depreciation over 2, 3, or 4 years. In reality, the depreciation is usually worst in year one, not so bad in year 2, and a lot more gentle in years 3 and 4.

Here's a completely fictional example - that ignores interest rates, etc.

The depreciation on a car is expected to be £10k over 4 years. Broken down into individual years, it'd be £5k in year 1, £2.5k in year 2, £1.5k in year 3, then £1k in year 4.

If you take out a 4 year PCP, then you will basically pay that £10k over 48 payments - so the payments would be £208 per month.

One year in, you decide you don't want the car any more. You've paid £2496 (12*208), but the car has actually depreciated by £5k. So you are in negative equity to the tune of £2504. You'll have to pay that figure - basically the next 12 monthly payments, in a lump sum, and hand the car back to get out of the deal.

You make it sound incredibly complex. No doubt contracts vary, but my VW PCP was quite simple. They lent me a sum of money, which I paid back in regular fixed payments each month over three years. I also paid monthly interest on the amount outstanding. Obviously these interest payments would get less as the outstanding debt was paid off. At any time I could end the agreement by simply paying the outstanding debt, and any outstanding interest. In practice I simply withdrew from the agreement ASAP, which required me to pay the amount outstanding, and a few pounds interest. I was able to keep the discount on the car given for taking out the PCP. As I said though, contracts do vary, and your description may well apply to the PCP taken out by the OP. He needs to read his paperwork.

Audi A1 Sportback - Return car on a PCP plan - Oli rag

I thought the explanation by RobJP was very good.

Would be surprised if the basic need to pay off the depreciation in a new car varied much from contract to contract.His logic seems to make common sense to me.

Edited by Oli rag on 18/07/2018 at 20:06

Audi A1 Sportback - Return car on a PCP plan - Leif

I thought the explanation by RobJP was very good.

Would be surprised if the basic need to pay off the depreciation in a new car varied much from contract to contract.His logic seems to make common sense to me.

I couldn’t understand it then realised his description was the same as mine when he said “If you take out a 4 year PCP, then you will basically pay that £10k over 48 payments - so the payments would be £208 per month.” As he said, he ignored interest, but the short summary is clear. All you are doing is paying off a loan and interest. Mine was complete repayment after three years, but I believe there are versions that only pay off a proportion of the value, the remainder being paid off as a balloon payment at the end, or the car is given back to the lender.

Audi A1 Sportback - Return car on a PCP plan - Avant

Leaseman, in your post above you are too hard on the posts previous to yours.

I know you're in this business, and of course what you say is correct: to give professional advice you'd need to see the actual contract.. But RobJP in particular is giving an example from the type of PCP that most of us know, and I'm sure is similar to that of the OP's nephew.

I'd also agree that at 19 it would do no harm for him to carry on renting a house or flat, until the PCP is finished: he can then either hand the car back or pay the balloon payment out of the money he'll have been saving - and then get his mortgage.

Audi A1 Sportback - Return car on a PCP plan - paul45

Leaseman, in your post above you are too hard on the posts previous to yours.

I know you're in this business, and of course what you say is correct: to give professional advice you'd need to see the actual contract.. But RobJP in particular is giving an example from the type of PCP that most of us know, and I'm sure is similar to that of the OP's nephew.

I'd also agree that at 19 it would do no harm for him to carry on renting a house or flat, until the PCP is finished: he can then either hand the car back or pay the balloon payment out of the money he'll have been saving - and then get his mortgage.

Thanks all for the responses so far - my nephew was away at the weekend, so I did not get the chance to look at his contract, so I have made no progress since my original post.

He lives (virtually rent free) with his mum and dad, so outgoings are not a real problem, and he has 3 jobs too, so like I said he is a grafter.

Carrrying on paying for the car is one option, but I'll look at the contract and read the specifics of the deal, to see what other options he has.

I assume if he defaulted, (which he won't do), then they would make arrangements to reposess the car anyway.

More later....

Audi A1 Sportback - Return car on a PCP plan - BMW Enthusiast

Hi - my question is in relation to my nephew who purchased an Audi S1 back in October on a PCP.

He's a bit of workaholic (strange for a 19 year old) and has saved more than 15% for a house deposit, but, because he has a car on PCP, all the mortgage companies he's tried have said no. Their reasons are all the same, you cannot have the extra burden of debt whilst you still have a car on PCP.

This is not about affordability, he can afford both the car and the mortgage, but the rule based decisioning rejects him. The Audi dealer has already stated that he cannot return the car - which seems slightly strange, given he's only done 2500 miles since October, and the car is in perfect condition. He uses his previous (fully paid for) car to drive to work etc.

So, has anyone had experience of returning cars on PCP, and what are the pitfalls etc., I haven't read his contract at this stage, so I cannot be sure what the T&C's state, and he's OK in terms of wanting to give it back as he's set his heart on buying his first property.

Any experience / Advice / help gladly received.

Thanks

I'm not trying to be rude here but I think that the mortgage companies are right. He really should've got his priorities right and purchased the house first. He already has a car for travelling to and from work in and at 19 years old he's very fortunate to have that. He might be able to afford the Audi and the mortgage but nobody knows what the future holds for him. He might not always be in such well paid employment for example. The running costs of the Audi will be very expensive for a 19 year old plus the other car as well will put a hole in his salary. Lenders take all this into consideration. The last recession was caused by exactly what he wants to do. Good luck to him anyway but getting out of PCP isn't cheap.

 

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