Can I change my PCP car early? The equity test, and the three exits

Ending PCP early: the three exits, priced

1. Settle early, which is a statutory right. Section 94 of the Consumer Credit Act 1974 gives you the right to complete payments ahead of time at any point in the agreement. Ask the lender for a settlement figure: it rebates future interest and may add a limited charge, so it is less than the sum of your remaining payments but more than the simple outstanding balance. Once it is paid the agreement ends and the car is yours to sell.
2. Change the car, which is settling with extra steps. A dealer offering to get you into a new car early is proposing to settle the old agreement out of the trade value of your car and roll any shortfall into the new one. That is entirely legitimate and it is not a gift: if the settlement figure exceeds the trade value, the difference is being financed again on top of the next car. Ask for the settlement figure, the trade valuation and the new total amount payable in writing, and compare those three numbers rather than the monthly payment.
3. Voluntary termination, once half is paid. Section 99 lets you terminate a regulated hire purchase or PCP agreement and hand the car back. Section 100 caps your liability at one half of the total amount payable, so if you have already paid at least half you owe nothing further beyond arrears and any damage beyond fair wear and tear. It is a right rather than a request, and the lender cannot refuse it, though it will assess the car's condition on return.
4. Whether a year or two in is too early depends on equity. There is no minimum period before you can change. After twelve months a PCP is usually in negative equity, because depreciation outruns the early payments, and changing then means carrying that gap into the next agreement. By the third year of a typical PCP the car is often worth more than the balloon and the equity becomes the deposit on the next one. The date on the calendar is not the test; the gap between the settlement figure and the trade value is.

Common questions

Can I change my PCP car after 2 years, or after 1?

Yes, at any time. Whether it is sensible depends on whether the settlement figure is above or below the car's trade value, because any shortfall is financed again.

Can you pay car finance off early without a penalty?

Section 94 gives the right to settle at any time. Future interest is rebated and a limited early settlement charge may be added, but there is no penalty in the sense of a punishment.

Can I end a PCP early and walk away?

Voluntary termination under s.99 lets you hand the car back, with liability capped at one half of the total amount payable by s.100. Below that half you must make up the difference.

Changing PCP after 1 year: does the lender have to agree?

Not for early settlement or voluntary termination, both of which are statutory rights. A dealer changing your car early is a commercial arrangement and nobody is obliged to offer it.

How do I get a settlement figure?

Ask the lender named on the agreement. It must provide one, it is valid for a stated number of days, and it is the only figure that clears the agreement.

Upgrading car while on finance: what is the dealer actually doing?

Settling the old agreement out of the trade value of your car and rolling any shortfall into the new one. That is entirely legitimate and it is not a gift: where the settlement figure exceeds the trade value, the difference is being financed again on top of the next car. Ask for the settlement figure, the trade valuation and the new total amount payable as three separate lines, because one bundled monthly figure hides which of them moved.

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