Thousands of drivers who bought cars on hire purchase face 'negative equity'

[expat]

That's how it works AFAIK. Ex bird bought a new car like this some years ago. If the car is worth less than they guaranteed it would be worth, you just give it back and buy a similar car for cheap...

That's right. Which means that having got the car on this contract (rather than outright purchase with or without credit) is not a problem, but a lucky escape.

[Moscow Mule]

Don't you just give the car back at the end of the PCP agreement if you don't want it? Aside from the monthly payments there shouldn't be anything else to repay.

That's how it works AFAIK. Ex bird bought a new car like this some years ago. If the car is worth less than they guaranteed it would be worth, you just give it back and buy a similar car for cheap...

[swamp]

The article seems to confuse Hire Purchase (HP) and Personal Contract Plan (PCP), but they are quite different. You can't be in negative equity on a PCP because you can hand your (now worthless) car back to the finance company. It's just a lease agreement with an option to buy at the end.

Many people will be thanking their lucky stars they used a PCP to buy their flash motor. The finance arms of big companies like BMW and the lease companies are the ones who will suffer.

[BrilloPad]

"As a result more second hand cars are being put onto the the market, forcing their price down even further."

but dont all those who handed them in needto buy a car?

[ratewhore]

Another non-story. Either give the car back and get another one or pay off the balloon and keep the car.

Big deal - next!!

[MPwannadecentincome]

Don't you just give the car back at the end of the PCP agreement if you don't want it? Aside from the monthly payments there shouldn't be anything else to repay.

Dunno - I've always bought cars for cash!

[DiscoStu]

I bought Wilmslow's focus. It has appreciated 10% in the last month.

Cybertory.

If you'd have parked it in your garage in CyberToryShire it'd have appreciated 20%.

[oracleslave]

I bought Wilmslow's focus. It has appreciated 10% in the last month.

Cybertory.

[DiscoStu]

Well the good news is that if they replace the car the new one will be significantly cheaper.

Only problem for the motorist is cashflow - the old loan has to be paid off and a deposit is needed for the new one.

Don't you just give the car back at the end of the PCP agreement if you don't want it? Aside from the monthly payments there shouldn't be anything else to repay.

[MPwannadecentincome]

Well the good news is that if they replace the car the new one will be significantly cheaper.

Only problem for the motorist is cashflow - the old loan has to be paid off and a deposit is needed for the new one.

[DiscoStu]

Surely they can just give them back and let the finance company take the hit then?

I don't understand why this would be a problem for the motorist?

[BrilloPad]

http://www.telegraph.co.uk/motoring/...ve-equity.html

Drivers who bought prestige models have been worst hit because the nose dive in second-hand prices means they owe significantly more than the cars are worth.

According to Auto Express, the shortfall for drivers across the country has now reached £272 million.

Buying a car is often a family's biggest financial transaction apart from home purchase.

Thousands of motorists try to spread the bill through a system known as Personal Contract Purchase.

This entails putting a deposit down and then paying monthly instalments for two or three years, before having the option to buy the car outright.

The final payment – known as a balloon payment – is based on what the car is expected to be worth at the end of the contract.

But the collapse of the second hand market has meant that the amount demanded by finance companies is often far more than the car is actually worth.

According to CAP, one industry analyst, in December 2006 the "predicted value" of a Volvo XC90 D5 S two years later was £18,775.

But this car is now estimated as being worth £12,600 – leaving the motorist with a choice between paying £6,175 more than the car is worth or handing it back to the finance house.

The Finance and Leasing Association, the trade body representing finance houses which handle the business, admitted that thousands of drivers were returning the cars rather than pay more than they were worth.

As a result more second hand cars are being put onto the the market, forcing their price down even further.

"This is hitting people wanting to get high aspiration vehicles at an affordable price will have been hit by the crash in value," said an AA spokesman.

"They should be approaching the finance house as well as the dealer to see what the options are.

"These could be very expensive cars and the losses could be crippling because of the change in the financial world."