predicted that owners of cars between one and three years old could
see their vehicles’ values tumble at an accelerated rate this year,
as a result of the government’s decision to change VED rates (click
here for more details), with the credit crunch playing a
significant role as well.
Glass’s Guide forecast that cars within this age range could see
their value fall by 25 per cent in 2008, rather than the 19 per
cent which might normally be expected.
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An article in the Sunday Times on June 10 stated that,
as a consequence, “thousands of drivers who buy their cars using
finance deals such as personal contract purchase (PCP) could find
they are saddled with debt worth more than their car,” as the
minimum guaranteed future values (MGFV), set when the PCP agreement
was taken out, could end up being higher than the actual value of
the car after three years.
The article warned: “Cars are increasingly worth less than the
future value given at the time of the purchase so customers have to
either relinquish the car or end up paying a final payment that is
more than the value of the car.”
However, broker Graham Hill, of GHA Finance, has questioned
whether PCP customers will, in fact, lose out due to
lower-than-anticipated MGFV figures.
“[This] misses the point of PCP,” he said. “The ones in danger
are those that have taken out a personal lease purchase whereby the
balloon payment isn’t optional, the customer has to make the final
payment and could be several thousands of pounds out of pocket. As
far as PCP users are concerned negative equity is not a
problem.
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By GlobalData“Dealers often sell PCP on the basis that there will be some
equity in the car at the end of the agreement which they can use as
a deposit on the next car, but that is a bonus – if there is
negative equity the client simply hands the car back and passes
over the loss to the funder,” Hill said.
He pointed out that carbuyers who had used other forms of
finance – such as outright purchase or hire purchase – were in a
far worse position than PCP customers, as they had to absorb the
reduced residual value themselves, without the option of passing
the vehicle back to a funder.
Hill called the article “misleading” and concluded: “No wonder
punters are confused.”
Motor Finance Issue: 44 – June 08
Published for the web: June 13 08 16:50
