Can I Change My Car on PCP Early?

Personal contract purchase (PCP) finance deals are designed to provide you with the most value after a full term, but that’s not to say you’re locked into them until the end. There is plenty of opportunity for you to change your car on a PCP agreement early, whether that be because you’ve had a change of circumstances or found a better deal. From understanding settlement fees to knowing how to save money, find out below how to change your car on PCP early.

How to Change Your Car on PCP Early

The two ways in which you can change your car during a PCP term are:

1. Pay a settlement fee to end the PCP deal.
2. Pay 50% of the financing costs and return your car.

Both methods will be outlined below.

These methods end your PCP deal and allow you to move on to your next PCP car deal or simply walk away. Ending a PCP agreement early may appear on your credit records, but your credit score will unlikely be affected. It’s only when you stop paying your monthly repayments on a PCP contract that your credit score may be harmed since you fall into arrears. Voluntary termination of a PCP contract is the safest option when considering these other outcomes.

Changing PCP Car Early by Paying Settlement Fee

In this method, you can contact your PCP finance dealer and pay the settlement fee. The settlement fee is essentially the remaining financing costs, and the calculation for this is described in the following section. The process of this method is straightforward, where you:

1. Contact your finance provider.
2. Ask for the settlement fee.
3. Pay the settlement fee (via your own money, your car's value, or both)
4. Begin a new PCP car contract.

Although the method is straightforward, whether it will be priced affordably will depend on your circumstances. The value of your car at the time of changing your PCP car will dramatically affect how much you will need to pay. The difference between the value of your car and the debt you owe is called ‘equity’. The equity of your PCP car will change as it goes through its contract, which is why you should always value your car first to see whether it is in positive or negative equity.

Positive equity is when your car’s value is higher than the settlement figure, in which case you can use the excess value as a deposit towards your next PCP car. Negative equity is when the value of your car is less than the settlement figure, so you'll need to pay extra (to cover the remaining debt) to change PCP cars early. Ideally, try to change when your car is in neutral or positive equity, where you will at least pay minimal costs.

Typically, cars move into positive equity in the later stages of a PCP agreement (i.e., the final year). This is usually because the settlement figure will be lower since you’ve made more repayments.

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How is the PCP Settlement Figure Calculated?

The settlement figure quoted to you is essentially the cost to pay off the remaining value of the car that you still owe. This is based on factors such as the total loan amount, the length of your contract, and how much you’ve paid off. The figure quoted includes fees, interest, and the end ‘balloon payment’. If you would like to know how to minimise the cost of your settlement figure, check out our Best Deals section below.

Your finance provider will break down all the costs of your specific settlement figure and will work out the monthly payments of a new PCP car; based on your current car’s value, the make of the new car, estimated mileage, etc. Depending on your circumstances, even if you’re in negative equity on your current car, you can add the remaining settlement fee debt onto your new finance agreement for a new car by increasing your monthly repayment costs.

Changing PCP Early by Paying 50% of the Finance Costs

The second way in which you can change your car on PCP early is via the Consumer Credit Act of 1974. This act gives you the right to terminate a PCP deal if you’ve paid at least 50% of the total finance costs. This includes fees, interest, and balloon payment. However, this implies 50% of the monetary value of the deal, so you can’t simply wait until halfway through the contract. Since the balloon payment covers around a third of the total finance, the remaining costs to reach 50% are largely dependent on your initial deposit. Larger deposits cover more of the finance, which means you can reach 50% and end sooner.

Upon paying 50% of the finance, you simply hand the car back, the contract terminates, and you’re ready for your next deal. Because you are handing the car back, you won’t have the opportunity to use it to contribute to financing a new car – this method is more abrupt. You should also keep in mind that if you’ve already paid more than 50% of the finance and decide to change PCP early, there’s no guarantee that you’ll be refunded the excess beyond 50%. Additionally, even if you haven’t paid 50% of the finance yet, you can still end the agreement early if you pay a sum to reach that 50% threshold.

When’s the Best Time to Swap a Car on PCP?

At the start of the PCP contract, a car's value will fall and depreciate the fastest. The fixed monthly payments on the PCP contract will not be able to cover the fallen value of a car during this initial period, so there will usually be negative equity initially. As you begin to make more repayments throughout the contract, the car's value begins to rise, and the depreciation occurs at a slower rate.

Coming to the later stages of a PCP contract, the fixed monthly repayments begin to accumulate so that the settlement fee becomes smaller and smaller. The value of the car begins to rise and will reach neutral or positive equity toward the end of the contract. This is called a ‘break-even point’, where the value of the car matches the remaining debt that you owe. This can be a perfect time to end your PCP contract early because the total repayments you’ve made will have covered the value that the car has lost over the contract.

These monthly payments are with interest, so you may see the car in positive equity sooner than you might think. It’s also important to note that you must stick to the agreed mileage limit and cause no damage to your PCP vehicle beyond regular wear and tear for you to get the most value from changing PCP early.

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Best Way to Change Your PCP Car Early for the Best Deal

We’ve covered a few ways to make the most of changing a PCP early, such as waiting until the end of your agreement to pay the settlement figure since the car’s depreciation will have slowed and you can commonly find yourself in positive equity. This can allow your next car to be paid for at a reduced price. It’s also recognised that switching to a more affordable model on a new PCP contract will reduce your monthly payments, but you should consider how this will be affected if you’re coming from negative equity.

While you can’t negotiate the settlement fee quoted to you, there are a few things you can do to ensure it is minimised beforehand.

• Look for used and nearly new cars. These cars will have already passed the peak of depreciation, especially at the end of your contract. Nearly new cars around 2/3 years old are a good balance between new and slowly depreciating.
• Look for cars around 8 years old. These cars are in a great place for finance deals since the depreciation has slowed and you will typically find excellent deals if you don’t mind missing out on new features/engines.
• Prioritise cars that have a slow depreciation. Cars with efficient engines, newer models, or that are on long waiting lists typically will remain relevant (and depreciate slower) longer).  
• Maintain your car to ensure a good value quotation. Stick to a servicing routine to ensure it retains maximum value.
• Don’t overdrive your car beyond the mileage limit. Excessive mileage can massively affect a car's value since there is more wear and tear. A lower value means more repayment of the settlement fee.

Why Change Your PCP Agreement Early?

If you aren’t sure about changing your PCP car early, check out some common reasons why people do below to help you decide. Changing is more common than you think and can sometimes be the best course of action for certain circumstances.

You need a more suitable car. A lot can happen over a 3–4-year PCP contract. Some people enter parenthood and may require a bigger carto accommodate the lifestyle change. Some people move to a city and may need to change to a more urban-centric vehicle. Some people may even find work elsewhere but need a more economical car for those longer commutes.

You’ve found a better deal. New finance deals occur frequently, and if one tempts you more than your current agreement then changing may be viable. You might even find that your current deal is not sustainable due to unforeseen circumstances, and you have no choice but to change to a more affordable car. Keep an eye out for our latest offers here to stay in the loop for your next best deal.

You want a newer car. The cars unveiled around us are showing off an increasingly impressive array of features that are more than tempting to some. Whether you’ve seen an exclusive offer on the latest model, or you can’t take your eyes off a new car on the streets, changing your PCP deal early might be your best option to get what you want. Just remember that newer cars typically cost more, so you’d need to account for the increase in monthly payments on a flashy new car.

Ending HP Car Finance Early

HP financing is slightly different to PCP in that your monthly payments are contributing to the total cost of the car, with interest. At the beginning of the HP agreement, an initial deposit of around 10% of the total cost is paid, and then at the end of the HP contract (after the agreed monthly payments) you own the car.

To end an HP agreement early, you must repay 50% of the total finance before doing so, although, unlike a PCP agreement, you may find this 50% is reached halfway through the contract. Again, even if you haven’t reached 50% of the paid finance and would like to voluntarily terminate the deal, you will simply need to pay the remaining balance to reach this threshold.

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