Investigation

By David Wrottesly

30th December 2008

NOSE-diving car prices mean thousands of UK motorists are being plunged into negative equity on their vehicle loans, Auto Express has discovered.

And the shortfall adds up to a huge £272million!

The problem affects buyers who opted for PCP finance – which totalled £2.13billion in 2006. These deals typically involve making a series of monthly instalments, then one final balloon payment after two years, to secure ownership of the car.

This is known as the Minimum Guaranteed Future Value (MGFV) – which is
predicted in advance, and based on what the vehicle will be worth at the end of the deal.

But the slump in the market means these estimates are now way off the mark.

As a result, motorists who took out PCP finance deals two years ago are left with final payments which are much bigger than their vehicle’s actual value.

The Finance and Leasing Association said that it was important that drivers remembered that car values could end up higher or lower than the MGFV... But that as buyers had the option of simply handing back their keys, the risk was with the dealer, rather than the buyer.

However AA president Edmund King said: “This is shocking news. Many people will suffer.”
He added that the negative equity would have a knock-on effect for new buyers. “Those who’ve had their fingers burned won’t have any incentive to buy another for a new car,” he said.