Understand the equity in a car on PCP

A question about : Understand the equity in a car on PCP

I'm looking into buying a new (nearly) on finance, via PCP.

After the 4 year term is up, there is one part I'm currently unsure of even after Googling and speaking with the dealer.

They are telling me one option is to use the car as equity to have another car after the term (48 months) is up. The GMV they are stating based on my milage is Ј12,000.

I currently have my own car, but I'm looking to part-ex it which makes up the bulk of my deposit. The thing I don't understand though, is after the term is up, I give them the car back and start a new PCP deal. But I give them the car back to make up the Ј12,000 - meaning I have no deposit.

The dealer however, seemed to think differently saying I could use the cars equity to re-new a deal.

Can someone explain how that would even work?

TLDR: How can a car give me equity for a new PCP deal, when I'm giving it back to cover the remaining PCP balance?

Best answers:

• You have a fixed price you can buy the car for, Ј12,000 in your case.
  In 4 years time the car may be worth Ј15,000 though rather than Ј12,000 and so effectively you have Ј3,000 equity in it as the dealer would pay off the Ј12,000 for you and use the Ј3,000 as a deposit towards the next vehicle.
  Now if something happens and the bottom drops out of the market your car could only be worth Ј9,000 in which case there is no equity and so unless you have particular emotional connection to the vehicle you'd be best just handing it back rather than paying Ј12k for a Ј9k car.
• The equity would come from the difference between the trade in value and the GMFV.
  If they've given a conservative future value and your vehicle is worth more then you're quids in.
  However if in the next few years someone releases a range of Ј10k premium cars that run on air and water then your car will be worth next to nothing, so hand it back with no equity in it.
  ^I wasn't quick enough^
• Right that does make sense!
  I said to the dealer I don't do more than 10k miles per year, to which he said "we'll base it on 7k miles per year". This confused me, since if I go over this and want to re-new a PCP deal then I won't have any equity.
  Cheers for clearing that up... can't work out whether to do this or not, 11% APR means half the year I'd be paying back interest... blergh.
• Look into leases, you may find it's cheaper.
• You could buy Ј250 worth of Premium Bonds every month and on month 48 you could finish paying for the car and keep it, unless your numbers have come up!!!!
• You could say you want a 20k miles per year PCP. You garanteed future value would be lower, and your mothly payment would hence be higher, but you would save on interest because of more of your payment will be going towards paying the capital. Then come trade in time, if you stick to 7k a year, you will have much more equity saved up for your next car.