HP Voluntary Termination & Car Residual

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Hi,
So I have just spoken to Mercedes and have been left very surprised!!
I am almost 2 years through a 4 year agreement with Mercedes Finance and thought I would enquire what my rights are to VT, as I want to reduce monthly payments. Having VT’d a few times I always thought that by 2 years through a 4 year deal I would be close to hitting the 50% payment of total loan in order to do it.
So I was told the 50% marker for VT, which is what I had expected.

The problem is that Mercedes are not taking account of any of the car residual in their calculation. As such my payments to date only cover half of the VT settlement amount. I had thought that they use the residual of the car after 2 years (or half the 4 year residual) to settle the rest of the amount owed to VT. No came back the answer from Mercedes!! So in order to hit the VT 50% I estimate that I will actually need to pay the monthly for c43 months out of the 48…..
My question is, is this right? Why are they not using the value of the car now towards the VT??

I have VT's a number of cars and not hit this issue before.
I am really bemused by this as I had assumed all VT’s did this.
Thanks in advance to anyone who can help.
James

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Re: HP Voluntary Termination & Car Residual

There are various forms of hire purchase agreements, it sounds like your agreement is a Personal Contract Plan where you are merely paying off the depreciation value only whereas under true HP agreements you pay off the total value of the car too. This is probably why you have previously been able to VT halfway through the contract.

There may be a work around but require you to issue court proceedings yourself. The relevant provision is under section 100(3) of the CCA which basically says that if the court is satisfied that a sum less than 50% of the total amount payable under the contract meets the creditor's loss then they will award that sum.

In simple terms, the loss to Mercedes would be the total amount payable under the contract and if the car's residual value plus what you've paid to date makes up a large proportion of the total amount payable then a court may award you the difference instead of meeting the 50% total amount payable. To give you an example:

Total Amount Payable = £20,000 over 48 months (monthly installments are £300)
24 x 250 = £7,200
Average value of car if sold = £10,300
Loss to creditor under agreement = £2,500

Compare with having to VT and pay 50%:

Total Amount Payable = £20,000 over 48 months (monthly installments are £300)
24 x 250 = £7,200
Average value of car if sold = £10,300
Amount to meet 50% = £2,800
Creditor profits = £300

Although a simple example, that's effectively what section 100(3) of the CCA allows you to argue. The creditor's real loss will be the difference in value had the contract been performed but as with cars, they do depreciate depending on their brand so you might have to get some quotes and valuations done either free online and/or dealerships too. You are better off having all of the facts and information available to you before embarking down this route, otherwise you are held to 50% of the total amount payable

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Re: HP Voluntary Termination & Car Residual

Thanks Rob, very useful. Can I check, if I issue court proceedings along this route, would I be elected to pay court costs if Mercedes come out in favour?

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Re: HP Voluntary Termination & Car Residual

Honestly, I am not sure having never used this point before. I would be inclined to say yes you are liable because from the top of my head you would have to make an application to the court for a declaration of some sort, and that wouldn't limit your costs as it won't fall within the small claims track.

Having said that, unless you are able to argue for example, under section 140A of the CCA relating to unfair relationship (section 140B sets out what the court can award, see 140B(c) about reducing or discharging the debt) and attaching the real loss value as part of the claim. A court might then bring it within the small claims track but I would probably err on the side of caution.

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Re: HP Voluntary Termination & Car Residual

Thank you. So basically if I can prove that the price of may car plus the payments I have paid stand to make them a large profit over and above the 50% VT fee I may stand a chance of getting a ruling in my favour. I was thinking over documenting this to Mercedes Finance and outlining the sections you have given to me. Also the contract states HP and not PCP, but that may be a cleaver trick of theirs.

One last point was that I suggested tot he dealership that I would likely VT after 2 years and they said yes you can do that. So perhaps mis-selling issues also.

Really appreciate your help, hope you have a great Christmas

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Re: HP Voluntary Termination & Car Residual

Yes thats right, the easiest way to obtain that sort of evidence is by getting a couple of online valuations e.g. Whatcar, Parkers etc. maybe getting a couple of dealerships like Mercedes or equivlanet to also give a value and see if they are prepared to put that in writing on letterhead paper or by email. Armed with that information you can go back to Mercedes and cite the relevant provision.

Arguing something like this is probably not going to do much with someone at customer service on the other end, but you may be able to put in a formal complaint and see if the FOS will take it up, so you don't have to think about going to court but if they don't assist or favour Mercedes then bar paying them 50% you would have to hash it out in court.

As for the mis-selling, well that's a moot point because strictly speaking you can VT at 2 years, but you will need to meet the 50% difference. So unless you have a witness or other evidence to corroborate your story and confirm that you both had the understanding that you can VT at 50% and not pay anything more at the 2 year mark, then I think that argument will fall flat.