18 months ago I signed up to a Personal Contract Hire (aka PCP) car finance deal in the UK. I've financed several vehicles in the past and, although I know it's not the most cost-effective thing, I've been happy to do it, and just rolled the agreements onto new vehicles as desired.
My circumstances have recently changed - not financially, but I commute to work on foot and basically don't use the car often, though I do still need a car for social reasons. It no longer feels worth what I pay to have it.
Here's where it gets tricky though. Given that I do still need a vehicle, I can't figure out whether I'm best off keeping my current car until the finance term ends (another 2.5 years), then handing it back, or trying to get rid of it sooner.
I'll go into the figures as they obviously matter hugely. Starting with the fact that I owe approximately £2.5k more to the finance company than the car is currently worth (i.e. negative equity). So right now I would have to pay this lump sum to get rid of it AND then spend some amount on a replacement.
In terms of on-going costs, the finance payment is £385 per month. I earn over £3k per month net, and my total outgoings (including the car) don't exceed £1.5k so it's not a huge financial burden, but still one I'd sooner not have.
It may also be relevant (I'm not sure), that the finance deal is on 0% APR, so in pure borrowing terms it's cheap money, but I still can't keep the car in 2.5 years unless I make the balloon payment of £18k which is unlikely.
What I can't decide is whether I can "cut my losses" now, or if I would be better off riding out the 2.5 years even knowing I will hand the car back and have to buy something else (not on finance) at that time.
Supposing I did sell/return the car now, I would look to buy something cheaper (let's say for £10k) which I could fund from my savings or a small personal loan at a low (but not zero) percentage APR.
There are some benefits to my current vehicle, e.g. it's still under warranty, but is also in a high tax bracket (£400 per year) and not very fuel efficient (circa 30 mpg) given the mileage I do is typically a few city miles per week.
I would be happy to do the maths on this if I knew where to start... I guess the relevant calculation is where would I be financially in 2.5 years' time if I keep the current vehicle, versus getting rid now and putting a lump sum into a replacement. The idea of paying £2.5k to get rid of the car is what puts me off at the moment.
Edit: I am aware in the UK that you can VT a financed car once 50% of the total loan amount has been paid. Unfortunately for me, this won't happen until the month before the end of the term anyway, and therefore probably a moot point.