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I’m half way through a 4 year PCP agreement with Mercedes Benz Finance (the car’s value was 27500 when I signed the PCP) that guarantees the future minimum value of £12125. My circumstances have changed and now I need a bigger car (currently have a C-class coupe). I was thinking of getting a Nissan X-Trail so I went to a local dealership and asked for a valuation of my car. It surprised me Nissan as well as Audi valued the car at £13000.

Is this the actual car’s value that relates to the GMFV? How come the finance company guaranteed £12125 if the value is now already so low with still 2 years to go. If so, did the finance company get their numbers wrong or is the actual car’s value different than what I was told at the dealerships?

What will happen at the end of my PCP then if the car's value is going to be a lot lower than guaranteed?

Can anyone please explain where my logic is going wrong?

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The "guaranteed minimum future value" isn't really a guarantee so much as the amount they will charge you at the end of the agreement if you want to keep the car. In this sense it might better be considered a "guaranteed maximum future cost".

If the car has fallen below that value at that point, then you can just hand back the car and you won't owe anything extra. If it turns out to be worth more, you end up in profit - though only if you either actually pay for the car, or if you roll over into a new PCP deal. So the finance company has an incentive to set it at a sensible value, otherwise they'll end up losing money.

Most new cars lose a lot of value quickly initially, and then the rate of loss slows down. But given that it's lost £14k in 2 years, it seems pretty likely it'll lose much more than another £1k in the next 2 years. So it does sound like that in this case, they estimated the value badly at the start of the deal and will end up taking a loss on the deal when you hand it back at the end.

It appears you also have the legal right to "voluntary termination" once you have paid off half the "Total Amount Payable". This should be documented in the PCP agreement and if you're half way into the deal then I'd expect you'll be about there.

If that doesn't apply, you can try to negotiate to get out of the deal early anyway. If they look at it rationally, they should think about the value of your payments over the next two years minus the loss they will end up with at the end of those two years. But there's no guarantee they will.

Disclaimer: Despite living in the UK, I hadn't heard of these contracts until I read this question, so my answer is based entirely on web searches and some inferences. The two most useful sources I found on the general subject were this one and this one.

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