I have talked about this situation before but as the press constantly mislead consumers over the true benefit of PCP and dealers are incredibly poor at selling the product let me briefly explain.

I believe that the final balloon payment was £6,000 and the friend is being told that the car is worth just £4,000 when he was told, when he arranged the finance originally, that the car would be worth about £7,000. By using the car as a part exchange he would have had £1,000 for the deposit on the next car but as the car is now only worth £4,000, and will therefore be handed back, it would seem that he is £1,000 out of pocket.

Actually this isn't true and this misunderstanding defeats the object of a PCP. It is actually a win win situation for you. What you have to consider is the amount you have paid for the car, more so than the final value. If the customer had bought the car on HP at say an original cost of £12,000 he would be using it as a part exchange at a value of £4,000. The cost would therefore be £8,000 plus the interest charges.

However, by taking the PCP the lender estimated a final value of £6,000, so when calculating the rate he only factored in a cost of £6,000 plus the interest charges. So the truth is that in this case your friend was not £1,000 worse off he is actually £2,000 better off. Of course the wrong thing to do in the current circumstances would be to buy the car for the final balloon of £6,000 - just hand it back and consider himself lucky whilst the lender cries in his beer.