Increasing PCP payment vs over paying

ZZL · 26 February 2018 at 11:53AM

Hi all

Long time lurker on here, the main site and the UKPersonalFinance subreddit. Have learnt a lot and like to think I am a lot more sensible with my money thanks to the lessons I've learned here.
I am in the process of sorting out my finances as per strong recommendation, namely reducing my debts

Just doubled my monthly payment with Omni Capital on a laptop I bought out of impulse, that will now finish Oct '18. Good start.

The only other substantial borrowing I have is for my car
Currently have about £11k outstanding with Motonovo and pay £185/mth, with a balloon payment of £5.8k come Sep '20

My aim was to increase this to £250/mth in the hope of ending the agreement sooner
Looking on Motonovo's site they say the finance is structured like a mortgage, in that I'm paying more interest than capital at the beginning and the ratios gradually change as the months go by.

My question on this basis, is would it be better to increase my payment to £250 a month, vs paying the £185 a month and then pay an extra £65 via card? Or vice versa?

I'm unsure if they charge you for extra payments so thats something I'd have to look into and factor in

Thanks for any help you guys can give

[Deleted User] · 26 February 2018 at 12:21PM

It doesn't matter by what means you make the payments - all that is important is the value and the timing.

However, you need to confirm how and when they allow overpayments, and any charges.

ZZL · 26 February 2018 at 1:47PM

I just gave Motonovo a call (probably where I should have started instead of clogging up the forum!)

They dont allow you to increase the monthly payment
The options would be to pay the extra via card each month, and after the overpayments total £500 or more they can re-calculate the term; or save the extra up and pay off a lump sum and then re-calculate

There are also no charges for making payments

System · 26 February 2018 at 3:49PM

Do not overpay the PCP. Instead put the money you would have paid on the PCP into a bank account and at the end of the term use it to actually BUY a car instead of renting one via PCP. If you want to really save money don't get a car on PCP.

ZZL · 26 February 2018 at 4:12PM

Tarambor wrote: »

Do not overpay the PCP. Instead put the money you would have paid on the PCP into a bank account and at the end of the term use it to actually BUY a car instead of renting one via PCP. If you want to really save money don't get a car on PCP.

I completely agree. At the time I really wanted the car there and then (after I'd saved up a suitable deposit that is), and there was reasons I didn't want to go down the lease route.

I absolutely love my car and am somewhat of a petrol head, this car's a hell of a lot of fun whilst I've had it. But I've decided I don't like the debt. Hence me now trying to right my wrongs.
My aim was to get to the end of the term sooner if possible, and hand it back to the dealer.

Would you say this is poor plan of action to take then?

System · 26 February 2018 at 5:59PM

Its not so much of a poor plan but one which is likely to result in you ending up in another PCP deal as you'll neither have the money to pay the balloon payment or money to buy another car. So faced at the end of the deal with no money and the likelihood of no car the chances of you falling for the salesman flim-flam and ending up in another 3/4 year PCP deal are quite high when your only other option is getting the bus home.

I wait to be corrected on this but my thinking is as follows:

If you're trying to hit the 50% mark to VT earlier you're basically going to be paying more money per year to have had the car. Say for example you're on a deal where you can VT after 4 years and you're paying £4000 a year in payments and you need to reach £16,000 of payments to VT.

So you pay £16,000 over 4 years, your car has cost £4000 a year.

But you want to VT earlier, say in 2 years so you pay a lump sum or increase payments to reach that £16,000 in 2 years. You've now paid £8000 a year for your car. Your car per year has doubled in cost. Yes you'll save some interest which will reduce that figure somewhat but it'll be nothing in comparison to what the annual cost of your car has increased by. Doing what you want to do only saves you money if you also pay the balloon payment as well, i.e you fully pay for the car.

But as I say I'm willing to accept if this is the wrong way of looking at it but from here at least in my mind I think that is how it would end up.

ZZL · 26 February 2018 at 6:39PM

Yeah suppose that makes sense thinking about it like that

Guess I'll keep saving and then when the time comes, if the balloon payment isn't an option use any cash to buy a cheap second hand car to do the job of A to B

Increasing PCP payment vs over paying

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