Car finance - PCP

matttye

Hi

Am I right in thinking that if I pay off everything except for the balloon payment way early, I'll have nothing to pay for the remainder of the term and then just have to pay the balloon payment at the end?

Given that the balloon payment is a fixed amount there's no benefit to paying it early and money would be better used by putting it in savings.

Thanks

supersaver1000

Hi Mattye. I'm no expert and I'm sure someone more knowledgeable soon, but I currently have a PCP (not the first - but planned as the last).

When I called the finance company about making extra payments they asked if I wanted to reduce the term or the payments. So I made a small extra payment of £65 and reduced my monthly payments by £3 per month. The balloon payment stayed the same, but I guess if I'd reduced the term then the balloon payment would've decreased.

I understood (but I may be wrong) that as the contract interest is calculated on the whole amount, you are paying interest on the whole amount so it should be worth paying off early if you can.

SS

matttye

supersaver1000 wrote: »

Hi Mattye. I'm no expert and I'm sure someone more knowledgeable soon, but I currently have a PCP (not the first - but planned as the last).

When I called the finance company about making extra payments they asked if I wanted to reduce the term or the payments. So I made a small extra payment of £65 and reduced my monthly payments by £3 per month. The balloon payment stayed the same, but I guess if I'd reduced the term then the balloon payment would've decreased.

I understood (but I may be wrong) that as the contract interest is calculated on the whole amount, you are paying interest on the whole amount so it should be worth paying off early if you can.

SS

I get what you're saying and my plan is to pay off everything except for the balloon payment early. I pay interest on the whole amount, but the balloon payment is fixed and doesn't go up or down, so is unaffected by interest. The rest of the loan is affected by interest so it's in my best interests to pay off that part early. That's my understanding anyway.

The only thing I'm not sure about is whether the balloon payment will be brought forward if I clear all of the other payments, or whether I would just have nothing to pay until the balloon payment is due - i.e. say I had cleared everything except for the balloon payment in a 4 year PCP after a year, could I pay nothing for 3 years and then pay the balloon payment?

Cheers

supersaver1000

My balloon payment stayed exactly the same, so I can't see why you couldn't do the same (or reduce your monthly repayments to £1 if they insist on having a payment). VW were really helpful in calculating it for me and sending out the forecast. Is there a limit on the early repayment you can make?

matttye

supersaver1000 wrote: »

My balloon payment stayed exactly the same, so I can't see why you couldn't do the same (or reduce your monthly repayments to £1 if they insist on having a payment). VW were really helpful in calculating it for me and sending out the forecast. Is there a limit on the early repayment you can make?

My understanding is that you can make unlimited overpayments without penalty nowadays.

thebritishbloke

I recently contacted Banque PSA Finance to ask about this on my car. If I made an overpayment of £2000, my payments would go down by £50 a month, and I'd pay something like £100 less interest over the term. The balloon payment still remained the same. They allow unlimited overpayments without penalty (in fact you save money). I didn't go ahead with it though, as the interest saved by paying it off is a lot less than I would get from it being in a TSB Classic Plus account for the term.

Which finance company is this with?

matttye

thebritishbloke wrote: »

I recently contacted Banque PSA Finance to ask about this on my car. If I made an overpayment of £2000, my payments would go down by £50 a month, and I'd pay something like £100 less interest over the term. The balloon payment still remained the same. They allow unlimited overpayments without penalty (in fact you save money). I didn't go ahead with it though, as the interest saved by paying it off is a lot less than I would get from it being in a TSB Classic Plus account for the term.

Which finance company is this with?

Dacia Finance / RCI Banque.

Your understanding is my understanding - any overpayments reduce the monthly amount and payable interest, but have no effect on the balloon payment.

supersaver1000

Thanks. That's really useful info. My payments end next July so I'll be refinancing the balloon payment. I'd like to take out a longer term loan and make overpayments when I can.

I've just looked on the sainsburys website and it says that if I repaid their loan early in full, it may reduce the interest but there will be additional charges, but if I want to just make additional part payments (which I would) then there won't be any additional charges and the interest will reduce.

So I'll be taking out the loan over 5 years but will overpay wherever I can.

thebritishbloke

supersaver1000 wrote: »

Thanks. That's really useful info. My payments end next July so I'll be refinancing the balloon payment. I'd like to take out a longer term loan and make overpayments when I can.

I've just looked on the sainsburys website and it says that if I repaid their loan early in full, it may reduce the interest but there will be additional charges, but if I want to just make additional part payments (which I would) then there won't be any additional charges and the interest will reduce.

So I'll be taking out the loan over 5 years but will overpay wherever I can.

I've been saving since the start of my PCP, I'm not even a year in and I've already saved enough to pay off the balloon payment.

5 Years?! Surely your balloon payment is £8000 at most? Can't you save some money between now and July and get a loan for 1-2 years to cover the difference? You'd save a lot of money in the long run.