Paying off PCP very early - good idea?

jakesDaddy

Hi,
I know there are a number of threads that asked about paying PCP off early, but none match my circumstances/answer my question - so I wonder if anyone can help...

I am buying a nearly new car from a main dealer. I have negotiated hard and have got the cost right down (18K car down to 16.5K, plus a few minor freebies). All along I've planned on paying for this with a combination of p/ex, cash deposit, and personal loan from the bank.
However, the dealer claims that to go down that low he would be barely breaking even and making perhaps only £100-£200 (which to be fair I do believe). He says that in order to do this deal I would have to fund it via their PCP finance (Mini Select) because he will make up his profit on the deal by virtue of the kickback/introducer fee he will get for arranging the finance.

I explained that I didn't want/need their PCP finance because I had the funds as above, and that I want to keep the car beyond the PCP term (so the product doesnt suit my needs), and that I'm a bit traditional in this respect so a personal loan etc suits me best.

The dealer is telling me that I can take their PCP finance and stick with it for 2 or 3 months so that he gets his commission, and then I am free to pay the entire thing off. I've not read the full T&C's yet (I've not agreed to it yet, so not seen the docs yet), but he tells me there is no tie in period, interest is calculated daily, and there is no early termination penalty. He is basically saying that I'll pay a month or 2 interest at a higher rate than my bank loan, but on a lower capital amount. And if I do this, he will get his kickback, and the world is a happy place.

I am happy to help the dealer out if I can, but I'm feeling suspicious about it. Everything I've read this evening about early termination of PCP schemes basically suggests you will lose out. However, the scenarios I've read are all based around early termination to get your next car where you will be in negative equity (not my use case), or settlement after 2 years of a 3 year deal (also not me)

In my head I'm getting confused with the GFV element of this, and where it comes into play when settling early. EG. if the total amount of finance is 15K, and the GFV is 8K, then the PCP payments are based on 7K - lets say £300p/m over 36 months @10.9% APR (these are not my actual figures)
If I ran full term, presumably I would pay 36*300 + 8K = 18800
But I'm not planning on that.
In my simple head, if I settled after 2 months, would I pay 7K (the 'loan' amount) + 2 months interest of 7K @10.9% APR (ignoring the effect of compound interest) + 8K
Is that right?

At the moment I've not signed up to this. I've verbally agreed to doing this, but we've not agreed on the details of the PCP scheme (eg: milage, months etc) because its largely irrelevant (isnt it?). We have agreed the purchase price of the car and I've paid a small cash deposit, so I will buy it. But nothing on my paperwork says that I will pay the balance via their PCP scheme. At the moment its a gentleman's agreement, but in a very un-gentleman-ly manner I will bail out of it if its a bad idea and simply pay the balance as originally planned.

So, what do we think? Am I being sold a duff deal here? Will early settlement after a very short period cost me more than I'm thinking?

Appreciate any advice
Cheers

Nathan

marlot

You can cancel the pcp within 14 days and redeem it if you have the funds

loskie

What Marlot says. Do the PCP take the free services, dealer contribution and whatever manufacturer deposit contribution they offer. Drive the car out the showroom and pay off the pcp asap. There will be a wee bit of interest.
Stuff the salesman's commission they are all thieving, lying gits.

AdrianC

If you cancel the finance early, and want to keep the car, then you have to pay the full amount - so the GMFV doesn't come into it.

straighttalker

If you do pay the PCP within 14 days, the dealer won't get his commission as it'll be clawed back from the finance company. That's why he suggested paying a couple of months first.

It sounds like he's being honest with you so just check all the small print and T&C's if you do wish to proceed.

Cornucopia

It depends what you mean by "no penalty for early settlement". There may be no explicit fees, but there can still be a front-loading of interest. This used to be called "Rule of 78", but I'm not sure what the present regulatory position is with this, now.

Ask what the lowest available PCP amount is. The less you borrow, the less interest there will be.

As has been noted GMFV isn't relevant unless the PCP goes to the full term. Your rough calculation is right, though.

vibrantcolour

Don't cancel, just call and pay off after your first payment.

AdrianC

Just ask how much for a straight cash price, since you don't want to pee about with finance.

Ergates

In a similar situation.

Normally I'd only consider a second hard cars, but I've heard of a deal whereby Honda are offering a £3500 "deposit contribution" on new cards bought with PCP (plus 5 years servicing - but not sure if that requires the PCP).

I don't really want the finance, but that's an inviting offer.

From the above, it sounds like nothing bad would happen if I took out the offer, paid a couple of monthly payments and then cleared it (it'd probably take that long to cobble together the cash anyway). Is that right?

gzoom

By law the finance company cannot stop you from settling early, but they are allowed to charge a fee. But this fee is again determined by law so the finance company cannot just make up numbers. We took a PCP deal because that allowed the dealer to give a £1000 contribution. Cleared the finance 1 day after the first payment, got charged a £200 fee, but it took all of 5 minutes to settle the finance.

The dealer initially tried to scare us by saying if we settled early the manfacutres will try to claw back the £1000 contribution. But nothing like that was mentioned in the small print, presumably because that'll be illegal.

Le_Kirk

You state that you have negotiated the price down from 18K to 16.5K but the dealer has not agree that price. You are prepared to pay some interest (possibly front loaded as stated above) and a probable termination fee, so why not just work out what this is likely to be and offer this to the dealer. There will be a point where what you offer and what he wants will meet - result happy dealer, happy customer, no finance companies were harmed during the making of this deal.