Car Finance - HP / PCP

Elincolnah

Hi

Wondering if I can get a bit of advice. We brought an Audi direct from our local Audi Garage in October, the list price was 21k and we traded in our car as a deposit.

We were looking to get a PCP deal, this is what we asked for and believed we were purchasing. Having been excited about getting our car, maybe we didn't quite read be paperwork as carefully as we should.

Cut to now, we were involved in a car collision 4 weeks ago today. Car was written off, claim made. Seems to be nearly finalised. However an issue has risen with the GAP insurance, however that's not my issue here.

Looking through our paperwork it says-
Type of finance - Hire Purchase
Amount of credit to be financed - £18,000

Then says at the bottom -
Final Payment - £10,700.

I don't understand why it states 18k to be financed and a final payment of 10.7k.

I thought the whole idea of the PCP type of deal was say deposit 20% finance 40% final Payment 40%. Roughly.

Like I said the car is written off, but I don't want to make the same mistake if I'm not understanding correctly.

Why has the full value of the car been split into monthly payments, along with an additional £10.7k as a final payment?

molerat

The final payment will be set at the perceived residual value of the car. Some cars hold their value better so can effectively be "hired" for a lower monthly payment than a run of the mill marque. You are still financing the balloon payment. Without having all the figures it is hard to get the full picture.

Typhoon2000

With PCP, you do not pay down the capital to the same extent as straight HP ( that's why payments are less). But you pay interest on the whole amount (£18000). That's why there is a balloon payment at the end.

Elincolnah

Thanks for your replies. As I said the car is written off so I'm not position to be complaining to Audi, but I want to get this right in my head so we don't rush into the next car if this is wrong.

Vehicle Cost - £21,600
Deposit (from part exchange value) - £2837.38
Amount to finance - £18,762.62

48 x 311.81 monthly installments
1 x 10,782.50 final payment
Total payable 28,586.38

So we would of been paying £7,000 in interest or something isn't right. I'm hoping its the latter :rotfl:

I still don't understand why it says on the finance agreement

Type of finance - Hire Purchase

I didn't realise even with PCP you finance the entire value of the car? I thought the whole idea was you finance say 40% of the car and then pay the other 40% at the end of the deal.

Nebulous2

What interest rate does it say on your paperwork?

You are effectively paying interest on the whole amount, £18.7k at the beginning. At the end of four years you are still paying interest on £10.7k, so a fair bit of your final monthly payment is still going to pay interest. With a traditional loan, where the full loan is paid off almost all of your final payments are repaying the loan rather than interest.

So effectively you pay more interest with a PCP type arrangement than you do with a straight loan because you are paying interest on more money throughout.

Elincolnah

I think I've realised why it was so high, APR is at 12%.

Nearlyold

Elincolnah wrote: »

I still don't understand why it says on the finance agreement

Type of finance - Hire Purchase
.

It's because it is an HP agreement, the vast majority of PCPs are HP agreements - just with a different payment profile to what you might call straightforward HP.

bellabooski

Nearlyold wrote: »

It's because it is an HP agreement, the vast majority of PCPs are HP agreements - just with a different payment profile to what you might call straightforward HP.

I agree with Nearlyold. I have a Solutions PCP on my Skoda which is managed by VW Finance and it is also an HP agreement.

matttye

Elincolnah wrote: »

I think I've realised why it was so high, APR is at 12%.

Sorry but why would you ever enter into an agreement without looking at the interest rate?!

That interest rate could quite easily have been 25% - such agreements are not unheard of especially with sub-prime lenders.