Paying off PCP car finance

Jattinder_Singh

Hi, I have a 4 year PCP and got a settlement quote 1.5 years in. The balloon payment is large and I'm thinking of keeping the car at the end of the term. BUT I don't want to continue paying 4.8% APR on this. The lady that provide the settlement said if I pay of over £20k today it will save £2k in interest which does sound good.

I don't want to plug savings into this one and would rather get funds elsewhere to pay this off at a lower rate - but what is best, a conventional loan, money transfer? Seriously confused as never had to dig deep in the world of finance and certainly don't want to make a mistake on this one.

Any help please?

[Deleted User]

You're probably going to struggle to get a loan of £20k at anything significantly better than 4.8%, if at all.

By all means make an application for perhaps one loan, but I wouldn't get your hopes up. Even if you got a loan at 4%, you're only going to save around £350 over 2.5 years.


If you have savings, then use them, and then you can make a decent saving.

Jattinder_Singh

I was thinking the same. If I were to pay off £10k not only would it reduce interest significantly but also make a £10k loan more feasible. One option I am thinking of is remortgaging. My current provider has a rate of 2% and I could potentially use the cash injection from this to pay off the PCP and continue to pay the "mortgage" at a much lower interest rate.

Any pitfalls to watch out for on this one?

Nebulous2

Jattinder_Singh wrote: »

Any pitfalls to watch out for on this one?

Yes - the most important one being the timescale. Your car could be a rusty heap in a scrapyard somewhere, you could be 4 or 5 cars further on, and still paying for it.

It's also often frowned on turning unsecured debt into secured debt, where ultimately defaulting could mean you lost your house.

Jattinder_Singh

Ok makes sense - but the current "debt" is secured - on the car. I'm shifting it to the mortgage instead so it is secure moving to secure?

In the case I've put forward would your advice be to remain on the PCP and make over payments (or one-off lump sum payments) instead, as I want to keep the car therefore reduce the interest on the full term (and subsequently reduce the full term), rather than try and shift what is a substantial financial sum to another provider

Also unrelated to the question - I've never experienced such crystal clear and timely advice. You guys are an asset, and I would like to thank you for being so prompt in wanting to help.

Nebulous2

Thank you - I'm not sure I deserve it, but I'll take it anyway!

I would still look at Money Transfer cards examples here. I got £10k from MBNA for 3 years for a 2.9% fee. £290 allowed me to borrow £10,000 for 3 years.

If you can pay it off in that time then that is great. If not there is a risk that you wont get another 0% offer and end up having to pay the credit card interest. It is important that you meet minimum payments every month as well or you could lose the promotional rate.

There is a difference in being secured on a car and secured on your house. You want to protect the roof over your head above any other financial commitment - cars come and go!

People who take out consolidation loans are often tempted by reducing the monthly payment, whilst greatly extending the term. Adding a consumer item to a mortgage does the same. Whilst reducing the headline interest rate it will greatly increase the interest paid by dragging it out over a much longer timescale. Of course you can overpay, subject to your lender allowing it, but personally I'd rather not mess with my house at all.

molerat

Jattinder_Singh wrote: »

Ok makes sense - but the current "debt" is secured - on the car. I'm shifting it to the mortgage instead so it is secure moving to secure?

In the case I've put forward would your advice be to remain on the PCP and make over payments (or one-off lump sum payments) instead, as I want to keep the car therefore reduce the interest on the full term (and subsequently reduce the full term), rather than try and shift what is a substantial financial sum to another provider

Also unrelated to the question - I've never experienced such crystal clear and timely advice. You guys are an asset, and I would like to thank you for being so prompt in wanting to help.

If you fail to pay for the car they take the security away - the car - and you walk everywhere. If it is secured on the house and they take that away what are you going to do - live under a bridge ? What is being said is don't secure the loan on anything other than the item being purchased. Plus the mortgage will be long term, the car will have rusted and long gone before being paid for.

Either carry on with the (fairly reasonably rated) pcp loan or get it onto a 0% card.

Jattinder_Singh

Thanks Molerat and Nebulous - sounds like very fair advice. I'll look into a money transfer option (learned something from MSE: difference between balance transfer and money transfer!) and see what is on the market. The only reason I thought 4.8% was expensive was because another large manufacturer offers 2.9% on their PCP, so just wanted to know if it was reasonable or not. Over the 4 year term it equates to around £3k of interest, so I suppose not too bad.

Molerat - Help for Heroes is a very worthy charity who I regularly contribute to and I'm involved with, thank you for endorsing it on your signature. Have a very happy new year