Should I pay off pcp with better rate loan?

Rach2015

We recently bought a used qashqai on a pcp. The car cost £14600, and the monthly payments are £250 per month for 48 months with a final payment of £5987. Therefore by my calculations over £3k interest.

The interest rate is a big 7.7% apr. There appear to be no charges for early repayment and I think we can borrow the full now £14,000 required to settle the pcp over 48 months with only a slightly higher monthly payment, obviously benefit being we would own car outright at the end.

However, would another option be to borrow a smaller amount on a personal loan and pay off say almost all the monthly payment balance but leave the final payment outstanding? The benefit being much lower monthly payments (about £176 a month from what I can see at current rates of 3% on £8k). Then if it came to handing the car back- we would have the guaranteed value of £5987 at the end to use against another car- - a figure that I think seems high for a by then 6 year old car??

I admit to being a bit confused- but have baby brain after recently having our second child! So sorry if I'm being a bit silly with all this!

robber2

what makes you think your car would be worth £5987 at the end of six years? Just because you owe that much doesnt mean the car is worth that much.

rob

foxy-stoat

If you haven't applied and been offered a better rate for £14K, then do that first. Then you will be in a better position to assess clearing the car finance once you get your rate agreed.

Nearlyold

robber2 wrote: »

what makes you think your car would be worth £5987 at the end of six years? Just because you owe that much doesnt mean the car is worth that much.

rob

The OP is of course referring to the PCP GMFV in 4 years time when the car will be 6 years old but (and its a big but) seems to be under the impression that she will get £5980 for the car to put towards a replacement vehicle where as she will still owe £5980 which has to be paid off by the GMFV leaving nothing to put towards the next car.

If the OP were to only pay off £8,000 now, the approx. £6,000 still owing today would increase to about £7,850+ in 4 years because there would be 7.7% interest to pay. (On a PCP you pay interest on the whole amount borrowed not just the part on which you are making monthly payments)

So better to borrow the full £14,000 now and clear the finance completely - provided of course a better interest rate is available

Money_Rollercoaster

I'd definitely refinance the whole sum with a loan, assuming you can get a good rate. If you're in good shape credit-wise you could potentially get a sub 3% rate. You'll need to get a confirmed settlement figure from the finance company, to make sure you know how much you'll need to borrow elsewhere.

motorguy

Rach2015 wrote: »

However, would another option be to borrow a smaller amount on a personal loan and pay off say almost all the monthly payment balance but leave the final payment outstanding? The benefit being much lower monthly payments (about £176 a month from what I can see at current rates of 3% on £8k). Then if it came to handing the car back- we would have the guaranteed value of £5987 at the end to use against another car- - a figure that I think seems high for a by then 6 year old car??

You wont be able to part settle the finance - it'll be all or nothing with them.

Your plan to get a loan for the amount and have the car paid off on a regular loan makes sense though. The finance company will provide you with a settlement figure which should be less than the total remaining amount owed as they wont charge you the full interest.

motorguy

robber2 wrote: »

what makes you think your car would be worth £5987 at the end of six years? Just because you owe that much doesnt mean the car is worth that much.

rob

If thats the residual value, it will have been set by the finance company at the trade value ish of the car, so they're not out money if its returned.

Also, theres 853 Nissan Qashqais on Autotrader, six years old or more, with a price of > £6,000 so it seems a quite reasonable expectation.

In fact, assuming average miles, the cheapest 2011 Qashqai on Autotrader (a poverty spec old model petrol) is £6,450