Car PCP deal has significant impact on credit score

Daviebraco

For years I have carefully managed my credit history and had a 999 Experian score and my affordability rating has always been good or very good. Over the past year I overpaid my mortgage and reduced the mortgage monthly payment by over £500. Looking for a new car there was a great deal from BMW on a pcp deal over 4 years. The monthly payment is affordable and we happily signed up for it. Today I get my monthly moneysavirngexpert credit club email and log in and almost fainted. My overall credit score has reduced from 999 to 965 and my credit affordability has gone from V good to V weak. The site is listing the entire 'value' of the car as 'hire purchase' and, as the on paper value technically exceeds my annual salary Experian now suggests that my debt to income ration is likely to mean that I will be seen as a risky borrower.............I'm totally shocked about this - what can I do to sort this??? Any advice is greatly appreciated.

BoGoF

What can you do? Read the numerous other posts about people freaking out about their made up score.......then chill out.

lewishardwick

That balloon payment at the end of the term is still yours to repay. 'Repayment' is either returning the car, using as a trade in against another vehicle/PCP, or you pay the outstanding balance/refinance.

So yes, I'd say chill.

My 'score' is only 844, so 'fair'. I can't do much about it, so just kick back and relax for now. If the PCP package is recent, of course you'd expect your rating to take a dent...

System

Daviebraco wrote: »

The site is listing the entire 'value' of the car as 'hire purchase' and, as the on paper value technically exceeds my annual salary Experian now suggests that my debt to income ration is likely to mean that I will be seen as a risky borrower.............I'm totally shocked about this - what can I do to sort this??? Any advice is greatly appreciated.

No it doesn't just technically exceed your annual salary on paper, it DOES exceed your annual salary because the entire new value of the vehicle is what you actually owe and it is on hire purchase. PCP is a form of hire purchase, the total price you pay including the balloon payment is the full price of the vehicle. Your mistake is thinking that the balloon payment isn't owed. It is and at the end of the finance term your options are pay the outstanding amount, the balloon payment, or return the car however at the end of the deal the remaining amount is still owed to be settled in one of those two ways.

You can do nothing to sort this because there is nothing wrong and you'll have to get used to having an extremely high debt:income ratio and all the negatives that come with that. That is the price you pay for getting a car you can't afford on finance. May I suggest saving up some money every month for the next few years so when your PCP deal comes to an end you can buy a car outright and not end up yet another poor sod stuck in the PCP trap?

forgotmyname

Paying your CC bill on time lowers your "score" also. Go figure.

Debt to salary ratio will be a concern to lenders, borrow less or earn more?

cjmillsnun

I really wouldn't worry about it. Life is too short. My "credit score" has just dropped (I've just moved) and yet my CC company just sent me a letter telling me they were upping my credit limit by three grand (not that I'll be taking them up on that offer). Go figure.