Paying off PCP - can't get my head round it!!

truescot

I apologise in advance as there are probably loads of thrads on this but I can tseem to get my head round the info I want to make a simple decision;

• Bought a 1 year old (at the time)car 12 months ago on 4 year PCP.
• Just been gifted some money from parents
• Hate debt
• Want to pay off ALL finance so that I own the car and have no more monthly payments.
• No intention of changing the car until it dies (ie. more than 4 years probably), as cars are just pieces of metal that get me from A to B

This seems like a no brainer to me as I will save the interest, but everywhere I read about how it is not advisable to settle early, but this seems to relate to the negative equity if you want to get rid of the car any time soon.


Given my circumstances above, surely settling this makes sense? And will it effect my credit rating (not quite sure how but saw it mentioned)?

Merlin139

What rate of APR are you paying for this PCP.

I just swapped a car that I had on PCP that was 6 months old when I got it and was paying 5.4% APR for a Brand new car on PCP that was 0% APR and have made a big saving on it.

What it come down to is can you save the money somewhere safe. i.e no risk and get a better rate of return on it than by paying off the PCP?

truescot

Merlin139 wrote: »

What rate of APR are you paying for this PCP.

I just swapped a car that I had on PCP that was 6 months old when I got it and was paying 5.4% APR for a Brand new car on PCP that was 0% APR and have made a big saving on it.

What it come down to is can you save the money somewhere safe. i.e no risk and get a better rate of return on it than by paying off the PCP?

I think I must be financially illiterate as I don't really get this (not ideal on MSE!) I just want to lose the monthly payments and keep the car, but not if it is for some reason a really daft financial decision.

truescot

And sorry...I'm paying 8.9%:eek::eek:


Seduced by the affordable monthly payments as we've always paid cash for cars previously so a bit clueless. Hence wanting to get out.

Merlin139

truescot wrote: »

I think I must be financially illiterate as I don't really get this (not ideal on MSE!) I just want to lose the monthly payments and keep the car, but not if it is for some reason a really daft financial decision.

With what you have said in your first post then you should contact the finance company and request a settlement figure and then pay it off.

Unless you can earn more than 8.9% APR safely then its a no brainer!

Your PCP agreement will show you how much interest you would pay on the amount you borrowed over the course of the 4 years. Based on the amount you have paid in monthly payments + the settlement figure you will be able to see how much you would save.

neilmcl

Negative equity is irrelevant if you're going to keep the car. Ask for a settlement figure.

It'll be pretty easy to work out the difference between your settlement figure and the future cost of the rest of your PCP payments plus final balloon.

truescot

Thanks people. The internet is a great place to begin doubting yourself but looks like my initial instincts were correct.

Jonesya

truescot wrote: »

No intention of changing the car until it dies (ie. more than 4 years probably), as cars are just pieces of metal that get me from A to B

A car should last 10 years or more, so if you look after it you might get another 8 years out of it.

When you see the reports, most people seem to change cars out of boredom and wanting something new or better, rather than because it's reached end of life.

truescot

Jonesya wrote: »

A car should last 10 years or more, so if you look after it you might get another 8 years out of it.

When you see the reports, most people seem to change cars out of boredom and wanting something new or better, rather than because it's reached end of life.

Totally agree, which is why I have managed to get to the ripe old age of 45 years whilst only owning 5 cars (all bought second hand). Not exactly a "petrol-head", much to my 12 year old son's regret!!

AdrianC

Don't forget that this is not currently your car. You do not own it. The finance house do. You have the choice to buy it or not at the end of the finance contract.


You do not have a legal right to voluntarily terminate the car until half of the finance (including the balloon) is paid off, which you're nowhere near - a VT would normally result in the car going back.

You can request a settlement figure to close the finance and buy the car from the financier, though. Remember that you're trying to get out of the deal you voluntarily signed, though, and that they have a reasonable expectation to a certain level of profit as they originally bargained for.

motorguy

AdrianC wrote: »

Don't forget that this is not currently your car. You do not own it. The finance house do. You have the choice to buy it or not at the end of the finance contract.


You do not have a legal right to voluntarily terminate the car until half of the finance (including the balloon) is paid off, which you're nowhere near - a VT would normally result in the car going back.

You can request a settlement figure to close the finance and buy the car from the financier, though. Remember that you're trying to get out of the deal you voluntarily signed, though, and that they have a reasonable expectation to a certain level of profit as they originally bargained for.

Why are you talking about VTs? He wants to clear the finance and keep the car.

He will save most of the interest on the deal as they cant charge for interest that has not been accrued yet. Typically at this point in the agreement and with that APR they will get maybe an 8-10% discount off the amount remaining.