Settling PCP after the 14 days

b33r

Hello,


Think I've confused myself after doing a bit of searching and just wanted to check something.

Just taken out a PCP on a car, total amount financed was 17.5k. I will end up paying just over 3k interest if I run the agreement to the end (4 years at 195pm) and pay the balloon payment (11.5k). I put in a deposit of 6k. APR on the agreement is 6%.

After searching I think I am right in thinking that within the first 14 days I can settle the agreement (would be done with approx 60:40 combination of a lower APR loan and savings) and then pay no (or very little) interest on the PCP agreement (obv would still be interest on the loan I'd take but anticipate this would be approx 3%). Have I got that bit correct? (I've read dealers aren't really a fan of people doing this, would they even know? How does it affect them?)

Secondly, and the bit I'm not so sure about, what are my options between day 14 and the end of year four? Can I pay it off at any point during the 4 years and if so can anyone provide me an easy way to calculate how much interest I will have paid at different points? I'm guessing any benefit to settling early will gradually diminish at a calculable rate throughout the term? (assuming I am still able to settle that is.... I think what's confused me is this 14 days thing, what relevance does 14 days have if you can settle at any point?)

Thanks!

DrEskimo

As I understand it, the 14days period is your right to withdraw from the finance agreement without incurring any penalties or fees.

Your ability to settle is the same right the way through the whole agreement. You have a right to partial or full payment at any point.

As you rightly point out, the longer you leave it, the more interest you will pay. Given the balance is highest at the beginning, the interest you pay will be higher at the start compared to towards the end.

I use this settlement calculator to give me a rough idea of what interest I will have paid at certain times throughout a finance agreement. Any better ones people know of I would love to see!

http://www.financecalcs.co.uk/Calcs/Settlement.php

Did you get any incentives from taking the finance, like deposit contributions or free servicing? I am unclear whether you need to wait X time before settling to still get these benefits. Worth asking the finance company?

As I say, that's what I think. I may be mistaken and welcome any corrections!

b33r

DrEskimo wrote: »

As I understand it, the 14days period is your right to withdraw from the finance agreement without incurring any penalties or fees.

Your ability to settle is the same right the way through the whole agreement. You have a right to partial or full payment at any point.

As you rightly point out, the longer you leave it, the more interest you will pay. Given the balance is highest at the beginning, the interest you pay will be higher at the start compared to towards the end.

I use this settlement calculator to give me a rough idea of what interest I will have paid at certain times throughout a finance agreement. Any better ones people know of I would love to see!

http://www.financecalcs.co.uk/Calcs/Settlement.php

Did you get any incentives from taking the finance, like deposit contributions or free servicing? I am unclear whether you need to wait X time before settling to still get these benefits. Worth asking the finance company?

As I say, that's what I think. I may be mistaken and welcome any corrections!

Thanks! Yeh, the incentive was a finance deposit contribution (and it was greater than I could negotiate a cash deal for). The dealership have been great so I think they fully deserve anything they get from the finance company so I still want them to get whatever that is (and for me to maintain a good relationship with them), but I also want to minimize the amount I pay in interest. Ultimately I guess it's then the finance company who 'lose money' but I won't lose any sleep over that!


Edit: So after playing around with that calculator the vast majority of the interest occurs during the first 1.5 years or so, after then there seems to be very little benefit really. Hmm ok. so I need to have a think, save approx 2k in interest by paying it off with a combination of savings and loan and wipe out my savings or keep the nice (relatively) low monthly payment, keep my savings and enter the PCP cycle that a lot of people get stuck in.

DrEskimo

b33r wrote: »

Thanks! Yeh, the incentive was a finance deposit contribution (and it was greater than I could negotiate a cash deal for). The dealership have been great so I think they fully deserve anything they get from the finance company so I still want them to get whatever that is (and for me to maintain a good relationship with them), but I also want to minimize the amount I pay in interest. Ultimately I guess it's then the finance company who 'lose money' but I won't lose any sleep over that!


Edit: So after playing around with that calculator the vast majority of the interest occurs during the first 1.5 years or so, after then there seems to be very little benefit really. Hmm ok. so I need to have a think, save approx 2k in interest or wipe out my savings and have a loan to pay...

Worth asking the question to the dealer about how long the finance needs to be in place for them to get the bonus from it? Think it's usually 3-months from threads I've read.

I'm potentially picking up a car in a couple of weeks and I too had to go through finance to get £1000 off and 2 free services. My plan is to discuss it with the dealer and the finance company, but I'm going to settle it ASAP.

I would prefer to just pay in cash, but there we go...!

With regards to your savings, unless it leaves you with zero savings, it makes little sense to keep money in a savings account while you have debt that is accruing higher interest.

b33r

DrEskimo wrote: »

Worth asking the question to the dealer about how long the finance needs to be in place for them to get the bonus from it? Think it's usually 3-months from threads I've read.

I'm potentially picking up a car in a couple of weeks and I too had to go through finance to get £1000 off and 2 free services. My plan is to discuss it with the dealer and the finance company, but I'm going to settle it ASAP.

I would prefer to just pay in cash, but there we go...!

With regards to your savings, unless it leaves you with zero savings, it makes little sense to keep money in a savings account while you have debt that is accruing higher interest.

Aye, thanks for your help. I know it makes (financial) sense to pay it off if I can, it's just psychological really, and the other half saying 'you better not wipe out all our savings on this car'. lol. (She doesn't see my argument that in the long run we would save money)

DrEskimo

b33r wrote: »

Aye, thanks for your help. I know it makes (financial) sense to pay it off if I can, it's just psychological really, and the other half saying 'you better not wipe out all our savings on this car'. lol. She doesn't see my argument that in the long run we would save money.)

Lol...well show her how much you will save! You have to pay it one way or the other!
That's the only way to think about a loan...it's just borrowing money from your future self, with interest....(crucially money your future self may not have to give, for any number of reasons...)

Personally, If i'm not comfortable paying it from my savings, then I just concede I haven't saved enough yet...!

Mercdriver

Well you will lose the argument if you didn't actually need a new car in the first place Besides, you should never win an argument with your better half, you will never stop paying for it

gord115

I bought a Golf R on finance.
Got two free services,extra years warranty,2 years breakdown and MOT cover.
Phoned up VW financial services the day after I got the car and asked how much for "Right of withdrawal".
I then paid it off saving thousands and kept all the benefits.
I will do exactly the same with my next car.

Bmw at the time were offering a massive £7000 of a new 330i if buying on finance.