Pros/cons to paying off my Audi PCP loan early

Colin_Buckleberry

Hello MSE forum,

In March 2019 I took out a 48-month PCP loan on a new Audi; details below. Since then I've made 14 monthly payments and, according to Audi, my outstanding balance is £18,613 and my settlement figure stands at about £16,500 currently.

I'm now in a position to settle up this balance, if this represents a better option that continuing to pay off and give back / upgrade the car after another 34 monthly payments. I'm very happy with the car and would plan to keep it beyond the 34-month timeframe, although I haven't decided yet whether I'd want to upgrade it.

I guess my question is: In my position, am I better off paying off the balance and then having the flexibility to sell the vehicle in the future, if needed?

Original value: £27,890
My deposit: £6,890
Finance deposit allowance: £2,500
Balance from Audi Finance: £18,500 [less interest that's been accumulating since then]
Monthly payment: £238
Final payment: £10,507

DrEskimo

Yes. It will save you around £2k in interest charges. 

The only benefit of keeping the PCP is if you plan to sell the car at precisely the day the contract ends (doesn't guarantee the value at any other time), and the car is worth less than the GFV minus the additional interest. In your case, you would be financially better keeping the PCP if you decide to sell it and you are only able to get <£8,507 for it.

How likely do you think that risk is? Remember it will have to be worth a lot less to make substantial savings. Even if it's only worth £8,000 the PCP has only saved you £500....

In contrast, I bet it's highly likely it will be worth ≥£10,500 and you have already stated you don't want to sell it then either, so you are far more likely to save £2k, then lose anything by settling the PCP today. 

As you say, you can upgrade it in 34months time all the same.

Colin_Buckleberry

Thank you. According to Parkers et al, the car is currently worth about £16,800 privately and today a four-year old similar Audi A3 is worth about £11,000 in good condition (and I reckon I'll do substantially less miles than the 40,000 that this £11,000 was predicated on). The GMFV that Audi quoted me was £10,500 if memory serves.

So, overall, it sounds like buying myself out of the PCP and then having the freedom to sell the car at any time is a better option. Thanks again for giving me clarity!

DrEskimo

Colin_Buckleberry said:

Thank you. According to Parkers et al, the car is currently worth about £16,800 privately and today a four-year old similar Audi A3 is worth about £11,000 in good condition (and I reckon I'll do substantially less miles than the 40,000 that this £11,000 was predicated on). The GMFV that Audi quoted me was £10,500 if memory serves.

So, overall, it sounds like buying myself out of the PCP and then having the freedom to sell the car at any time is a better option. Thanks again for giving me clarity!

To be clear, you are free to sell the car at anytime with the PCP. Of course it does make things more complicated having finance attached, but you could trade it in to any garage if you wanted (whether this would be enough to clear your outstanding finance is another question).

All that cleaning the PCP does is save you money by not paying interest. It is just a loan after all. The only possible advantage to keeping it is using the GFV, but since it costs you £2,000 it's a lot of money and makes the likelihood of benefiting financially from the GFV extremely low. It's almost certain you will save £2,000, relative to the amount you could save in an unlikely scenarios of extreme depreciation....

Of course whether you should hold on to the money in the current climate is an entirely different question....