Paying PCP Payment

LM6262

Hello,
I have read a lot of posts which have been really helpful but couldn't find any which answer my particular query.

I'm looking at getting a 2nd hand car on PCP. The interest rate from the dealer is 10.9%. By using PCP from the dealer I would get access to a sizable deposit contribution from them and some other extras. However the 10.9% is ridiculous as I can get a loan from the bank at 2.8%.

What I'm thinking of doing is getting the PCP from the dealer to get the deposit then getting the loan from the bank and paying off the PCP but leaving the balloon payment on it for the 3 years. Meaning I would be paying the bank back (at 2.8%) instead of the dealer but would still pay the balloon  payment to the dealer after the 3 years. 

I know I can overpay but was wondering if anyone sees any limitations on what I plan to do? 
Thanks! 

The_Rainmaker

Sounds sensible to me.  If you can wait a bit though I think you will get a better deal around the year end.  The car market is having a little boost at the moment satisfying pent up demand (dealers are actually trying to massage prices up at the moment and are talking their book) but that is going to be short lived when the redundancies really start to bite.  Also price up New, Pre-Reg, etc and see where you are.

AdrianC

Don't forget you're still paying 10.9% on the balloon over the 3yrs.

The_Rainmaker

AdrianC said:

Don't forget you're still paying 10.9% on the balloon over the 3yrs.

I've just reread it based on Adrian's comment.  Not sure that will be possible?  Someone more in the know will be along shortly.

Grumpy_chap

Doing what the OP proposes is sensible, but the balloon payment complicates matters.

I wonder whether the OP can get the same " incentive" any other way, maybe straight forward HP.  That would be simpler to pay down as the OP suggested.

The OP does not say how old the second hand car will be or whether this is franchise or independent dealer.  These factors may influence what other options could make sense.  Can the OP confirm type and age of car, plus purchase price?

LM6262

Thanks for your help and advice.

Didn't think about the 10.9% on the Balloon payment...definitely changes things! 

Its a landrover, 1 year old worth £40k. Franchise dealer offered £2.5k off and Balloon of £19k. Plan is to buy the car at the end if its worth doing so. 

I can get a bank loan for the 18.5k (40 - 2.5 - 19 = 18.5k). Paying a lot less per month than to landrover finance. But the interest on the balloon reverses a sizeable chunk of the monthly saving.
Maybe revisit it towards end of the year like Rainmaker recommends...
Just as well I asked 😁 thanks again! 

AdrianC

You may well find that the cheaper finance on a brand new car would be as cheap as the 1yo used one.

Especially when you start thinking about having it to exactly your preferred spec, and remember that very few people buy new cars for just one year - which is why many 1yo pre-owned are ex-rental. Yes, even at this end of the market.

neilmcl

AdrianC said:

You may well find that the cheaper finance on a brand new car would be as cheap as the 1yo used one.

Especially when you start thinking about having it to exactly your preferred spec, and remember that very few people buy new cars for just one year - which is why many 1yo pre-owned are ex-rental. Yes, even at this end of the market.

^Exactly this. Not only will you be able to pick a new car of your specification but the APR interest will be much cheaper and may likely get a bigger contribution. Buying any used car on PCP is not a great thing to do but buying a nearly new vehicle makes no sense.

daveyjp

A one year old Land Rover in a dealership could also indicate its a lemon which has been returned.

Mercdriver

daveyjp said:

A one year old Land Rover in a dealership could also indicate its a lemon which has been returned.

Land Rover make lemons?  Don't let Supersonos hear you say that!

Grumpy_chap

LM6262 said:

Its a landrover, 1 year old worth £40k. Franchise dealer offered £2.5k off and Balloon of £19k. Plan is to buy the car at the end if its worth doing so. 

"Landrover" is still quite vague.  What exactly?