Paying off PCP with a bank loan?

Caroline291187

Hello,
I am looking for some advice. I took out a four year PCP for my car . The car was 3 years old when I got it. The PCP finishes in Feb 2022.
I really like the car and would like to keep it when the PCP finishes. The balloon payment is £6100. 

My friend thinks it would be a better idea for me to settle the PCP with a bank loan as I will own the car quicker doing it that way. 

The settlement figure is £8600. 

My current PCP is £177 per month. A bank loan would cost me approx £190.
Does this sound like a good idea?

[Deleted User]

It depends on the relative total cost and whether you would be able to get a loan, with your existing debt.

DrEskimo

Likely yes, but we would need more details to know whether the PCP is costing more interest than the personal loan. I highly suspect it is.

Is the £190 loan for the same period? What is the rate, and have you been accepted for this rate, or is this just the cost at the advertised rate? It may be difficult to obtain a loan for the settlement amount whilst you have a PCP loan outstanding. It will depend on your credit history and income.

Caroline291187

Thanks, No problems with getting a loan I have already looked into that.

Caroline291187

The rate for the loan is 3.4%. 

I have an ‘excellent’ credit rating and a good income. 

So it would be £190 over 4 years to pay the settlement of £8600 off. 

Caroline291187

The APR on the PCP is 7%

DrEskimo

Caroline291187 said:

The rate for the loan is 3.4%. 

I have an ‘excellent’ credit rating and a good income. 

So it would be £190 over 4 years to pay the settlement of £8600 off. 

Your credit rating is meaningless, as lenders do not use your score to assess you for a loan. They will have their own criteria.
Have you actually applied and been accepted for this rate? Until you have, any cost is hypothetical.

You will likely be taking a loan to settle the PCP at the end of the 3yrs anyway, so may as well take it now and settle early. What is the rate on the PCP?

Caroline291187

I haven’t been accepted as yet as wasn’t sure what I was doing. It is with my own bank though and they frequently write to me offering loans, credit cards etc. 

Yes it is a four year PCP and I was likely going to take out a bank loan for the balloon payment of £6100. 

Was just trying to figure out If best to settle just now or not. 

DrEskimo

Caroline291187 said:

I haven’t been accepted as yet as wasn’t sure what I was doing. It is with my own bank though and they frequently write to me offering loans, credit cards etc. 

Yes it is a four year PCP and I was likely going to take out a bank loan for the balloon payment of £6100. 

Was just trying to figure out If best to settle just now or not. 

OK. Yea if the rate is less than PCP then settle early.

Hopefully you will get the representative rate, but be prepared that the rate quoted may be more. That could change things.

Caroline291187

Ok I understand that - thanks for the advice. 

I have done some rough calculations, in the long run I think it will save me about £700 by settling early and taking a bank loan (if I get a good rate).

DrEskimo

Caroline291187 said:

Ok I understand that - thanks for the advice. 

I have done some rough calculations, in the long run I think it will save me about £700 by settling early and taking a bank loan (if I get a good rate).

Fingers crossed!

If you don't get a good rate from your bank, always worth trying another lender. A couple of hard searches wouldn't hurt your credit history.