Pay off PCP or bank cash?

betterbudgeter2021

It’s the consumer protection and ability to walk away that appeals at the moment. I appreciate it’s possibly a naive position.

Whilst it may ultimately be more expensive, and my concerns might be unfounded, I feel uncomfortable having 12k tied up in the bike when that 12k is over half of my current cash asset. I appreciate that I could sell it but bikes are obviously a luxury item for most people rather than a necessity and as above it’s a relatively niche market.

Whereas by paying a lump sum, it gives the security of being able to hand it back in a financial emergency or pay the settlement figure at a later date if my cash position improves. 

Again it might be naive, I’d just prefer to minimise monthly outgoings while my partner is unemployed and retain some cash in the bank.

betterbudgeter2021

I meant to say above that bikes are a luxury item so aren’t always easy to sell quickly if I needed to release the cash quickly.

Grumpy_chap

Pay off PCP or bank cash?

Pay off the PCP
Then save for emergency fund.
Then invest.

MrFrugalFever

I think you’re making a wise decision, especially if you know that your financial situation is going to change for the worse in the future (only temporary I’m sure).

live for now and enjoy your bike, soon you’ll be free to ride in the warmer weather properly.

DrEskimo

MrFrugalFever said:

DrEskimo said:

MrFrugalFever said:

That’s good news and I think a fair compromise should you not wish to settle in full and final. The remainder of interest is attached to the optional final payment that cannot be eaten away at, it’s either paid in full or it’s not under the t’s and c’s of a pcp agreement.

as a Harley fan, I would agree with you, they’re quite niche and sort of have their own little piece of motorbike market! 

Good luck in whatever you decide.

That's not true. Overpayments can go towards reducing the GFV. It depends on the finance company.

Quite why you would want to have a interest only loan secured on your bike whilst you have savings is a bit beyond me. Swapping it for an unsecured loan at a lower rate would be much cheaper and achieve the same thing, assuming of course you don't want to relinquish all of your savings.

Either way I would concentrate on paying down the interest only loan at 8.9% as priority well before even thinking about investing.

In all my experience of being a part of an industry that deals with PCP everyday I’ve never come across an agreement that allows a consumer to make overpayments to a GMFV on a PCP agreement. Ever.

a PCP benefits many people for many reasons, specifically for consumer protection and the legalities that surround the consumer with the ability to walk away. A personal unsecured loan against a depreciating asset is only ever good for lower interest in most cases and nothing more.

When I had a PCP which I settled straight after just to benefit from additional deposit contributions, I could see what effect overpayments would have on the balance, and at a certain threshold overpayments stopped affecting the monthly amount and started reducing the GFV. This was Renault's RCI.

Once the argument moves to using PCP as consumer protection it ends up essentially being what is the cost for this 'insurance product'. In this case the difference in interest between an interest only secured loan on £7,500 over 3 years at 8.9% is about £2000, whereas a standard personal loan over 3yr at 3% is about £350. 

If a dealer approached me selling me 'asset value protection insurance' for the low sum of £1650 where I could return the bike under the VT terms (once I had paid over half the total cost) or that single day at the end of the term under the extremely punitive terms (potentially subject to additional costs on mileage and wear and tear), I think I know what I would say.....

But to each there own.

betterbudgeter2021

Thanks, I see your point.

Apologies for the silly question but which balance are you referring to clearing with the lower rate personal loan and retaining some savings?

DrEskimo

betterbudgeter2021 said:

Thanks, I see your point.

Apologies for the silly question but which balance are you referring to clearing with the lower rate personal loan and retaining some savings?

Apologies I may have misunderstood but I believe you were looking at overpaying around £6800 to bring the monthly payments down to about £0.01, and then just leaving final balloon payment balance of £7,500 over the rest of the term. 

My suggestion is to consolidate that to a lower rate unsecured loan, so whilst obviously the monthly payment will increase, you will save a substantial amount on interest in the long run. I would look to overpay that too before investing, but it allows you to maintain that cash buffer.

betterbudgeter2021

Brilliant, thanks.

I think I’m going to settle it in full, which although leaves me with less cash in the short term, reduces my debt to zero which is additional peace of mind.