Early PCP Car Payments.... 16 June 2021 at 5:12PM in Loans 4 replies 221 views

themadhouse

I usually pay my car payments early to save interest. However, I have got a PCP loan this time, to keep payments down each month.

If I want to make additional payments each month (say 2 months per 1 month, i.e. monthly payment is £200 but I want to pay £400) how is this allocated? I.e. effect the balance/balloon?

Have it on 4 years but will probably pay in 18-24 months. Did this on another car saved a lot of interest but was HP and a lot easier :-s

Sandtree

You need to read your contract about overpayments.

One of the advantages of PCP is that there is no commitment to pay the balloon, if the finance company has done a bad job of predicting the residual value of the vehicle at the end of the deal you can just give the car back and walk away.  Our PCP had a balloon of circa £40,000 but forecourt list prices at the time were circa £35k and trade in or private sale much lower.  It would have been silly to pay the balloon at £10k over the vehicles value so we walked away.

No idea what happens had we already paid off part of the balloon but didn't want the car any more.

DrEskimo

From what I gather, each agreement will deal with overpayments differently. Think generally the overpayments don't go towards the balloon until you payments are very low, and then overpayments will start recalculating your monthly payment and final value.

Sandtree said:

You need to read your contract about overpayments.

One of the advantages of PCP is that there is no commitment to pay the balloon, if the finance company has done a bad job of predicting the residual value of the vehicle at the end of the deal you can just give the car back and walk away.  Our PCP had a balloon of circa £40,000 but forecourt list prices at the time were circa £35k and trade in or private sale much lower.  It would have been silly to pay the balloon at £10k over the vehicles value so we walked away.

No idea what happens had we already paid off part of the balloon but didn't want the car any more.

Christ, £40k final payment...hate to think how much the car was originally....I'm guessing it cost a fair whack in interest charges given the value, so that would need to be factored in to any savings.

Grumpy_chap

Sandtree said:

No idea what happens had we already paid off part of the balloon but didn't want the car any more.

That is an interesting question and I don't know the answer, but there are several people who suggest, even if you can pay cash, to buy a car on PCP, secure the "incentives" and then pay-down the full amount so avoiding interest costs. 

In such an event, if the car was worth less than the original balloon payment, could you at the end of the term hand the car in, and take a refund of the balloon payment?  

Sometimes, PCP is advertised as protecting the buyer against unexpected falls in used car prices.
https://www.pwmillar.co.uk/ford-insure/ford-finance/

Sandtree

DrEskimo said:

Christ, £40k final payment...hate to think how much the car was originally....I'm guessing it cost a fair whack in interest charges given the value, so that would need to be factored in to any savings.

Interest was 1.4% so about £2k in total over 3 years

Certainly not advocating PCP as a saving mechanism, in most cases the finance company is going to be much better at working out the residual than you, but you can be lucky with it.