Alphera - PCP - Making additional payments

themadhouse

Hi all, I hope you can help Alphera agents are not at all helpful.

I have a PCP deal with Alphera. I am wanting to reduce my monthly outgoings.

I want to pay approx 75% of the total outstanding monthly payments (I have paid 12 payments with 36 remaining - its 75% of the 36 months I want to pay).

I expected the 75% to almost clear all remaining interest on top getting closing to making the monthly payments near to ZERO. They have told me it does not work like this and that the interest has already been applied. This does not seem correct to me at all? Surely I should get a chunk of interest credited?

FYI Interest rate is 6.9%.

I am not quite in the position to settle the finance in full, but I hope to do this in the next 12 month.

Thank you.

[Deleted User]

You pay off part capital, part interest each month, as interest is applied daily.  You can't pay off future interest  - any overpaying comes off the capital.

The quicker you pay off, the less interest you'll be charged.

Making an overpayment doesn't normally result in reduced monthly payments. You just make fewer of them.

themadhouse

I agree. They have added the entire interest onto the outstanding balance from the get go hence saving/credited back, the applied interest?

[Deleted User]

No, they haven't. It's just how they display it.

Interest is charged daily.

You'll avoid the bulk of the remaining interest if you settle early, or overpay.

DrEskimo

It's a bit more complicated with PCP due to the larger final payment (often called Balloon payment). 

But as above, they don't 'front load' interest. If you ask for a settlement figure today, and then compare that to running the loan the full term (including paying off the balloon) you will see the interest you save. 

Just note that the amount you pay in interest in the first 12months is much larger compared to the remaining months, as the capital is higher. This is even more true for PCP where the capital balance is reducing so slowly due to that final balloon payment not decreasing.

Its why PCP is a lower cost per month. The downside is higher cost in interest ...

MrFrugalFever

You will be able to reduce your monthly payments down significantly per month through overpayments if you really wanted to but you cannot change your GMFV (Guaranteed Minimum Future Value) or commonly known as Optional Final Payment.
This will decrease your interest but again, due to your GMFV being a fixed value for 36 months, you will still pay interest. Interest is rebated with each overpayment, under the consumer credit act 1974 you can settle in full at any time with the lender legally obliged to rebate all bar 56 days worth of interest.

it is your legal right to be able to make overpayments. 

I see little benefit in doing this personally, if you are aiming to buy the car then a Hire Purchase perhaps would have been a more suitable option.

DrEskimo

MrFrugalFever said:

You will be able to reduce your monthly payments down significantly per month through overpayments if you really wanted to but you cannot change your GMFV (Guaranteed Minimum Future Value) or commonly known as Optional Final Payment.
This will decrease your interest but again, due to your GMFV being a fixed value for 36 months, you will still pay interest. Interest is rebated with each overpayment, under the consumer credit act 1974 you can settle in full at any time with the lender legally obliged to rebate all bar 56 days worth of interest.

it is your legal right to be able to make overpayments. 

I see little benefit in doing this personally, if you are aiming to buy the car then a Hire Purchase perhaps would have been a more suitable option.

That's not true. Overpayments can go towards reducing the final payment figure. I took out a PCP through RCI (to get additional discounts/servicing) and there was an online calculator which would show you how overpayments affected the monthly cost, and the final payment. I just settled in full, but it was clear overpayments went towards the GMFV.

MrFrugalFever

Incorrect. I deal with PCP arrangements for a living, the GMFV cannot be changed once agreed upfront.

DrEskimo

MrFrugalFever said:

Incorrect. I deal with PCP arrangements for a living, the GMFV cannot be changed once agreed upfront.

Of course you can. They can't dictate how much of the loan you can overpay. Once your payment is large enough to pay up to the GFV, the only option is to start reducing the GMFV.

In reality, the effect of an overpayment in how it affects the monthly payment and the final payment is dependent on the size of the overpayment, the amount loaned and the size of the final payment.

I literally sat and played around with the overpayment calculator provided by RCI.....

MrFrugalFever

Clearly I’m doing my job wrong then.