PCP settlement

ch4pelcottage

Hi - I'm currently just over half way through a PCP agreement. I was originally planning on handing the car back and assessing my options at the end of the term but looking at the cost of second hand cars at the moment and given I know the history of the car I'm currently driving, I have decided it may be better to keep the car long term. 

My car is currently worth at least £13k as per an online valuation and the Settlement figure quoted by the finance company to end the agreement is £10k.

If I don't settle early, on 28/02/2024 a final balloon payment of £7k will be due. I'd have to take out a bank loan if I wanted to clear this, as I have other commitments I need to save for in the meantime. So, alternatively, I could get a 2.8% bank loan (my credit score is 999) to pay off the remaining finance and spread the cost out over the next 36 months with a view to fully owning the car with no monthly payments going out for it after that. Is there any reason I shouldn't do this? I've tried googling but it doesn't seem like this is a very common thing to do - however paying £10k for a car that's currently worth at least £13k seems like a good deal, if I ultimately want to own it?

Any guidance would be appreciated!

SaverRate

Are you guaranteed to get a 2.8% loan or will the rate increase when you apply for the loan? 
What’s the interest rate on the PCP - simply if the interest rate is lower than the rate you will actually get a bank loan at then you may as well do it now. 

MX5huggy

What’s the interest on the PCP? 

The risk is the bottom falls out of the used car market in the next 2 years and you’ve lost the option of handing back a £5k car to pay off the 7k balance. 

ch4pelcottage

just looking on MSE and putting my details in - it looks like I’m 95% certain to get 2.8% with M&S and 100% certain I’ll get 3.1% with MBNA (the difference per month is only a few pounds). 

The PCP contract states rate of interest is 4.09% but the APR is 7.9% - I don’t really understand the difference to be honest but either way looks like a loan would save on interest in the long term if I settled with a loan assuming I did get it for around 3%?

SaverRate

ch4pelcottage said:

just looking on MSE and putting my details in - it looks like I’m 95% certain to get 2.8% with M&S and 100% certain I’ll get 3.1% with MBNA (the difference per month is only a few pounds). 

The PCP contract states rate of interest is 4.09% but the APR is 7.9% - I don’t really understand the difference to be honest but either way looks like a loan would save on interest in the long term if I settled with a loan assuming I did get it for around 3%?

You have 95% chance of getting the M&S Loan and 100% certain of getting the MBNA loan BUT the rates are not guaranteed - its highly likely the rate will go up! You can go to these websites and do an eligibility check direct (would probably recommend) but again the rate may not be guaranteed 

The APR is the important figure. 
Basically if this rate is less than 7.9% you are better of taking the loan and paying off the PCP. 

ch4pelcottage

Ok cheers - do I have to accept whatever rate is offered once I have formally applied? For example, if I apply thinking it's 2.8% and they offer 6% - would I have to accept that or could I say no?

It does say on the MSE loan eligibility calculator I am '100% pre approved' and would 'get this exact offer subject to final lender checks' with MBNA - so would that still mean the rate could increase or not?

SaverRate

ch4pelcottage said:

Ok cheers - do I have to accept whatever rate is offered once I have formally applied? For example, if I apply thinking it's 2.8% and they offer 6% - would I have to accept that or could I say no?

It does say on the MSE loan eligibility calculator I am '100% pre approved' and would 'get this exact offer subject to final lender checks' with MBNA - so would that still mean the rate could increase or not?

You can say no it just shows up as a check on your credit report.

If your pre approved then in theory you should get that rate and deal but again not always guaranteed. 

Edited to say that if you say no it shows up as a check just as it would if you said yes to the loan 

DrEskimo

SaverRate said:

ch4pelcottage said:

just looking on MSE and putting my details in - it looks like I’m 95% certain to get 2.8% with M&S and 100% certain I’ll get 3.1% with MBNA (the difference per month is only a few pounds). 

The PCP contract states rate of interest is 4.09% but the APR is 7.9% - I don’t really understand the difference to be honest but either way looks like a loan would save on interest in the long term if I settled with a loan assuming I did get it for around 3%?

You have 95% chance of getting the M&S Loan and 100% certain of getting the MBNA loan BUT the rates are not guaranteed - its highly likely the rate will go up! You can go to these websites and do an eligibility check direct (would probably recommend) but again the rate may not be guaranteed 

The APR is the important figure. 
Basically if this rate is less than 7.9% you are better of taking the loan and paying off the PCP. 

It's actually a bit higher than this, because the structure of the loans are different.

As you have the higher final payment (the balloon), the amount you reduce the capital over the term is lower than a personal loan with no large final payment (hence why the monthly repayments are higher). As such, in monetary terms, the PCP will work out costing more interest than an equivalent personal loan at the same APR.

DrEskimo

Yes this is good idea. It's just a shame you didn't do it from the start. 

PCP is great if you need to get a car on finance and need a lower monthly payment, but it comes at the cost of higher interest. Had you got a lower rate loan and paid more per month instead of use a PCP loan, you would have likely saved yourself thousands.