PCP or buy outright?

MrDarcy1815

I'm in the process of looking for a replacement for my car as it's getting more expensive to keep running.

I intend to keep the car for a number of years, well past the duration of any finance deal. I'm trying to decide if it's better to buy it outright up front, or to take advantage of dealer contributions (£1k-£2k depending on model/trim) take the finance deal and then overpay massively, bring the final payment forwards to "now" and then buy the car outright.

Is this even possible? Does it actually save any money?

MrFrugalFever

The only way you’d save money by utilising a PCP route with DC is to set it up with minimum term allowed for maximum DC and 25,000 miles per annum, make one payment then settle in full.

You’ll continue paying interest if not and you cannot ‘bring the balance forward’, all that would happen is you’d reduce your monthly DD to 1p.

DrEskimo

Yes, perfectly possible. Did it for my current used car.

Found one for a competitive price, negotiated on the price, then took out PCP finance to get £1,000 deposit contribution and 2 free services. Settled finance in full few days later.

Was charged a few quid in interest, so overall saved a lot of money.

MrDarcy1815

MrFrugalFever said:

The only way you’d save money by utilising a PCP route with DC is to set it up with minimum term allowed for maximum DC and 25,000 miles per annum, make one payment then settle in full.

You’ll continue paying interest if not and you cannot ‘bring the balance forward’, all that would happen is you’d reduce your monthly DD to 1p.

It's quite possible I've butchered the terminology.

But my understanding from talking to the sales guy today was that once I've taken out a PCP finance arrangement I can either pay it off as agreed, or over pay it to either bring down the monthly payment over the agreed term. Or reduce the term of the agreement - i.e. bring the final payment (balloon?) forwards while paying the original agreed monthly payment over a shorter period.

So in theory, as DrEskimo has alluded might be possible (depending on the Ts&Cs of the finance agreement) I could, to quote my 10yo, yeet a ton of cash at them and bring the total monthly payments down to zero and buy the car outright.

So depending on deposit contributions and Ts&Cs it may well be possible.

Aran76

I had the same predicament last year when I bought a car. I took the finance then settled it in full the day after I collected the car under the 14 day "cooling off" period. No interest was charged.

Dave_5150

As others have said taking PCP to secure the best price and then paying off immediately after deilivery is perfectly do'able

MrFrugalFever

MrDarcy1815 said:

MrFrugalFever said:

The only way you’d save money by utilising a PCP route with DC is to set it up with minimum term allowed for maximum DC and 25,000 miles per annum, make one payment then settle in full.

You’ll continue paying interest if not and you cannot ‘bring the balance forward’, all that would happen is you’d reduce your monthly DD to 1p.

It's quite possible I've butchered the terminology.

But my understanding from talking to the sales guy today was that once I've taken out a PCP finance arrangement I can either pay it off as agreed, or over pay it to either bring down the monthly payment over the agreed term. Or reduce the term of the agreement - i.e. bring the final payment (balloon?) forwards while paying the original agreed monthly payment over a shorter period.

So in theory, as DrEskimo has alluded might be possible (depending on the Ts&Cs of the finance agreement) I could, to quote my 10yo, yeet a ton of cash at them and bring the total monthly payments down to zero and buy the car outright.

So depending on deposit contributions and Ts&Cs it may well be possible.

You cannot alter the ‘balloon’ payment on a PCP via overpayments nor bring it ‘forward’, to be entirely factual and correct it is in fact a Guaranteed Minimum Future Value Optional Purchase Fee and not a balloon payment.

You can take your monthly payments down to 1p or settle the entire agreement in full.

I am qualified and trained from the London Institute of Banking & Finance under ‘Specialist finance’, namely Specialist Automotive Finance. I am all too familiar with the structure of a PCP.

MrDarcy1815

MrFrugalFever said:

MrDarcy1815 said:

MrFrugalFever said:

The only way you’d save money by utilising a PCP route with DC is to set it up with minimum term allowed for maximum DC and 25,000 miles per annum, make one payment then settle in full.

You’ll continue paying interest if not and you cannot ‘bring the balance forward’, all that would happen is you’d reduce your monthly DD to 1p.

It's quite possible I've butchered the terminology.

But my understanding from talking to the sales guy today was that once I've taken out a PCP finance arrangement I can either pay it off as agreed, or over pay it to either bring down the monthly payment over the agreed term. Or reduce the term of the agreement - i.e. bring the final payment (balloon?) forwards while paying the original agreed monthly payment over a shorter period.

So in theory, as DrEskimo has alluded might be possible (depending on the Ts&Cs of the finance agreement) I could, to quote my 10yo, yeet a ton of cash at them and bring the total monthly payments down to zero and buy the car outright.

So depending on deposit contributions and Ts&Cs it may well be possible.

You cannot alter the ‘balloon’ payment on a PCP via overpayments nor bring it ‘forward’, to be entirely factual and correct it is in fact a Guaranteed Minimum Future Value Optional Purchase Fee and not a balloon payment.

You can take your monthly payments down to 1p or settle the entire agreement in full.

I am qualified and trained from the London Institute of Banking & Finance under ‘Specialist finance’, namely Specialist Automotive Finance. I am all too familiar with the structure of a PCP.

You're being pedantic.

Example 1:
"to be entirely factual and correct it is in fact a Guaranteed Minimum Future Value Optional Purchase Fee and not a balloon payment"
VW Financial Services site - Frequently Asked Questions page
11th FAQ listed "What is a Balloon Payment"
Which heavily implies that that Balloon Payment is a well enough known term that correcting someone for using it is petty.

Example 2:
"You can take your monthly payments down to 1p or settle the entire agreement in full."
Or in other words reduce the monthly payment or bring the balloon payment forwards.

MrFrugalFever

Yet when something goes wrong it’s the terminology that will dictate the outcome of the complaint.

Bringing a ‘balloon payment’ forwards cannot happen, it doesn’t go from 48 months to 36 months just because you’ve overpaid.

Nearlyold

MrFrugalFever said:

» show previous quotes

You cannot alter the ‘balloon’ payment on a PCP via overpayments nor bring it ‘forward’, to be entirely factual and correct it is in fact a Guaranteed Minimum Future Value Optional Purchase Fee and not a balloon payment.

You can take your monthly payments down to 1p or settle the entire agreement in full.

I am qualified and trained from the London Institute of Banking & Finance under ‘Specialist finance’, namely Specialist Automotive Finance. I am all too familiar with the structure of a PCP.

You are confusing your nomenclature: - A "Balloon Payment" is the same thing as an "Optional Final Payment" and both are the same figure as the GMFV, these should not be confused with the "Option to Purchase Fee".

All HP based PCP's will have an "Option to Purchase Fee " (oddly this fee can be Zero) payment of this fee transfers ownership of the vehicle from the lender to the borrower provided the Balloon/Optional Final Payment has also been cleared.

A "Conditional Sale" based PCP will have a Ballon/Optional Final Payment but no Option to Purchase Fee as title passes automatically to the borrower once all payments including the Balloon/Optional Final Payment have been made.

There is a third form of PCP offered by lenders where they have concerns typically regarding their potential loss should the borrower choose to Voluntarily Terminate the agreement; this is based on a Fixed Sum/Term loan (aka Personal Loan). The customer owns the vehicle from the outset. At the end of the agreement the customer either pays the balloon or sells the car back to the lender via an agency agreement by which the lender guarantees to buy the vehicle for an amount equivalent to the outstanding balloon subject to adjustments for milage and condition. Customers can't apply for this type of PCP but may be offered one instead of the HP or Conditional Sale based PCP they applied for. 

MrFrugalFever

Nearlyold said:

MrFrugalFever said:

MrDarcy1815 said:

MrFrugalFever said:

The only way you’d save money by utilising a PCP route with DC is to set it up with minimum term allowed for maximum DC and 25,000 miles per annum, make one payment then settle in full.

You’ll continue paying interest if not and you cannot ‘bring the balance forward’, all that would happen is you’d reduce your monthly DD to 1p.

It's quite possible I've butchered the terminology.

But my understanding from talking to the sales guy today was that once I've taken out a PCP finance arrangement I can either pay it off as agreed, or over pay it to either bring down the monthly payment over the agreed term. Or reduce the term of the agreement - i.e. bring the final payment (balloon?) forwards while paying the original agreed monthly payment over a shorter period.

So in theory, as DrEskimo has alluded might be possible (depending on the Ts&Cs of the finance agreement) I could, to quote my 10yo, yeet a ton of cash at them and bring the total monthly payments down to zero and buy the car outright.

So depending on deposit contributions and Ts&Cs it may well be possible.

You cannot alter the ‘balloon’ payment on a PCP via overpayments nor bring it ‘forward’, to be entirely factual and correct it is in fact a Guaranteed Minimum Future Value Optional Purchase Fee and not a balloon payment.

You can take your monthly payments down to 1p or settle the entire agreement in full.

I am qualified and trained from the London Institute of Banking & Finance under ‘Specialist finance’, namely Specialist Automotive Finance. I am all too familiar with the structure of a PCP.

You are confusing your nomenclature: - A "Balloon Payment" is the same thing as an "Optional Final Payment" and both are the same figure as the GMFV, these should not be confused with the "Option to Purchase Fee".

All HP based PCP's will have an "Option to Purchase Fee " (oddly this fee can be Zero) payment of this fee transfers ownership of the vehicle from the lender to the borrower provided the Balloon/Optional Final Payment has also been cleared.

A "Conditional Sale" based PCP will have a Ballon/Optional Final Payment but no Option to Purchase Fee as title passes automatically to the borrower once all payments including the Balloon/Optional Final Payment have been made.

There is a third form of PCP offered by lenders where they have concerns typically regarding their potential loss should the borrower choose to Voluntarily Terminate the agreement; this is based on a Fixed Sum/Term loan (aka Personal Loan). The customer owns the vehicle from the outset. At the end of the agreement the customer either pays the balloon or sells the car back to the lender via an agency agreement by which the lender guarantees to buy the vehicle for an amount equivalent to the outstanding balloon subject to adjustments for milage and condition. Customers can't apply for this type of PCP but may be offered one instead of the HP or Conditional Sale based PCP they applied for. 

In terms of technical terminology a balloon payment is referring to a Hire Purchase agreement with a Balloon payment, which operates similarly to a PCP structure.

You are correct with regards to Conditional Sale Hire Purchase and Hire Purchase with Option to Purchase Fee (which can vary from £1 to £10 depending on lender). Either way, no legal title will pass on either of these arrangements until all payments, including Option to Purchase fee has been paid.

You are also correct regarding the PCP being termed as a Fixed Sum Loan, I often find that the lender will offer this to those with particularly good affordability, in my experience.

Ultimately, my original advice to the OP stands.