PCP Calculations - Early settlement

gizz_10

Hi there

I was wondering if someone who is clued up with these things could take a look and let me know if my understanding is correct.  I recently bought a nearly new car, and was prepared to pay for it in cash, but the dealer would make a £1k deposit contribution if I took out PCP finance, he told me I could then cancel it after a month and he would still get his commission.  So it seemed like a no brainer and I took out the finance.

Date of purchase - 4 Oct 2022
The total car cost was £18,5000
Dealer paid deposit £1,000
Total finance amount £17,500
Duration - 36 months
Monthly payment - £332.49 
Balloon payment of £9,073.75 payable on the 37th month.
APR - 8.9%
Total Interest payable 3,543.39
Total Amount payable £22,043.39


I made the first payment before 4th November of £332.49.  Now I have asked for a settlement figure and am told it is £17.576.20 - so if I settle today I would have paid a total of £408.69 in interest alone just for 6 weeks of having the finance.  This seems excessive to me - as per the APR of 8.9% I worked out it should be approx £98 per month so I was only expecting to pay around £150 in interest.
I have queried this with Santander finance but they say this is correct.
What am I missing?  or should I challenge Santander again?
Thanks in advance.
gizz

Goudy

I seem to think they can charge a maximum additional two months interest if you settle early if finance has more than 12 months to run.
One month additional if under 12 months to run.

It looks like they have factored some of this into your settlement figure.

gizz_10

Goudy said:

I seem to think they can charge a maximum additional two months interest if you settle early if finance has more than 12 months to run.
One month additional if under 12 months to run.

It looks like they have factored some of this into your settlement figure.

That is interesting as it is not mentioned anywhere in my contract documentation - and I even contacted them when I was within my 14 days cooling off period to ask if there was any penalty to early settlement and they said I would only pay the interest due to the point I settled the finance.
Why should they take 2 months extra interest - if you pay the settlement immediately - doesn't seem fair - but if that is the case then I will confirm that with them, and then put the money in the bank to earn some interest until just before the 2 month date the settlement is due.

Mutton_Geoff

The dealer said you'd get £1,000 contribution, you did. He said you could cancel after a month which you can. Your sums seem out though, 8.9% of £17,500 is almost £130 a month. Six weeks therefore £195, you're being asked to pay £409 so you're £786 better off (since you got the £1,000 off at the beginning).

When is the settlement date, if it's in the future then that's even more interest accounted for.

Did the dealer say you could cancel without any penalty/admin charge? Looks like two months interest plus £150 admin fee or thereabouts.

Goudy

You might want to search, Consumer Credit Regulations 2004.

daveyjp

If you are going to pay it off early do it within the 14 day cooling off period, not after the loan payments have started.

Santander can charge 30 days additional interest for early settlement.

gizz_10

Mutton_Geoff said:

The dealer said you'd get £1,000 contribution, you did. He said you could cancel after a month which you can. Your sums seem out though, 8.9% of £17,500 is almost £130 a month. Six weeks therefore £195, you're being asked to pay £409 so you're £786 better off (since you got the £1,000 off at the beginning).

When is the settlement date, if it's in the future then that's even more interest accounted for.

Did the dealer say you could cancel without any penalty/admin charge? Looks like two months interest plus £150 admin fee or thereabouts.

I would argue that I am only £591 better off than if I had not taken the finance / deposit contribution.  (£1000-409)

My point is its not mentioned anywhere on the documents and even the dealer told me I would only have to pay a month's worth of interest, not an extra 2 months on top.  And I even queried it before the 14 days cooling off and they said there is no penalty to pay off early, and their website even says that there is no penalty to pay off early.    They have given the settlement date as 13 January 2023.

Could I make a part payment to reduce the notional, which reduces the interest payable and then get a settlement amount on the lower amount - should reduce the outstanding 58 days interest? I have sent them my request but still awaiting their reply - I tried calling them but they asked me to put my query in writing.

Mutton_Geoff

gizz_10 said:

They have given the settlement date as 13 January 2023.

That is almost 3 months you will have had their money, not 6 weeks mentioned. Stick the £17,500 in the highest interest instant access account you can find tomorrow (Aldermore at 2.75%) and earn another £80 in interest to offset your losses before paying off the loan. This reminds me of my stoozing days, if you're going to play the game you need to know all the rules that will apply as it's easy to get bitten.

gizz_10

Mutton_Geoff said:

gizz_10 said:

They have given the settlement date as 13 January 2023.

That is almost 3 months you will have had their money, not 6 weeks mentioned. Stick the £17,500 in the highest interest instant access account you can find tomorrow (Aldermore at 2.75%) and earn another £80 in interest to offset your losses before paying off the loan. This reminds me of my stoozing days, if you're going to play the game you need to know all the rules that will apply as it's easy to get bitten.

Not quite, I had not intended to hold their money for 3 months. Even if I paid it all off today,  the settlement amount is still the same - ie 58 days extra interest as they are calculating until 13 January regardless if I pay it off today or any day until 13 January. The extra 58 days interest when I have already paid them back is the issue here, especially as it was not mentioned and is not included on any of the documentation and was not even mentioned when i queried it within my 14 days cooling off period - it was clearly stated I would only pay interest for the period i had the loan.

My money is already earning 2.75% interest thanks - but as I am interested in reducing the amount I will pay Santander - is there some merit in paying some off, getting them to recalculate my interest on the lower amount, then requesting the settlement amount - it will be lower right? 58 days interest on a lower amount would be lower right? Or does it not work that way?

zagfles

daveyjp said:

If you are going to pay it off early do it within the 14 day cooling off period, not after the loan payments have started.

Santander can charge 30 days additional interest for early settlement.

Are you sure you'd keep the deposit contribution if you paid it off in the cooling off period? I would have thought not as you're effectively cancelling the finance deal?

zagfles

gizz_10 said:

Mutton_Geoff said:

gizz_10 said:

They have given the settlement date as 13 January 2023.

That is almost 3 months you will have had their money, not 6 weeks mentioned. Stick the £17,500 in the highest interest instant access account you can find tomorrow (Aldermore at 2.75%) and earn another £80 in interest to offset your losses before paying off the loan. This reminds me of my stoozing days, if you're going to play the game you need to know all the rules that will apply as it's easy to get bitten.

Not quite, I had not intended to hold their money for 3 months. Even if I paid it all off today,  the settlement amount is still the same - ie 58 days extra interest as they are calculating until 13 January regardless if I pay it off today or any day until 13 January. The extra 58 days interest when I have already paid them back is the issue here, especially as it was not mentioned and is not included on any of the documentation and was not even mentioned when i queried it within my 14 days cooling off period - it was clearly stated I would only pay interest for the period i had the loan.

My money is already earning 2.75% interest thanks - but as I am interested in reducing the amount I will pay Santander - is there some merit in paying some off, getting them to recalculate my interest on the lower amount, then requesting the settlement amount - it will be lower right? 58 days interest on a lower amount would be lower right? Or does it not work that way?

As above, see https://www.legislation.gov.uk/uksi/2004/1483/made

It looks like they're entitled to delay the settlement date 58 days.