Confused by Volkswagen PCP agreement

peter_333

I'm in the process of buying a new car with a 7.9% PCP from VW Financial Services and I'm a bit confused by the draft agreement I've been given:

Title says "Hire Purchase":
The top line of the draft agreement is titled, "Hire Purchase Agreement ...", but it's a PCP.  The payment structure is a series of monthly payments followed by an optional balloon payment, but the title still says, "Hire Purchase".  The dealer says it's just strange wording from Volkswagen.

Early Repayment / Overpayment:
The agreement says you can make early repayments, but nowhere does it state that doing so will reduce the interest charged over the course of the loan.  In fact, it almost implies the opposite.  At the top of the agreement it states that, "The interest payable is calculated at the outset of the Agreement" and that, "The Total Amount Payable ... is £xx,xxx.xx."  To me it implies that we'll be paying that total amount including the full potential interest even if we overpay.

The ability to overpay and reduce the total interest is really important to me.

Despite reassurances from the dealer, should I be worried?

SaverRate

can you get a bank loan at a lower rate than 7.9% which will be simpler with overpayments? Seems high especially if its a new car tbh.

peter_333

SaverRate said:

can you get a bank loan at a lower rate than 7.9% which will be simpler with overpayments? Seems high especially if it's a new car tbh.

I did the calculations.  Given the deposit contribution from VW and the (significant) additional discount if we get finance brokered by the dealer, I'm happy that it's a reasonable deal.

Nearlyold

The majority of PCPs are based on Hire Purchase agreements, some are Conditional Sale and a minority are Fixed Sum/Term agreements.

There is no Regulatory definition of a PCP so PCP loan documents always use the regulatory required Statutory name for the type of agreement the PCP is based on. 

There will be a reduction in interest for any overpayment/early settlement it's a Statutory requirement  for ALL regulated loans  like yours.

peter_333

Nearlyold said:

The majority of PCPs are based on Hire Purchase agreements, some are Conditional Sale and a minority are Fixed Sum/Term agreements.

There is no Regulatory definition of a PCP so PCP loan documents always use the regulatory required Statutory name for the type of agreement the PCP is based on. 

There will be a reduction in interest for any overpayment/early settlement it's a Statutory requirement  for ALL regulated loans  like yours.

Super helpful.  Thank you!

DrEskimo

peter_333 said:

SaverRate said:

can you get a bank loan at a lower rate than 7.9% which will be simpler with overpayments? Seems high especially if it's a new car tbh.

I did the calculations.  Given the deposit contribution from VW and the (significant) additional discount if we get finance brokered by the dealer, I'm happy that it's a reasonable deal.

Can you clear the balance in full straight away?

You can still benefit from the deposit contributions and discount when you settle. As above, the interest will be reduced (it's quite common that they will show you the total amount payable if you were to run the entire agreement as agreed, but will of course pay a reduced amount overall if you settle/overpay).

If you are able to settle the car in full with savings, then could look at a personal loan if needed that would be a way to maximise the discount and reduce interest.

Although of course more MSE advice would be to question the need for a brand new car at all, and to use cash to buy a used car outright could be the best financial course of action.

Wonka_2

peter_333 said:

SaverRate said:

can you get a bank loan at a lower rate than 7.9% which will be simpler with overpayments? Seems high especially if it's a new car tbh.

I did the calculations.  Given the deposit contribution from VW and the (significant) additional discount if we get finance brokered by the dealer, I'm happy that it's a reasonable deal.

As has often been the norm for VWFS agreements - take it, accept the discount the dealer has given, if you're likely to want to use them again then leave it 3 months* before paying off in full (and then they still get their kickback) but if you're not bothered then pay it off immediately with a cheaper loan/funding

*timings may have changed since I last did it

peter_333

DrEskimo said:

Can you clear the balance in full straight away?

Not immediately, but I'm expecting a small bonus from work that I plan to put on the PCP straight away, which will reduce the overall loan interest a lot.

DrEskimo said:

Although of course more MSE advice would be to question the need for a brand new car at all, and to use cash to buy a used car outright could be the best financial course of action.

We'd originally been looking at used, but were amazed just how expensive they are at the moment.  Saw many instances of used cars with significant miles not he clock, listed with a higher price than buying new!  Stumbled across exactly what we'd been looking for, new in-stock, and at a price we were really happy with.

peter_333

Wonka_2 said:

if you're likely to want to use them again then leave it 3 months* before paying off in full (and then they still get their kickback)

Thanks for the info!  Didn't realise the dealer commission was based on the loan not being settled too quickly.  They've been really good to us, so I'll check the details with them and make it work.

MrFrugalFever

Nearlyold said:

The majority of PCPs are based on Hire Purchase agreements, some are Conditional Sale and a minority are Fixed Sum/Term agreements. .

There is no Regulatory definition of a PCP so PCP loan documents always use the regulatory required Statutory name for the type of agreement the PCP is based on. 

There will be a reduction in interest for any overpayment/early settlement it's a Statutory requirement  for ALL regulated loans  like yours.

This ^^ absolutely spot on.