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Any reason not to pay off PCP early?

patchyX2
patchyX2 Posts: 128 Forumite
Fourth Anniversary 10 Posts Name Dropper
I'm hopefully collecting my new car this weekend. 

Originally I was going to pay for it in cash, but then I noticed if you take out a PCP deal they'll give you a 2k dealer contribution (can't remember the exact term!). So my plan changed and I took the PCP deal to get the 2k discount, with the aim to settle the PCP early and pocket the 2k saving. 

However, interest rates have shot up since I ordered the car 7 months ago, so the difference in interest rate on the PCP isn't a great deal more than I could get if I put the money in a savings account instead of paying it off early. 

Apart from the benefit of having more options when the lease term ends, are there any other reasons why I should stick with the PCP deal over paying it off? 




Comments

  • Stubod
    Stubod Posts: 2,437 Forumite
    Part of the Furniture 1,000 Posts Name Dropper
    edited 25 July 2023 pm31 8:15PM
    ..nope....
    A lot of people initially go PCP to get all the benefits, then pay it offf in full after a few weeks. When I was considering a new car a few years ago the salesman actively encouraged it rather than just paying cash...
    .."It's everybody's fault but mine...."
  • Bigwheels1111
    Bigwheels1111 Posts: 2,819 Forumite
    1,000 Posts Third Anniversary Name Dropper
    Never had PCP, but a loan is a loan.
    You can save 2k off the car price with PCP and then pay it off the day you collect the car under 14 day cooling off period.
    No interest or fees.Great.
    How much finance + interest over how many years.
    Say the car is 32k and you save 2k so 30k financing.
    30k saved for 3 years At todays best rate 6.10% would give £1830 if paid away annually.
    A total of £5490.
    Will you interest payments be more.
  • MX5huggy
    MX5huggy Posts: 7,080 Forumite
    Part of the Furniture 1,000 Posts Name Dropper
    The other consideration is the options at the end of the PCP. There will be a ballon payment, and a guaranteed value for the car. At the end of the PCP if the car is worth less than ballon you can just give it back and walk away. If the car is worth more than the ballon pay it and keep the car, or use the equity in the car the do another PCP on another car. This value protection is worth something especially if it’s costing you nothing due to a low rate on the loan verses savings rate. 
  • Bigwheels1111
    Bigwheels1111 Posts: 2,819 Forumite
    1,000 Posts Third Anniversary Name Dropper
    I was looking at a motability car, Toyota Corolla sports estate 1.8 excell.
    up front deposit £2995 + 3 years of pip £10062 = £13057.
    This is without pip going up each year so would cost more.
    I can buy one for £29985.63 + 3y insurance £1200, servicing 3 years £850. Total £32035.62.
    3 years old with less than 15k milage is £23000 on Autotrader.
    Cheaper to buy outright for me by 3k plus.

  • Goudy
    Goudy Posts: 1,996 Forumite
    Sixth Anniversary 1,000 Posts Name Dropper
    PCP is just a loan so can be paid off at anytime in the agreement.
    There is a charge of this but it's set by law.

    Larger loans can only charge you something like 56 days interest, I think smaller loans something like 30 days interest.

    This means you can buy the car on a PCP and once delivered, clear the loan and only pay 56 days interest.
    This is obviously far far less than the £2k contribution so you're still quids in.

    Some have tried to sign up for the PCP/Loan with contribution or other benefits with the intent of cancelling it within the 14 days cooling off period, but the trouble is you can lose the benefits ie, the deposit contribution by doing this as you are cancelling the finance. They can just rip up that deal and present you with a invoice for the full retail price as there's often a long wait between signing up, cancelling and delivery.

    Lots of people take the PCP with the contribution and clear it within the first month, I've done it myself several times now.
    It's worth noting there are some deals with bigger contributions if you are, say a teacher, police, NHS staff and so on.
    My partner and myself qualify via the NHS and the deposit contributions tend to be double on some cars.

    Getting discounts on new cars these days is tricky. Dealers don't usually offer money off retail price as it has a negative effect on used prices.
    Also, they will receive finance arrangement fees from the loan company, which is usually owned by the manufacturer anyway.

    You just take delivery, get home and ring the finance company for a settlement figure.
    This will be the amount borrowed, minus any monthly already paid (if you wait more than a month) plus the 56 days interest.

    Before you decide, have a look at some of the sites like Carwow and Drive the Deal.
    You might find a car discounted for cash, but again their better deals come with finance and I've found they might offer a car in the spec and colour you want, but it often turns out a similar model/different colour they already have in stock.
  • ontheroad1970
    ontheroad1970 Posts: 1,657 Forumite
    1,000 Posts Fourth Anniversary Name Dropper
    Goudy said:
    PCP is just a loan so can be paid off at anytime in the agreement.
    There is a charge of this but it's set by law.

    Larger loans can only charge you something like 56 days interest, I think smaller loans something like 30 days interest.

    This means you can buy the car on a PCP and once delivered, clear the loan and only pay 56 days interest.
    This is obviously far far less than the £2k contribution so you're still quids in.

    Some have tried to sign up for the PCP/Loan with contribution or other benefits with the intent of cancelling it within the 14 days cooling off period, but the trouble is you can lose the benefits ie, the deposit contribution by doing this as you are cancelling the finance. They can just rip up that deal and present you with a invoice for the full retail price as there's often a long wait between signing up, cancelling and delivery.

    Lots of people take the PCP with the contribution and clear it within the first month, I've done it myself several times now.
    It's worth noting there are some deals with bigger contributions if you are, say a teacher, police, NHS staff and so on.
    My partner and myself qualify via the NHS and the deposit contributions tend to be double on some cars.

    Getting discounts on new cars these days is tricky. Dealers don't usually offer money off retail price as it has a negative effect on used prices.
    Also, they will receive finance arrangement fees from the loan company, which is usually owned by the manufacturer anyway.

    You just take delivery, get home and ring the finance company for a settlement figure.
    This will be the amount borrowed, minus any monthly already paid (if you wait more than a month) plus the 56 days interest.

    Before you decide, have a look at some of the sites like Carwow and Drive the Deal.
    You might find a car discounted for cash, but again their better deals come with finance and I've found they might offer a car in the spec and colour you want, but it often turns out a similar model/different colour they already have in stock.
    The finance house is often manufacturer branded but every case I have seen, the finances are provided by a bank - usually Santander or Black Horse.
  • patchyX2
    patchyX2 Posts: 128 Forumite
    Fourth Anniversary 10 Posts Name Dropper
    Thanks for the responses all.

    The loan amount is £11,851 over 2 years @ 8.4% APR, so that's £1,985 in interest I'm paying. If I put that £11,851 in an account paying 6%, I'd earn £1,507 over the same 2 year period (ignoring tax implications). So it would cost me just shy of £500 to not pay it off.  

    Not sure £500 is worth the flexibility of after 2 years saying, "Actually, I don't like this car, I want to swap it for something else". 


    Regarding this point:
    Goudy said:
    .....
    Some have tried to sign up for the PCP/Loan with contribution or other benefits with the intent of cancelling it within the 14 days cooling off period, but the trouble is you can lose the benefits ie, the deposit contribution by doing this as you are cancelling the finance. They can just rip up that deal and present you with a invoice for the full retail price as there's often a long wait between signing up, cancelling and delivery.
    .....
    Is there any way to know this in advance? I've read the finance agreement and I can see it mention my ability to cancel the finance agreement in within the 14 day cooling off period, but it doesn't mention the potential implications of this. 
  • Goudy
    Goudy Posts: 1,996 Forumite
    Sixth Anniversary 1,000 Posts Name Dropper
    Yes, you can cancel the agreement within 14 days, it's written into law, but you now have to find another way of paying for the car, which I presume will be cash.

    The finance comes with deposit contribution not the car so cancelling it risks the contribution.
    Paying cash and you technically don't qualify for the contribution anymore.

    There is conflicting advise whether you can cancel within 14 days and still keep the benefits.
    You could of course ask the dealer or ring the finance company, but they both make money from you signing the deal so their answer might be swayed a little.

    But there is a way to be certain, that's take the finance and settle within the first month.
    Yes you pay a small amount of interest, but the deposit contribution is far larger.

    If the total amount of interest is £1985 over two years, you will only be charged around 56 days, which is something close to £160 interest to settle in the first month rather than risk cancelling.
    So you are still £1840 up on the deal.

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