Is PCP early settlement really too complicated to explain?

ecd2

I'd really appreciate  some advice from anyone with more experience of PCP than me please.

I'm in the process of buying a second-hand car from an Audi dealership.

I was intending to pay cash, as I have always done before, but they suggested taking out a 2 year PCP for some incentives and "just get a settlement figure after 6 months".

The offer involves longer warranty, two extra services, MoTs, etc  that amount to about £1500 at retail prices, so worth considering.

I had two questions Q1. "Why wait 6 months and not, say, 6 days?" The answer to this was at least honest: They would lose their commission and since the dealership are funding the incentives that would be underhand behaviour on my part.  OK, fair enough.

Q2. "How do they calculate the settlement figure, so that I can check what this deal will actually cost me?"

Verbatim answer below:

"As per our conversation, I have called the finance company and unfortunately they cannot provide the formula for calculating the early settlement figure as it is something that is done by computer. They will also not give an estimated future settlement figure as they will only provide a settlement figure at the time of request."

I find this answer preposterous since it took me 5 minutes to knock up a spreadsheet to calculate a monthly balance by adding the interest and subtracting monthly payments. I just want to know how much extra they would add to that balance.

The finance company is linked to VW/Audi, but fortunately Santander have a much more helpful document on their website:

"The early settlement calculation contained in the Consumer Credit (Early 

Settlement) Regulations 2004 means that we defer the proposed 

settlement date by 28 days from the date of your request on an 

agreement that had an original term of 12 months or less, and by 58 

days on an agreement with an original term of greater than 12 months"

So effectively the settlement figure is legally regulated and it should cost an extra 2 months' interest to settle.  

Do you think I am safe to assume that the Audi people are just a bit clueless and that they must apply the regulated method whether they know it or not?

Further down the rabbit hole, I also saw that the version of these regulations on legislation.gov.uk specifies 30 days and not 58 days:

Deferment of settlement date

6.  Where the agreement provides for the credit to be repaid over, or at the end of, a period which is more than a year after the relevant date, the settlement date for calculation of the rebate may be deferred by—

 (a)one month, or

 (b)where the length of a month’s deferment would be more or less than 30 days and the creditor so elects, 30 days.

 

Is this a recent change perhaps?  Maybe I am overthinking it, but I do like to know what I am getting myself into before signing things like this.

CliveOfIndia

On any loan (with the possible exception of a mortgage that's on a fixed rate for a specified period), the lender is allowed to charge up to 2 months'-worth of interest for early settlement, or up to 1 month's-worth of interest if there's less than 12 months left to run on the loan.

That's the maximum they're allowed to charge.  I think most lenders will actually charge this (you can't really blame them, I suppose), though there may be some who charge less than this.  But those maximum amounts are legal maximums, they can't charge more than that.

ecd2

Thanks for confirming that.  It's good to know that there is a limit to the charge and I will assume that they will go up to the limit as you say.
Just to clear up the confusion I introduced in my last section about 28 / 30 / 58 days, I understand now that the 30 days quoted there is specifying an extra 30 days if the loan has > 12 months to go, hence 28 days for shorter loans and 58 days for longer ones.

DrEskimo

If you did want to let it run 6-months to enable the commission, you could always make a large overpayment to reduce the amount of interest incurred in the first 6-months, then settle. Presumably this would impact the amount charged on settlement too.

I went to do this when I took this route on my used Renault, but I'll be honest I was too impatient and just settled in full a few weeks later. Mine didn't charge me any early settlement fee.

Got the £1000 deposit contribution and 2 free services.

poppy10_2

I settled my PCP within a week of taking out the loan

Why do you care if the dealership doesn't get a commission. They make profit from the sale of the car. You don't also owe it to them to take out a loan and let them make commission on this

chanz4

dealer is making 3k on your car just selling it, on top the finance kickback.  Take the deal and cancel under 14 days

MrFrugalFever

chanz4 said:

dealer is making 3k on your car just selling it, on top the finance kickback.  Take the deal and cancel under 14 days

I can't remember the last time we made £3k margin on a used car so it would be great if you could evidence this?

The Audi dealer has been truthful in terms of having the commission clawed back. OP, YOU are within your rights to know exactly how much the commission being paid is and the dealership has a duty of care (as per updated FCA regulations from January 2021) to disclose this upon request.
It is up to you whether you have a moral conscience to settle early or later.....

Almost all PCP contracts are Consumer Credit Act 1974 regulated and carry the ability for the consumer to settle in partial or in full. Should you wish to settle in full, you can do so at any time once the agreement has been executed. The lender has the legal right to retain up to 58 days worth of interest unless the agreement has 12 months or less to go.

A very rudimentary way to calculate your settlement (not an exact amount because of daily interest accrual) you would need to perform a calculation similar to this below;

Total amount of credit (interest charges) £X
Divided by total term (not inclusive of Optional Final Payment month) (say 48 months then 49 months is OFP)
Times by amount of months you run the agreement for
Add in two extra months for CCA rights
Remaining will be rebated

Example;

£2,000 credit charge / 36 months = £55.60
£55.60 x 6 months agreement runs until settlement requested = £333.60
£55.60 x 2 months charge under CCA rights = £111.20 plus £333.60 = £444.80
£2,000 minus £444.80 = £1,555.20 rebate (not exact due to daily interest accrual)

If you max the annual mileage and deposit (normally 25,000 miles per annum and 40% of purchase price) and reduce the term to minimum (normally 18-24 months) then you will decrease interest paid further by yourself.

Good luck.