PCP or Hire Purchase dealer contribution - pay off early

Pat38493

I have noticed that a lot of car dealers these days offer an "finance contribution" which appears to mean you get a discount if you take out finance through the dealer.

I've also read a couple of posts on other forums suggesting that you can fudge this by taking out the finance, and then exercising your statutory right to pay off the entire finance loan within 14 days, thereby getting the finance contribution as a real discount?

Is this correct?

Penguin_

Yes that is correct. You call the finance company up a few days after you take the car & pay it off.

Goudy

There are two different things you can do so don't confuse them.

It is possible to cancel the finance within the 14 days cooling off period and pay by another means, say cash or bank transfer.

Do not be under the impression you are settling the finance this way, you are not.
You are cancelling the finance before it starts and as such you may be invoiced the full cash price that may not include the deposit contribution or other incentives that the finance package comes with.
You cancelled that package, so they don't have to give the incentives.


You can of course start the finance and settle at anytime like any loan.
They will then adjust the interest payable based on the amount and time borrowed.
The maximum interest they can charge in interest by law if you settle like this is 56 days.
So settle the finance in the first month and you will pay only 56 days interest.

As you actually took the finance package, you keep the deposit contribution and any other incentives that came with it, they cannot take those back.

Unless you are financing hundreds of thousands of pounds, the deposit contribution is often many times that of the 56 days interest, so you are still up on the deal by taking the finance and settling even when paying the 56 days interest.

There are ways to reduce the 56 days interest amount.
If you are going to settle, just borrow less.
Paying the largest deposit you can down for the shortest period of payments possible will reduce the overall interest on the loan so that reduces the 56 days amount payable.

Pat38493

Goudy said:

So settle the finance in the first month and you will pay only 56 days interest.


There are ways to reduce the 56 days interest amount.
If you are going to settle, just borrow less.
Paying the largest deposit you can down for the shortest period of payments possible will reduce the overall interest on the loan so that reduces the 56 days amount payable.

Thanks I was not aware of that - so by legislation they cannot charge early repayment fees higher than 56 days (so it's not like a mortgage in that respect)?

Does this also apply to PCP i.e. could you say that you want to settle up including the optional payment and they can only charge you 56 days interest from the point you make the request?

Goudy

No, the Consumer Credit Act regulates what they can charge.
I thinks it's under Consumer Credit (Early Settlement) Regulations 2004

The length they can charge changes depending on the amount borrowed but for large purchases like cars, it's 56 days.
I seem to think under £10k and it's 28 days (but don't take my word on that one)

Yes, it applies to PCP contracts and yes to settle a PCP fully you need to settle the optional payment amount as well.

I've done this a few times, so has my other half and nearly everyone in my office.
We qualify for fairly hefty deposit contributions as we're NHS staff.
We have to jump through a few hoops but generally they come with around 20% deposit contribution.
Some more, some less and each have different hoops.

Take the PCP deal but arrange it with the maximum customer deposit we can pay, over the shortest period (we're not worried about monthly payment amounts)
Then settle after we get home in the new car.

It works for us as the deposit contributions are so large on these NHS deals but it's possible that you might find the same car works out the same price or less through a broker paying cash.
It's worth checking first.