Buying out a PCP deal immediately

feedthecat

I’m looking to buy a used Audi and they have a deal whereby if you take out PCP on the car they will give you ‘complimentary’ 2 years warranty, 2 services, 2 MOTs, 2 year key cover, 2 year breakdown cover etc.  The problem is the APR is 13.8% so I was looking to take the PCP deal and then pay off the settlement as soon as possible and then pay off a bank loan on which I’d be paying 6.2%.

Hoping that this would allow me to retain the benefits given but then reduce down monthly repayments but also cognisant that I could get stung with additional penalties and fees which would not make this a good idea.

Does anyone have experience of doing this and is there anything in particular to be aware of?

CliveOfIndia

Check that there's no requirement to keep the PCP for a certain time period in order to retain the benefits.  But essentially this is a perfectly sound plan.

The finance provider is allowed to charge an early settlement penalty of up to 2 months-worth of interest.

feedthecat said:

then pay off a bank loan on which I’d be paying 6.2%.

Just be aware that, unless you've already got the loan, you won't necessarily get the advertised rate of 6.2%.  They'll decide what rate they're prepared to offer you once you've made the application and they've run their credit checks.  And particularly if you apply for a loan shortly after taking out the PCP, the loan provider will take the PCP into account when running their affordability calculations.  Since they can't force you to use the loan to clear the PCP, they have to assume that the loan would be in addition to the PCP.

So, just a caveat to be aware of - but in principle it's a sound plan.

Mutton_Geoff

Quite a common trick, just settle the PCP within the (14 day?) cooling off period. In fact if you ask the dealer to confirm in writing the terms of the PCP, especially re cooling off, you may just find they give you all those benefits without the hassle of signing up to their PCP plan.

born_again

Mutton_Geoff said:

Quite a common trick, just settle the PCP within the (14 day?) cooling off period. In fact if you ask the dealer to confirm in writing the terms of the PCP, especially re cooling off, you may just find they give you all those benefits without the hassle of signing up to their PCP plan.

Except that some of these sweetened PCP's unwind when this is done. So none of the freebies (well not that they are free) are no longer available. 

Mutton_Geoff

born_again said:

Mutton_Geoff said:

Quite a common trick, just settle the PCP within the (14 day?) cooling off period. In fact if you ask the dealer to confirm in writing the terms of the PCP, especially re cooling off, you may just find they give you all those benefits without the hassle of signing up to their PCP plan.

Except that some of these sweetened PCP's unwind when this is done. So none of the freebies (well not that they are free) are no longer available. 

I recently bought a used BMW. Once the dealer knew I was going to invoke the cooling off period settlement (part of our pre purchase discussion), they kindly offered me everything that was being used to sweeten their finance package although I paid for the car in full by BACS. It did require a "let me talk to my boss" conversation, but it was done.

Goudy

There is a difference between settling the finance and withdrawing from the finance deal.

Withdrawal can be done in the 14 days cooling off period.
You are basically not taking the finance deal to pay for the car and will need to arrange to pay some other way.
As you aren't taking the finance deal, any benefits that come with that finance deal will likely be withdrawn as well, though I hear some have managed to keep them.

There is usually a little bit of interest payable (usually up to 30 days) but it's best to read the finance contract, there will be a section on Withdrawal that will tell you clearly everything you need to know.


Settling the finance is just that.
Taking the finance to pay for the car then settling that finance at a later date.
The consumer credit act states the finance company cannot charge you more than 56 days interest to settle (what is left on) larger loans.
You can settle at any point in the contract but the earlier you settle, the less interest is payable as your early monthly payments will include a chunk of interest.
The finance company will work out the settlement figure when asked and will often highlight the saved interest as a "rebate".

As you have taken the finance deal all benefits that came with it are kept.
There is no will they, won't they remove the benefits or ask you to pay for them.
The only difference between the two is usually only *20 odd days interest.
30 for withdrawal compared to 56 days for settling, if you settle earlier enough.

I have settled many times without problem and kept all the benefits.
Lots of my colleagues do it as we often get offered larger deposit contribution deals via various NHS schemes.

(*Often they can't/won't generate a settlement figure until after the first months payment has been made, so you can end up paying 56 days plus the interest in the first months payment, you're still quid's in though).

I have also tried to withdraw within 14 days and I was told I would need to pay full invoice plus the 30 days interest as per contract.  
If I did withdraw I would have had to paid the full invoice plus 30 days interest, which was more than just turning up and paying cash.

Early_Retire_Free

On my last two vehicle purchases I withdrew from the finance agreement (one of which was with Audi) on the day the agreement was issued, paid nothing and kept the discount offered.  Not sure about retaining other benefits.

Dealers know people do this but won't publicise.  So feel free to ask them.

Petriix

I believe a lesser known trick is to 'overpay' almost all of the outstanding finance before asking for a settlement figure. That way the 56 days interest is almost zero. You would have to check the terms of the agreement. 

sheslookinhot

Petriix said:

I believe a lesser known trick is to 'overpay' almost all of the outstanding finance before asking for a settlement figure. That way the 56 days interest is almost zero. You would have to check the terms of the agreement. 

How do you “overpay” “almost all” of the finance ?

Hoenir

Goudy said:

You can settle at any point in the contract but the earlier you settle, the less interest is payable as your early monthly payments will include a chunk of interest.

More interest will be payable not less. As with a mortgage or the majority of finance agreements. The capital balance owing only reduces slowly. The pivotal point where the capital reduction exceeds the interest charged. Is around half way through the term of the agreement. 

Ectophile

sheslookinhot said:

Petriix said:

I believe a lesser known trick is to 'overpay' almost all of the outstanding finance before asking for a settlement figure. That way the 56 days interest is almost zero. You would have to check the terms of the agreement. 

How do you “overpay” “almost all” of the finance ?

You make a lump sum payment towards the outstanding balance on the finance.  For example, if you owe £30000, you might send the finance company a one-off payment of £29999.