PCP Car Finance

PRL1984

Hi All, 

First time poster but hoping someone could help answer my question. 

I have PCP car payment on a car with 35 payments left at 11.9% and a final payment of around £8k in 35 Months 

I have been looking at saving some interest and can get a personal loan around 6% so I was thinking if it is possible for me to just pay off the 35 PCP monthly payments in full and leave the final £8k payment. 

Basically, I do not want to reduce the term but want to reduce the monthly payments. 

If I paid off the 35 payments as a an over payment will the finance stop taking payments until the end of the finance term in 35 Months?

Ayr_Rage

I've never heard of what you plan being applied to a PCP agreement.

You'll have to ask the finance company what is possible.

PRL1984

Yeah not sure to be honest but was hoping to see if anyone has done before before I join a queue to the finance company

ev51

Part of your current monthly payment covers the interest on the £8k final payment, without knowing all the figures probably around £79 in interest x 35 = £2765.  This interest would still be payable even if you overpay on the "other" part of the loan.

If you can borrow the full amount at 6% (to settle the PCP in full) and reduce your monthlies you may save some money. On the other hand if the car is worth much less than £8k at the end of the term, you are taking that loss instead of the finance company.

Mr.Generous

I don't really understand why anyone takes a PCP or similar at 12% when a personal loan is about 6%, So while agree paying off any high interest debt has to be good thing I can't imagine the finance company are going to give up their profit. Something in the small print will cost you anyway you deal with it.

DullGreyGuy

PRL1984 said:

Hi All, 

First time poster but hoping someone could help answer my question. 

I have PCP car payment on a car with 35 payments left at 11.9% and a final payment of around £8k in 35 Months 

I have been looking at saving some interest and can get a personal loan around 6% so I was thinking if it is possible for me to just pay off the 35 PCP monthly payments in full and leave the final £8k payment. 

Basically, I do not want to reduce the term but want to reduce the monthly payments. 

If I paid off the 35 payments as a an over payment will the finance stop taking payments until the end of the finance term in 35 Months?

You need to speak to them, by overpaying you would be saving interest and so it wouldn't be paying the 35 payments early. If they allow overpayment without penalty you would still be paying payments each month because the remaining capital will still have interest applied to it and it need to be repaid. 

ev51

If this is a 48 month PCP, that £8k final payment could cost the borrower nearly £3800 in interest over the full term.

Again, without all the figures relating to the PCP it would be difficult to know how much, if any, saving could be made by settling and re-financing.

PRL1984

Thanks All. Mr.Generous said:

I don't really understand why anyone takes a PCP or similar at 12% when a personal loan is about 6%, So while agree paying off any high interest debt has to be good thing I can't imagine the finance company are going to give up their profit. Something in the small print will cost you anyway you deal with it.

The main reason was a full personal loan for the car would be double the monthly payments which we could not afford. PCP is effectively only financing the depreciation so is a lot cheaper monthly. 

Agreed not the best way to finance a car but I needed to make sure we had a reliable car for the wife and kids and they are not cheap. 

Interesting regarding comments that there is interest applied on the final "balloon' payment part of the loan, I did not realise this. We are getting close to the point I can refinance the whole car at a lower rate but then we are taking the hit on deprecation and not the finance company. 

ev51

Have a read through this thread:

https://forums.moneysavingexpert.com/discussion/comment/80868922#Comment_80868922

It explains what pcp payments consist of.

PRL1984

ev51 said:

Have a read through this thread:

https://forums.moneysavingexpert.com/discussion/comment/80868922#Comment_80868922

It explains what pcp payments consist of.

Thank you so much. I did do a search but did not see this 

DrEskimo

Overpayments on PCP is more complicated than a standard loan. You will need to to ring to understand the impact of partial repayments on the monthly costs and final payments for your specific agreement.

Given you pay interest on the full amount borrowed, but only pay down a portion of the loan over the term, you can't simply compare personal loan APR with a PCP APR. If you look at the actual cost of the interest over the term, you will see a PCP is quite a lot more expensive, and is equivalent to a personal loan at around double the APR.

You get cheaper monthlies, but it comes at a cost I'm afraid...