Daughter has taken out a Contract Purchase Finance Agreement with BMW

baffledindevon

Sadly my 19 year old daughter has taken out a Contract Purchase Agreement with BMW. I have just seen the details!

If any one has any insight it would be much appreciated the details are:-

Amount of Credit in Feb 2024 was £14000
Her statement is now Feb 2025 nearly £18,500
She is making the agreed monthly payments of £205.
The APR shown is 13.5%. 

Surely the monthly amount they are asking from her, should mean that her balance doesn't increase? In my calculations it should be nearer £550 per month to remain at the same credit amount. Its a 49 month contract that would mean she would come out with a debt of £30,000 plus. Is this legal?

What can I do to help her extract herself from this?

TadleyBaggie

What is the balloon payment? £205 pm would never be the correct payment for a £14K loan at 13.5% over 49 months.

Exodi

There's something wrong here, the interest on a £14k interest only loan would be £157.50 (14000*0.135/12) - so that would be the minimum payment wherein the balance wouldn't go down but you'd be covering the interest. As her monthly payment is higher, you'd expect her balance to also be decreasing.

I've ran the numbers you've provided below. You can see that she should have a balance of around £13.3k at this point (and you can also see she would have a projected balloon payment of around £10,917.41 at the end of the agreement).

Personally I find the monthly payment figure a bit low. I would have thought a monthly payment of around ~£265.36, (causing the balloon payment to be £7k, or half the original loan) would have been a bit more normal, but I'm not sure it matters much.

Nonetheless, there is something missing here as the Maths does not add up. The interest rate would need to be ~41.5% for the interest rate to now be around £18.5k as you state. It's more likely there's a misunderstanding somewhere or something else has happened that we're not aware of (e.g. missed payments, car was wrote off, etc, certainly the difference (nearly ~£5k to what you'd expect) seems quite extreme).

Grumpy_chap

baffledindevon said:

Sadly my 19 year old daughter has taken out a Contract Purchase Agreement with BMW. I have just seen the details!

If any one has any insight it would be much appreciated the details are:-

Amount of Credit in Feb 2024 was £14000
Her statement is now Feb 2025 nearly £18,500
She is making the agreed monthly payments of £205.
The APR shown is 13.5%. 

Surely the monthly amount they are asking from her, should mean that her balance doesn't increase? In my calculations it should be nearer £550 per month to remain at the same credit amount. Its a 49 month contract that would mean she would come out with a debt of £30,000 plus. Is this legal?

What can I do to help her extract herself from this?

Is the £18.5k the total payable over the remainder of the original 49 month term?
Not the current settlement figure.

baffledindevon

Thanks so much Exodi for your comment, and am also going to look up what a balloon payment is.

I am going to get all the paperwork from her tonight so that I can get a clearer picture.

What options are available do you know to getting out of the agreement early, I did call the dealership she got it from and they were rather defensive and very unhelpful.

FrugaiMacDugal

Have a read here.

baffledindevon

Grumpy_chap said:

baffledindevon said:

Sadly my 19 year old daughter has taken out a Contract Purchase Agreement with BMW. I have just seen the details!

If any one has any insight it would be much appreciated the details are:-

Amount of Credit in Feb 2024 was £14000
Her statement is now Feb 2025 nearly £18,500
She is making the agreed monthly payments of £205.
The APR shown is 13.5%. 

Surely the monthly amount they are asking from her, should mean that her balance doesn't increase? In my calculations it should be nearer £550 per month to remain at the same credit amount. Its a 49 month contract that would mean she would come out with a debt of £30,000 plus. Is this legal?

What can I do to help her extract herself from this?

Is the £18.5k the total payable over the remainder of the original 49 month term?
Not the current settlement figure.

I will hopefully know more, when I get my hands on all the paperwork. Thanks for your comment - much appreciated.

Grumpy_chap

baffledindevon said:

What options are available do you know to getting out of the agreement early, 

Request the settlement figure first.
Then obtain prices for selling the car - try WBAC or Motorway to get a first valuation.
That will let you know whether the straightforward option of selling the car to clear the finance is a viable route - if the online valuations are near, you may be able to better those and reach an acceptable place.

As she gets further into the agreement, she will have other options around VT (voluntary termination) but will be far from that point at this stage.  VT can also negatively impact credit rating going forwards.

As an aside, apart from your dismay, is there any reason you daughter should not keep the car and simply make the monthly payments and then return the car at the end of the PCP term as was the original intention?
Is she working?
Can she afford the monthly payments?  Plus other costs, insurance, servicing etc.
Does she need / want a car?
If she is able to pay for this car and meet her obligations, she may learn far more from it than quitting the agreement early.  There is a big life lesson in "I was sold this, it was expensive, and I had little to show for it after 4 years".  A nice but too expensive car really while still quite young might be the mistake to make and learn while it is not necessarily having a life-changing and lasting impact on her future.

penners324

The dealer and the finance company haven't done anything wrong. 

I'm not convinced your daughter has done anything wrong. Misguided at this time of her life maybe. But if she's earning enough to keep the repayments going then not much going wrong

baffledindevon

Grumpy_chap said:

baffledindevon said:

What options are available do you know to getting out of the agreement early, 

Request the settlement figure first.
Then obtain prices for selling the car - try WBAC or Motorway to get a first valuation.
That will let you know whether the straightforward option of selling the car to clear the finance is a viable route - if the online valuations are near, you may be able to better those and reach an acceptable place.

As she gets further into the agreement, she will have other options around VT (voluntary termination) but will be far from that point at this stage.  VT can also negatively impact credit rating going forwards.

As an aside, apart from your dismay, is there any reason you daughter should not keep the car and simply make the monthly payments and then return the car at the end of the PCP term as was the original intention?
Is she working?
Can she afford the monthly payments?  Plus other costs, insurance, servicing etc.
Does she need / want a car?
If she is able to pay for this car and meet her obligations, she may learn far more from it than quitting the agreement early.  There is a big life lesson in "I was sold this, it was expensive, and I had little to show for it after 4 years".  A nice but too expensive car really while still quite young might be the mistake to make and learn while it is not necessarily having a life-changing and lasting impact on her future.

Really appreciate your insight, still waiting for the paperwork to come into my hands. However, I am slightly less baffled and definitely calmer now so thank you. I think on reflection you are right this could be an excellent albeit expensive life lesson for her!

saajan_12

Agree with the others, the statements you have don't make sense. At 13.5% interest, in one year thats £1890 ie balance of £15,890 even if she hadn't made any payments. With the £205 x 12 paid, it should be £13,430. 

Either the 18.5k doesn't mean the current balance, or something else has happened in the past, whether that's missed payments and penalties, higher cost than 14k, etc.