PCP vs loan

momo12

Hi,

I have taken out a PCP for a car. I'm tempted to take out a loan to then cancel the PCP agreement and pay it off with that loan money. Reason being, the difference in interest is about £1800, albeit the loan is 7 years and PCP is 4. Plus I got a dealer deposit plus free servicing with setting up the PCP.

My question is, would mortgage lenders look at me differently between having a 20k PCP VS bank loan? 

Thanks in advance. 

grumpy_codger

AFAIK, for mortgage lenders it's the monthly payment that matters and affects affordability calculations.

That said, are you sure about £1800? The loan interest rate has to be much lower to save you money over much longer term (7 instead of 4).

momo12

grumpy_codger said:

AFAIK, for mortgage lenders it's the monthly payment that matters and affects affordability calculations.

That said, are you sure about £1800? The loan interest rate has to be much lower to save you money over much longer term (7 instead of 4).

Well there you go. Thanks for bringing it up, I double checked it there and found a mistake in my maths. 
On the hire agreement documents, I see a line that says total amount payable. This value is £29,917.98, which is the number I used. But this includes the deposit as I show below (I think). 

Credit amount is £22848.

PCP is 48 payments of £354.26 balloon payment of £12,037.50. Total of £29,041.98.

The difference between the two numbers is £876. I assume this is the total deposit I paid (£750 (dealer + £150 (me) - £25 (used for fuel)). There an extra pound in there but I guess that's rounding??

PCP is 8.9% APR

I've found a loan that I'm 95% eligible to get which is over 7 years.
84 payments of £334.11 = £28,065.24

Loan is 6.2% APR

So compared to the credit amount, the loan is actually only £976.74 cheaper. Although there is only 51% of people that get that rate apparently!

I'd like to think I'd have double checked before pulling the trigger but I'm glad you nudged me!

grumpy_codger

momo12 said:

grumpy_codger said:

AFAIK, for mortgage lenders it's the monthly payment that matters and affects affordability calculations.

That said, are you sure about £1800? The loan interest rate has to be much lower to save you money over much longer term (7 instead of 4).

Well there you go. Thanks for bringing it up, I double checked it there and found a mistake in my maths. 
On the hire agreement documents, I see a line that says total amount payable. This value is £29,917.98, which is the number I used. But this includes the deposit as I show below (I think). 

Credit amount is £22848. [~23K]

PCP is 48 payments of £354.26 balloon payment of £12,037.50 [~£12K]. Total of £29,041.98. [~£29K]

The difference between the two numbers is £876. I assume this is the total deposit I paid (£750 (dealer + £150 (me) - £25 (used for fuel)). There an extra pound in there but I guess that's rounding??

PCP is 8.9% APR

I'm no expert in PCP, so feel free to correct me, but... 

£29K-12K=£17K  -  loan with the interest?

MSE calculator does say that 48x£355 @8.9% correspond to £14.3K loan + £2.7K interest = £17K.

What is "Credit amount ...£22848" ?

I've found a loan that I'm 95% eligible to get which is over 7 years.
84 payments of £334.11 = £28,065.24
Loan is 6.2% APR

So compared to the credit amount, the loan is actually only £976.74 cheaper. Although there is only 51% of people that get that rate apparently!

£28K includes the interest, the loan is about £22.7K and the interest about  £5.3K

And why do you want to borrow £22.7K? Is it the 'credit amount' above?

ETA: BTW, this is "Mortgages & endowments" board. There is a better place here for this sort of question - 

Loans

momo12

Oh jeezo, that's went over my head. Too late for me I think! 

The amount I need to finance is the £22848 amount. My thought was that is the amount I need to take out a loan for? 

Sorry I don't think follow your post?!

grumpy_codger

momo12 said:

...
Sorry I don't think follow your post?!

Your figures seem not to add up.

• "48 payments of £354.26" correspond to about £14.3K PCP loan + £2.7K interest,  8.9%, £17K total.
• £17K+£12K=£29K - this is close to your £29,041
• If so, you need £14.3K (plus early repayment charges if any) loan, not £22,848 - to pay of your PCP loan. It hardly makes sense to borrow extra £12K now as it's due only in 4 years.
• I still cannot make sense of your £22,848 figure.
• £2.7K interest is smaller than £5.3K interest for the loan you are considering.

born_again

As a aside. Is this a 2nd hand car?

7 years is a hell of a long time for a loan on a car. Especially when you factor in running costs.

momo12

grumpy_codger said:

momo12 said:

...
Sorry I don't think follow your post?!

Your figures seem not to add up.

• "48 payments of £354.26" correspond to about £14.3K PCP loan + £2.7K interest,  8.9%, £17K total.
• £17K+£12K=£29K - this is close to your £29,041
• If so, you need £14.3K (plus early repayment charges if any) loan, not £22,848 - to pay of your PCP loan. It hardly makes sense to borrow extra £12K now as it's due only in 4 years.
• I still cannot make sense of your £22,848 figure.
• £2.7K interest is smaller than £5.3K interest for the loan you are considering.

But the 12k balloon payment at the end is still owed when I cancel the PCP finance. Not at the end of the period?
The value of the car is what is owed, this is £22,848. That value is made up of monthly payments plus the balloon payment. 

The interest is built into the monthly payments already. 

As above, I know this isn't a loan discussion. More about do mortgage lenders prefer to see PCP debt over bank loan debt. 

momo12

born_again said:

As a aside. Is this a 2nd hand car?

7 years is a hell of a long time for a loan on a car. Especially when you factor in running costs.

It's a nearly new car with 50 miles on it. 
Yeah agree 7 years is a long time. But I was only considering it because of the saving in interest (circa 1k). Just means I can sell it on quite easily when the time comes. No finance on the car etc.