PCP - How to overpay and reduce interest, is it worth doing?

IAMIAM

facade said:

The only way to have zero monthly payments is to settle the finance (including the 10K GFV/ballon) then you own the car outright. Otherwise you are perpetually paying 8.9% on the fixed £10,000 GFV- about £74 a month.

I think they can charge 90 extra days interest if you do this outside the 14 day "cooling off" period.

It will save you an absolute fortune over the 4 years if you have the cash available, or quite a bit if you have to take out a loan at 6% to do it.

I dont think that is right at all. If I have a 25k pcp, 10k balloon, 15k monthly payment at 8.9%. Pay the 15k off in  say 3-6 months and have £1 as my monthly payment for the rest of the 48 months with a view to paying 10k balloon in 48 months time. Where is this 3.5k interest? The total interest for the whole pcp package is 5.5k. So I highly doubt 3.5k is being generated from the balloon and 2k is being generated by the rest when interest is calculated daily. 

What you are saying is 10k sits there generating £890 interest per year for 4 years = £3560.....surely that cannot be right? 

DrEskimo

IAMIAM said:

facade said:

The only way to have zero monthly payments is to settle the finance (including the 10K GFV/ballon) then you own the car outright. Otherwise you are perpetually paying 8.9% on the fixed £10,000 GFV- about £74 a month.

I think they can charge 90 extra days interest if you do this outside the 14 day "cooling off" period.

It will save you an absolute fortune over the 4 years if you have the cash available, or quite a bit if you have to take out a loan at 6% to do it.

I dont think that is right at all. If I have a 25k pcp, 10k balloon, 15k monthly payment at 8.9%. Pay the 15k off in  say 3-6 months and have £1 as my monthly payment for the rest of the 48 months with a view to paying 10k balloon in 48 months time. Where is this 3.5k interest? The total interest for the whole pcp package is 5.5k. So I highly doubt 3.5k is being generated from the balloon and 2k is being generated by the rest when interest is calculated daily. 

What you are saying is 10k sits there generating £890 interest per year for 4 years = £3560.....surely that cannot be right? 

That is exactly what is happening. This was explained in numerous of your other threads.

Do you think the finance company just lend you £10k for free?

daveyjp

That's how the finance company earn their money.  Part of the debt (the balloon) is interest only, no capital is ever paid off the balloon until the end of the agreement, so that balloon capital is indeed generating interest for 4 years (another reason IMHO 4 years is too long for a PCP).

If you want flexibility of car loan payments PCP probably isn't the way to go about it.

Grey_Critic

The question really is will the finance company agree - My Granddaughter and Partner bought a house and then found they would pay extra - the building s0ciety would only allow a limited extra amout or they could redeem the mortgage in full I would suspect that the finance company may have a similar policy - they do want their pound of flesh

WellKnownSid

Yes that is how PCP works. Generate a ton of interest but keep the monthlies “looking” low because the capital is never being paid off.

facade

IAMIAM said:

facade said:

The only way to have zero monthly payments is to settle the finance (including the 10K GFV/ballon) then you own the car outright. Otherwise you are perpetually paying 8.9% on the fixed £10,000 GFV- about £74 a month.

I think they can charge 90 extra days interest if you do this outside the 14 day "cooling off" period.

It will save you an absolute fortune over the 4 years if you have the cash available, or quite a bit if you have to take out a loan at 6% to do it.

I dont think that is right at all. If I have a 25k pcp, 10k balloon, 15k monthly payment at 8.9%. Pay the 15k off in  say 3-6 months and have £1 as my monthly payment for the rest of the 48 months with a view to paying 10k balloon in 48 months time. Where is this 3.5k interest? The total interest for the whole pcp package is 5.5k. So I highly doubt 3.5k is being generated from the balloon and 2k is being generated by the rest when interest is calculated daily. 

What you are saying is 10k sits there generating £890 interest per year for 4 years = £3560.....surely that cannot be right? 

I understand what you mean now.

The total of your monthlies over the 4 years is going to be £15K, including the projected interest of £3560 on the 10K balloon. The other 2k is the interest on the diminishing capital as you are chipping away at it by paying more than the monthly interest on the total you owe.

So if you give them a cheque for £15k today then you have already paid all the interest and the capital in advance and owe nothing further, (except 10K) so the payments should be zero as it is already paid in advance.

We were thinking you wanted to save money by paying off the £10K capital before it accrues interest, not gift the lender interest that you won't owe yet. (You can't not pay 4 years interest on the 10K balloon, as you can't pay it off without buying the car)

So yes, if you pay the £10K capital today, (plus 90 days interest) plus the £3560 projected interest on the balloon then you won't need to pay anything, and should save £2K over 4 years.

I doubt if you can do this as I think you will have terminated your agreement by paying it all off bar the balloon.

I would expect the settlement to be around £20K now anyway, and you'd own the car, so you'd be £5K up after 4 years if the car is worth £10K then.

 

Goudy

facade said:

IAMIAM said:

facade said:

The only way to have zero monthly payments is to settle the finance (including the 10K GFV/ballon) then you own the car outright. Otherwise you are perpetually paying 8.9% on the fixed £10,000 GFV- about £74 a month.

I think they can charge 90 extra days interest if you do this outside the 14 day "cooling off" period.

It will save you an absolute fortune over the 4 years if you have the cash available, or quite a bit if you have to take out a loan at 6% to do it.

I dont think that is right at all. If I have a 25k pcp, 10k balloon, 15k monthly payment at 8.9%. Pay the 15k off in  say 3-6 months and have £1 as my monthly payment for the rest of the 48 months with a view to paying 10k balloon in 48 months time. Where is this 3.5k interest? The total interest for the whole pcp package is 5.5k. So I highly doubt 3.5k is being generated from the balloon and 2k is being generated by the rest when interest is calculated daily. 

What you are saying is 10k sits there generating £890 interest per year for 4 years = £3560.....surely that cannot be right? 

I understand what you mean now.

The total of your monthlies over the 4 years is going to be £15K, including the projected interest of £3560 on the 10K balloon. The other 2k is the interest on the diminishing capital as you are chipping away at it by paying more than the monthly interest on the total you owe.

So if you give them a cheque for £15k today then you have already paid all the interest and the capital in advance and owe nothing further, (except 10K) so the payments should be zero as it is already paid in advance.

 

You can't really pay the interest in advance. 

Any over payment will be considered capital and then the interest will be adjusted on the financed amount that is left to pay.

If you gave them a cheque for £15k today, that would be capital and the outstanding amount would be adjusted over the remainder of the months.
This would likely leave you with owing less then the £10k GFV as that £15k was all capital. (the interest on that £15k can't be charged).

But they may not allow you to do that, they may only allow you to pay (up to) the capitol of those monthly payments and leave the GFV generating monthly interest payments (or settle the whole amount, including the GFV).


Where things get different with a PCP is the Balloon or GFV.
Yes you borrow that and that comes with interest. You are basically borrowing that GFV and making no capital payments towards it for 4 years, that generates an uneven proportion of interest than the amount of the monthly payments that you chip away at (captial AND Interest) every month.

I seem to remember messing around with one of my old PCP deals on the finance companies online portal.

It would let my clear up to all the monthly capital (in your case that would be the £15k minus a lot of the interest that would generate in the remaining months) in one go but leave the GFV and it's interest as a monthly payment.
Or
Let me settle the finance completely.

I hope that makes sense.