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PCP car finance
Wilbur2011
Posts: 3 Newbie
Do you pay interest on the total outstanding balance of a PCP deal (car cost minus deposit but INCLUDING the balloon payment) or only on the car cost minus deposit AND final payment?
As I assume you are technically not borrowing the balloon payment given the end of term options.
As I assume you are technically not borrowing the balloon payment given the end of term options.
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Comments
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Interest is calculated on the amount of finance including the balloon payment.0
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I see. Thanks molerat. Seems very harsh given you are technically not borrowing the end payment especially if you give the vehicle back0
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The total outstanding balance.
Which is why the total interest charge is much higher than an equivalent loan without a GFV. With a standard loan, most of the monthly payment is on the capital, with a bit going towards interest (depending on APR). With a PCP, some is going towards the capital (difference between total amount finance and GFV, i.e. depreciation), whereas a relatively higher proportion is going towards interest.
Work out the total interest charged on a standard loan on the total finance borrowed, and then on the PCP and you will see that it works out a lot more expensive over the term.0 -
You pay interest on the amount you borrow ie the price of the car less the deposit/part exchange.
Basically a PCP over X years has payments that on a standard HP agreement would not be enough to repay the loan over that term hence at the end of X years you have to pay a lump sum to keep the car, the balloon payment is simply the amount still owing on the loan. The GMFV options to hand back etc are essentially just bolt ons to a standard *HP agreement with interest charged on the declining balance throughout the term of the loan. * some PCPs are conditional sale agreements or fixed sum term agreements but the principle is the same.0 -
Thanks vim DrEskimo and Nearlyold, much appreciated0
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