I took a pcp out 5 months ago , 95 pm x36 months , with a final balloon payment of £5093
What I’m struggling with is after 5 months of payments ( plus some overpayments ) my settlement figure is £5900 , so unless I’m getting my sums wrong I’m going to have a settlement figure thousands below my final balloon payment
Is this right , or what happens , my payments have reduced from £95 to £69 but I still will be miles under the balloon payment in 3 yrs ( I
Intend to vt after 2 yrs )
generally interest is calculated daily the more you pay of the principle (the amount you borrowed) the less the interest is on the outstanding.
bank loans for example are calculated so by the final payment you have paid back the amount borrowed plus any interest. pcp loans are different. They deliberately underestimate the repayment plan so there is a balance owed at the end of the loan term. cars are a good example of this because they have already got back the price of the car and then some by the end of the loan term. The client cant afford the final payment so the nice garage buys back the car minus the final payment so gets it far below market price and sells it again at a bigger profit than if they had paid a fair price for it,
In your case you have paid more per month than the requested 95 quid therefor at the end of the 5 years there will be less owed as you are paying off the loan quicker. You will also pay less interest as you are paying off the principle quicker.
Thanks cooper
just a word of warning. it has been my experience that these sort of loan companies dont like people paying it back quicker for the reasons i said and can be pissy and refuse to deal with you if you need a loan from either them or a similar company in the future
Ironically additional accelerated repayments does help credit rating as I was told by VW’s in house financing.The problem is finding a decent trade in deal depending on motivation for PCP.
IE buy out the balloon to keep the car hand it back for rolling trade in and monthly payments which even at worse is better than leasing costs.
The elephant in the room is trade v retail value.Downpayment and repayments are based on retail purchase price but trade in is only at trade value.Dont understand how they can even calculate ‘equity’ with that discrepancy.
The problem is accelerating the balloon payment also accelerates the end of the contract.So you’ll also be forced to settle early or hand it back.Which then means the vagaries of trade in valuation v starting a new deal at retail valuation.
My PCP has ended up with the worst of all worlds of crap trade valuation in v high retail to replace even 1 year early and can’t even find a suitable 150 VW Touran 6 speed manual like with like replacement for it.
Tried to replace it early with a ‘22 plate 3.0 Toareg not even the PHEV hybrid.Was offered £15k trade in for a £20k retail car and only £1,800 equity.
Which I’m already down with £8k down payment and over 1 year of payments at £320 per month.They wanted mine plus over £5k down payment and over £600 per month.
Don’t be tempted to settle early.The downsides will exceed the interest saved.I’ve decided to run mine to the end of contract then let WBAC settle the balloon payment.At most I might settle up a month or two early maybe sooner totally dependent on the right trade in deal.
Thanks both , I’m struggling to read what you’ve both put ( this site is a nightmare at the moment )
I won’t be having another loan ( pcp ) I only took this one out as I didn’t want the hassle of selling the bike at the end ( easier to just vt ( hand it back ) ,
As for don’t pay extra , I can see the point but I won’t be able to ride when I’m 67 ( I’m struggling now ) , it will be either handed back 18-24 months , I take a bath on it but I would do whatever , as mate said , motorbikes arnt cheap transport these days , there a expensive hobby
Thanks again , sorry if I’ve missed anything but site is difficult to read at present
Obviously if you intend to just settle up early and don’t want to or need to replace it with a trade in then early settlement is probably better.
PCP works best used as as type of leasing the down payment and monthly payments are generally less.But getting financially unviable either way with such massive gaps between trade in values v retail prices.
