Ending PCP agreement by paying it off/closing it versus making lump sum payments against it first

[Mehdime]

The wording in the contract makes it seem like there is an excess charge of 7.2p per mile, regardless of whether you turn the vehicle back over to VW (they own it the whole time). That is, it says there is that charge, and it's not said to be conditional on turning the vehicle back over.

I guess one could say 'but how would they know it has excess miles if I end up keeping it?', which is fair enough, except they are also allowed to inspect the vehicle whenever they want. If it drove 25,000 miles more than allotted, by not checking the mileage even when people do make the balloon payment, they would be leaving £1800 on the table.

In Ireland, it’s part of the “Return Option” section, that only applies to the case when you want to return the van instead of buying it.

 

[2haw]

They are not interested in how many miles you do each year. It is only there to estimate a value throughout the period of you owning it, just in case you hand it back and walk away.

 

[johns6809]

The settlement letter I received from VW doesn't have any breakdown or information about where the settlement number comes from, but eyeballing the math it seems like it must include an interest penalty. The original amount of credit was £53,969. I've had the van 47 days, the settlement letter says I have to pay the settlement amount by Dec 16th, meaning if there is no penalty I should be paying interest on between 47 days and 73 days. At 6.9% that's between £479 and £744. I've made one payment of £476, and the settlement figure is £54,551. If I pay that I'll have paid a total of £55,027 to VWFS, against an initial loan plus interest of between £54,448 (47 days interest) and £54,713 (73 days interest. So somewhere between £314 and £579 interest.

Looking at that, I bet it's calculated this way: 47 days interest because I gave them notice, plus 58 days penalty. The 58 days equals £579.

Weirdly the contract itself doesn't say anything about a prepayment penalty.

I once bought a VW on PCP purely because it came with free servicing if i bought it that way. I then paid it of before the end of the cooling off period with virtually zero penalty other than a fortnights interest. But it retained the free servicing. Is that something you could look at doing or have you had it too long for that?

 

[dspuk]

The wording in the contract makes it seem like there is an excess charge of 7.2p per mile, regardless of whether you turn the vehicle back over to VW (they own it the whole time). That is, it says there is that charge, and it's not said to be conditional on turning the vehicle back over.

I guess one could say 'but how would they know it has excess miles if I end up keeping it?', which is fair enough, except they are also allowed to inspect the vehicle whenever they want. If it drove 25,000 miles more than allotted, by not checking the mileage even when people do make the balloon payment, they would be leaving £1800 on the table.

IMHO you’re making it all much more complicated than it needs to be. Pay the remaining. Take the very small hit. Enjoy the van.

 

[turnitdown]

I once bought a VW on PCP purely because it came with free servicing if i bought it that way. I then paid it of before the end of the cooling off period with virtually zero penalty other than a fortnights interest. But it retained the free servicing. Is that something you could look at doing or have you had it too long for that?

I considered doing that except there was a £1500 finance contribution and I thought that if I "withdrew" from the financing arrangement, rather than took the early repayment option, they might claw that back somehow. (It would make sense to, frankly.)

 

[Johnboy]

I took out the finance option (got a £700 reduction) and then paid the whole lot off after 1 month.

I was well aware of the interest payments being quoted at the time....

"Don't worry sir, it's a flat rate of interest" I was quoted.

A "flat rate" is the interest paid on the whole amount irrespective of how much you have paid off ! a right rip-off, but often used for PCP agreements (or it was - not sure nowadays).

So for example a £50000 loan at a "Flat rate" of 6% over 4 years is as follows :-

Interest = 6% x £50000 = £3000 per year
Total paid = £50000 + £3000 x 4 = £62000
Say, 48 months payment at £1000 = £48000

Balloon payment = £62000 - £48000 = £12000

The balance at the end is the balloon payment - so if you increase your monthly payments it only serves to reduce the balloon payment and not the total paid.

Both my sons had this arrangement with their cars - I got them to refinance /pay off.

So watch out for "flat rate"

John

 

[Mansfieldman750]

The balance at the end is the balloon payment - so if you increase your monthly payments it only serves to reduce the balloon payment and not the total paid.

I don’t think that’s right. The ballon payment is set at the start of the agreement and cannot be altered.
One of the options under PCP is to hand the car back ( provided it is in good condition and the agreed mileage has not been exceeded )
Say for example you started off with a balloon payment of £32,000 due in 4 years.
If you were able to reduce that to £12,000 by making overpayments, what would happen if you decide not to keep the car after the 4 years is up. Does the lender have to give you £20,000 when you hand back the car ?
It can’t happen.

 

[Johnboy]

I don’t think that’s right. The ballon payment is set at the start of the agreement and cannot be altered.
One of the options under PCP is to hand the car back ( provided it is in good condition and the agreed mileage has not been exceeded )
Say for example you started off with a balloon payment of £32,000 due in 4 years.
If you were able to reduce that to £12,000 by making overpayments, what would happen if you decide not to keep the car after the 4 years is up. Does the lender have to give you £20,000 when you hand back the car ?
It can’t happen.

i.e decide on higher or lower monthly payments at the start.

Whatever you choose, the total payment is the same. In some cases they will state what your monthly payments are , in other cases they may ask what monthly payments you want (i.e. keep it the same as you were paying before) - either way the flat rate is the interest applied over the whole loan for the whole period.

They will have limits between max and min monthly payments acceptable to the lender.

I always check with a spreadsheet to confirm what my total is vs the stated interest rate.

 

[Mansfieldman750]

i.e decide on higher or lower monthly payments at the start.

Whatever you choose, the total payment is the same. In some cases they will state what your monthly payments are , in other cases they may ask what monthly payments you want (i.e. keep it the same as you were paying before) - either way the flat rate is the interest applied over the whole loan for the whole period.

They will have limits between max and min monthly payments acceptable to the lender.

I always check with a spreadsheet to confirm what my total is vs the stated interest rate.

You are right that flat rate interest was a con. 7% APR is actually cheaper than 4% flat rate over 4 years. I thought flat rate was banned, if not it should be.
You are also right that there would be no point in making an overpayment on flat rate, as you wouldn’t be altering the amount on which the interest is calculated but on APR you would be and could therefore reduce the total amount paid.
But you still can’t alter the balloon payment !
Sorry for nitpicking

 

[WelshGas]

Purchased my new Multivan Hybrid using a 5 yr HP agreement for 1/3 rd of the OTR price to take advantage of a £2000 deposit contribution.

Agreement started 21st October. 1st payment due 22nd November
On 14th November set up access on the VWFS site and logged into my account. On 15th November requested an Online quote to pay outstanding balance. Received quote on line and by email with VWFS payment details for Bank Transfer.
Same day paid outstanding balance and received text that payment made . 18th November received text that payment accepted and letter to follow.
Today, letter from VWFS transferring full ownership of vehicle to me.

The final payment was equal to the amount financed. No additional interest or penalty/ administrative payment AND no requirement to repay the Deposit contribution.

 

[Morvan Freevan]

I owe VWFS about £55,000, which I've been planning to pay off more or less now (got the van a month ago). This will cost me about £750 in interest as a penalty. I notice though that it seems to be an option to throw lump sums at your PCP agreement. The website reads:

"If you have a PCP, Hire Purchase or Lease Purchase agreement you may be able to make a partial payment towards your agreement to reduce the monthly rentals or shorten the term of the agreement. If permitted you can do this as often as you wish, however the minimum the monthly rental can be reduced to is £50.00 and the minimum the term remaining can be reduced to is 1 month.

Once the payment is made the finance agreement will be re-calculated and confirmation will be sent in the post."

I'm wondering if this means that I could pay some large chunk, e.g. £20k, against the agreement a couple of times, reducing the amount owing to some small number (so the 3 months interest penalty is trivial) or bringing the agreement to a close within one or two months (if I don't pay it off early). Has anyone tried doing something like this?

It seems too obvious a way to avoid a 3-month interest penalty for it to be permitted, but I don't see how it isn't given that wording.

I did something like that. I bought the van when I expected some excess money from a house sale but didn't actually have it yet (pre counting chickens). I owed about £67k over three years, so in the first few months after the house sale completed I paid off nearly £35k in lump sums of £10k and £5K until it got to the minimum monthly rental of £50, the term remained the same. £50 is about 2% interest on the remaining £32k. I have that amount in fixed term savings earning 4.4% which I'll use to pay off the remainer at the end of the term.

 

[s2bear]

Another way of looking at this is as the balloon is a ‘Guaranteed Future Minimum Value’, if something terrible happens to residual values for whatever reason, you have a Put Option against VWFS. in short you’re protected against a big drop in value. Look what’s happened to many EV values as an example, the finance companies are going to be wearing much of those losses in many cases - obviously consumers will take a hit but those with GFMVs / Ballons will be protected somewhat.

I bought mine abroad and didn’t bother financing in the end but if 3yr old Cali values suddenly drop to 25%, I’m taking the full 75% hit. If I’d financed it, maybe I’d only take a 40% hit.
Obviously you’re paying for the privilege however, as it’s almost impossible to make any financial decisions with certainty in the uk, as government after government change policies like the wind - you could take a view that you’re buying a bit of your own certainty in the event that whichever govt decides to, say, tax the cr4p out of diesels / campers etc. or if they become the next big stealable (Land Rover insurance?).