Car Finance Settlement Figure

[David-ajev2]

Trying to get my head around something here but failing on an epic level. Maths isn’t my strong point.

I’ve got a 3 Series on a PCP. I’m 3 years into it and have got a year remaining before I either hand the car back or buy it outright.

Not sure what to do and have been shopping about to see if it’s worth a change now. I spoke to BMWFS today who advised me what my settlement fee is. My credit file (which is upto date) says I owe them £700 more than that figure (I assume the difference is the interest on top).

I’ve got 13 payments left before the end of the contract and then the balloon payment is due. I’d like to keep the car but I don’t really want to stump up the final fee IF there’s a chance that my settlement figure could be lower than that a month or two earlier. Is that even possible?

I’ve looked through my finance docs and all it does is give me a headache.

Don’t know whether to give it back, pay it off or re-finance it. Has anyone got experience with re-financing with BMWFS once your term comes to an end? Would like to lower my monthly payments but don’t particularly want to do it over another 4 years. I love the car and other than going upwards (in models and in cost), I can’t really decide what I want next.

Any help/advice would be greatly appreciated.

[HTP99]

David-ajev2 said:

Trying to get my head around something here but failing on an epic level. Maths isn’t my strong point.

I’ve got a 3 Series on a PCP. I’m 3 years into it and have got a year remaining before I either hand the car back or buy it outright.

Not sure what to do and have been shopping about to see if it’s worth a change now. I spoke to BMWFS today who advised me what my settlement fee is. My credit file (which is upto date) says I owe them £700 more than that figure (I assume the difference is the interest on top).

I’ve got 13 payments left before the end of the contract and then the balloon payment is due. I’d like to keep the car but I don’t really want to stump up the final fee IF there’s a chance that my settlement figure could be lower than that a month or two earlier. Is that even possible?

I’ve looked through my finance docs and all it does is give me a headache.

Don’t know whether to give it back, pay it off or re-finance it. Has anyone got experience with re-financing with BMWFS once your term comes to an end? Would like to lower my monthly payments but don’t particularly want to do it over another 4 years. I love the car and other than going upwards (in models and in cost), I can’t really decide what I want next.

Any help/advice would be greatly appreciated.

Everything else makes sense the highlighted but doesn't?

[David-ajev2]

My settlement figure is £700 lower than what my credit file says I owe them. Car dealer told me today that it’s because of some sort of rebate.

Calculating the next 13 payments off today’s settlement figure comes in at a lower price than what the final balloon payment will be. (By £700). No idea how this works.

So if I ask them for a settlement fee around the end of this year, could that figure then be lower than the £12,000 I’ll actally owe them come March?

Hope this makes sense

[Sarnie]

Your credit file reflects the total to pay on that agreement if it's kept all the way to the end of the agreement.

Settle it early and you won't have gone to the end of the agreement so won't have incurred the full sum stated on your credit file....hence why the settlement figure is lower.

[mcflurry]

If the car is worth less than the outstanding balance, and you have paid 50% of the debt, then maybe look at a VT (voluntary termination) ?

[rfoster]

David-ajev2 said:

My settlement figure is £700 lower than what my credit file says I owe them. Car dealer told me today that it’s because of some sort of rebate.

Calculating the next 13 payments off today’s settlement figure comes in at a lower price than what the final balloon payment will be. (By £700). No idea how this works.

So if I ask them for a settlement fee around the end of this year, could that figure then be lower than the £12,000 I’ll actally owe them come March?

Hope this makes sense

Your settlement figure will never be lower than the final optional balloon payment if you are looking to settle early. As you are a fair way into your agreement now, most of your monthly payment is paying off capital on the agreement and not so much interest any more.

A regulated settlement figure will provide a rebate of interest charges no longer payable - all finance companies have to adhere to exactly the same formula when calculating a settlement figure on a regulated basis.

It's worth checking the wording on the settlement letter, I know BMW / Alphera can be a little confusing in this instance with regard. However their figure will be correct - ignore what your credit file says.

[fourstardan]

700 is quite a bit of difference, depends how much cash you put in the existing agreement deposit wise as well. The dealers are not doing well enough and will only try and hide that difference in "dealer incentive".

I'd call a VT on it, you can walk away now and avoid any pound of upside down.

Also though remember you might have charges for stuff beyond wear and tear to factor in.

[Gio G]

fourstardan said:

700 is quite a bit of difference, depends how much cash you put in the existing agreement deposit wise as well. The dealers are not doing well enough and will only try and hide that difference in "dealer incentive".

I'd call a VT on it, you can walk away now and avoid any pound of upside down.

Also though remember you might have charges for stuff beyond wear and tear to factor in.

This is an option, however as said, be conscious of other charges like condition of bodywork/wheels also mileage vs contract.

G

[sidicks]

rfoster said:

Your settlement figure will never be lower than the final optional balloon payment if you are looking to settle early. As you are a fair way into your agreement now, most of your monthly payment is paying off capital on the agreement and not so much interest any more.

Whilst this would be true for an ordinary loan, this won’t be true for a PCP-style contract where most of the interest arises from the balloon payment (which is not being paid down).

[rfoster]

sidicks said:

Whilst this would be true for an ordinary loan, this won’t be true for a PCP-style contract where most of the interest arises from the balloon payment (which is not being paid down).

That's not quite correct - there is more interest levied on a PCP agreement than a straight forward hire purchase agreement because you are deferring a large lump of capital to the end of the term. Nevertheless, your earlier payments are made up of a higher percentage of interest charges and less capital being paid off, and closer to the end of the term there is considerably less interest left and the percentage of capital paid in each instalment is greater.

[sidicks]

rfoster said:

That's not quite correct - there is more interest levied on a PCP agreement than a straight forward hire purchase agreement because you are deferring a large lump of capital to the end of the term. Nevertheless, your earlier payments are made up of a higher percentage of interest charges and less capital being paid off, and closer to the end of the term there is considerably less interest left and the percentage of capital paid in each instalment is greater.

Yes and no.
The monthly repayment covers two components:
1) interest and capital on the difference between the car value and the balloon plus deposit.
2) interest on the balloon

1) we both agree that for 1) as you go through time, the capital outstanding is reducing so the amount of each payment representing interest also reduces over time (hence the amount of each payment reducing the outstanding capital each time, is increasing)

2) doesn’t change over the period.

Yes, there is more capital than interest being repaid later in the period.
However (depending on the size of the balloon) that doesn’t mean that interest only represents a small proportion of the total payment towards the end of the contract.

For many loans, however, this will be the case!

Edited by sidicks on Thursday 8th February 10:50

[rfoster]

I think we both mean the same thing but are writing it in different ways!

Anyway to the OP - BMW will provide you with a written settlement figure which will show the balance that is left to pay under your agreement, and will then show any rebate of interest, leaving you with a figure to settle the agreement now.

At the end of the agreement you have a few choices - pay the balloon and keep the vehicle, sell it in order to pay the balloon and retain any equity if the sale price is greater than the balloon, or hand it back to the finance company without further obligation other than excess mileage / damage charges etc.

If you want to keep the vehicle then you'll simply need to pay the balloon somehow. If you don't have the funds available then a personal loan / car refinance agreement is pretty easy to arrange - in fact BMW Finance may offer the latter option to you directly.

[David-ajev2]

Thanks for your replies everyone!

Has anyone had any experience of re-financing with BMW at the end of a contract at all?

[rfoster]

David-ajev2 said:

Thanks for your replies everyone!

Has anyone had any experience of re-financing with BMW at the end of a contract at all?

I'm actually a finance broker and Alphera / BMW Finance are the lender we write the most business with. They will usually write to you around months prior to the end of the contract to remind you about the final balloon payment, and they will give you the option of refinancing. You can call them up to discuss figures. Note - they'll only refinance the balloon payment, they won't re-finance it before the balloon is due (for example they won't refinance the settlement figure if you're looking to refinance the balloon and any monthly payments.)

Other lenders are available who will also look at refinancing a balloon if you aren't happy with the rate they quote to you.

[David-ajev2]

Ah great thanks. I’ve got the best part of a year to think about it so no immediate rush.

Is a refinancing deal likely to have a higher APR? I’m happy to keep the car at the right deal but ideally want to reduce the payments in the long run.

[rfoster]

David-ajev2 said:

Ah great thanks. I’ve got the best part of a year to think about it so no immediate rush.

Is a refinancing deal likely to have a higher APR? I’m happy to keep the car at the right deal but ideally want to reduce the payments in the long run.

I *think* they have a set APR for refinance - they'll advise closer to the time I'm sure. No point quoting rates now as they'll be subject to change between now and next year.

[mcflurry]

David-ajev2 said:

Ah great thanks. I’ve got the best part of a year to think about it so no immediate rush.

Is a refinancing deal likely to have a higher APR? I’m happy to keep the car at the right deal but ideally want to reduce the payments in the long run.

Toyota refinanced mine at 2.5% APR - not much point in going elsewhere at that price

[acr_nick]

if you want a new car you can get out of your agreement if your in a voluntary termination position.

If your happy with your car keep it until the end of the agreement but re finance will be at the higher used apr bmw offer.

The monthly repayment will more than likely be cheaper on a new car with a low apr and a higher residual. Factor in the new car discount they will offer you or go through car wow.

Voluntary termination is within your rights of the agreement and doesn’t effect your credit score.