Paying PCP payments with a bank loan

[Thrash]

Hi guys,

I've got a car on a PCP agreement where I am paying £240 a month for the next 42 months.

Today I received an offer from my bank offering me a low interest bank loan which got me thinking about paying off all of my remaining monthly payments using the loan from the bank and then paying the bank monthly - which in theory works out quite a lot better in terms of interest saved, etc.

So, I requested a settlement figure which had balance outstanding less rebate of interest plus arrears = amount to settle. If I divide this by 2 then I should have reached 50% of the total amount borrowed (or near enough). If I borrow this amount from the bank with their offer then use their loan to pay off that amount in full and then make the monthly repayments to the bank instead of the car finance company. In my mind this makes sense and will save me money, providing I get approved. Is my logic correct or have I missed something?

[Roo]

If you're going to settle the finance agreement by taking out a bank loan what has 50% of the amount borrowed got to do with it?

[DUMBO100]

So you'll pay the interest as agreed on the PCP but you'll also pay the interest on the bank loan?

[Thrash]

Roo said:

If you're going to settle the finance agreement by taking out a bank loan what has 50% of the amount borrowed got to do with it?

Because theres a clause where when you've paid back 50% of the amount borrowed then you can voluntarily terminate the contract and hand the car back; which by my calculations is £1,000 less than paying back all of the final monthly repayments.

[Thrash]

DUMBO100 said:

So you'll pay the interest as agreed on the PCP but you'll also pay the interest on the bank loan?

Less rebate of interest means what I'm saving on interest by paying back early doesn't it?

[Blue Oval84]

You've not missed anything, get your settlement figure and compare this with your remaining payments (don't forget the baloon payment if there is one)

£Settlement - £Total Remaining Payments = The interest left to pay

Then price up a bank loan for the £Settlement value.

Look at the total £ charge for the bank loan (not in percentage) and compare it to how much interest you save by paying the PCP off.

Not sure what the 50% is about?

ETA - Now I see what you mean about 50%, still not sure how it's relevant, that involves handing the car back so you've got nothing. Pay off the bank loan and you still own the car.

If you want rid of the car then just ask when you will have reached the VT point.

[GoneAnon]

At a guess, I'd say you are missing something and that your logic is deeply flawed.

If you don't settle the PCP entirely there is no reason to take ANOTHER loan to meet the payments on the first.

The 50% only matters if you want to Voluntarily Terminate, and it is 50% of the total payable including the balloon that has to be paid. And then you hand the car back.

This is evidence to me that you shouldn't sign an agreement that you don't understand. Ever.

[DUMBO100]

If there's no early termination fee. One question, why isn't everyone else doing it?

[TankRizzo]

Thrash said:

Because theres a clause where when you've paid back 50% of the amount borrowed then you can voluntarily terminate the contract and hand the car back; which by my calculations is £1,000 less than paying back all of the final monthly repayments.

So you're going to clear off 50% of the settlement, hand the car back and pay instalments to the bank? Or have I got this wrong?

[Thrash]

TankRizzo said:

So you're going to clear off 50% of the settlement, hand the car back and pay instalments to the bank? Or have I got this wrong?

Thats right, essentially id be looking to shift the loan from the car finance company to my bank - using the bank loan to pay off the remaining payments (or up to VT point) and then repay the bank each month instead which will save me about £40 a month. But not hand the car back until a later date; I still need a car and dont want 2 loans.

[TankRizzo]

Thrash said:

Thats right, essentially id be looking to shift the loan from the car finance company to my bank - using the bank loan to pay off the remaining payments (or up to VT point) and then repay the bank each month instead which will save me about £40 a month. But not hand the car back until a later date; I still need a car and dont want 2 loans.

Ok, so I get the borrowing of the total settlement. But if you borrow only up to the VT point and keep the car, surely you are going to be paying 50% to the bank and 50% to the finance house on a monthly basis?

[Thrash]

TankRizzo said:

Ok, so I get the borrowing of the total settlement. But if you borrow only up to the VT point and keep the car, surely you are going to be paying 50% to the bank and 50% to the finance house on a monthly basis?

No because id borrow enough from the bank to use to pay up to the point I can hand the car back. Lets the say the remaining 42 months of payments, so I can then hand the car back at any time but I wouldnt until ive paid the bank back; I'd repay the bank over 18 months say. After those 18 months have passed, I will have paid the finance company so I can hand the car back and the loan from the bank will be paid, I will save myself a huge amount of interest and then also be able to get a new car sooner.

[davepoth]

Thrash said:

TankRizzo said:

So you're going to clear off 50% of the settlement, hand the car back and pay instalments to the bank? Or have I got this wrong?

Thats right, essentially id be looking to shift the loan from the car finance company to my bank - using the bank loan to pay off the remaining payments (or up to VT point) and then repay the bank each month instead which will save me about £40 a month. But not hand the car back until a later date; I still need a car and dont want 2 loans.

Why would the finance company want to do that? You're effectively saying to them "here's the principal - now go and find another way of investing it to make back the interest I would have paid you."

The only way you can make it work and still have the car is to pay off the outstanding sum in full (not 50%).

[Blue Oval84]

I don't think they'll let you do that, I definitely wouldn't take out a bank loan without getting confirmation.

AFAIK the settlement figure is precisely that, a figure to settle the loan. Not a figure to pay a small chunk of it off and save some interest, then not make any payments for two years before carrying out a VT...

[TankRizzo]

Thrash said:

No because id borrow enough from the bank to use to pay up to the point I can hand the car back. Lets the say the remaining 42 months of payments, so I can then hand the car back at any time but I wouldnt until ive paid the bank back; I'd repay the bank over 18 months say. After those 18 months have passed, I will have paid the finance company so I can hand the car back and the loan from the bank will be paid, I will save myself a huge amount of interest and then also be able to get a new car sooner.

I'd be very surprised if they let you do that. I think if you still owe money on the car (which you will, you'll still owe 50% of it) then the finance house will expect payments to continue until you either hand the car back or the finance is completely repaid.

Edited by TankRizzo on Monday 15th June 23:52

[eliot]

The fact you have a large monthly outgoing already will impact your ability to take out another loan - they wont take into account that you intend to use one loan to pay another loan.(they will probably laugh and put the phone down)

I dont follow your logic anyway tbh. The only approach that i understand is to get the full settlement figure and pay that off in full with the new loan.

Without wishing to sound like an old fart, but in future dont tie yourself into very long finance deals if you are the sort of person to get bored of a car quickly - a lease would be more suitable.

[CRB14]

Something isn't right. As said the 50% only comes into play if you're wanting to terminate but then you would need to hand the car back also so you'd pay 50% of the total amount payable and then have no car.

The settlement figure will be to settle the loan in its entirety. I'd either sell the car or keep it on its current rate unless the interest rate you've agreed is extortionate.

Generally the 50% rule doesn't usually come into play until you're practically finished with the PCP anyways.

[DarylB90]

You definitely can't do this.
Once you have paid back 50% they will want the car back straight away, not when ever suits you!

[rfoster]

Yes you have a misunderstanding here.

On a car finance agreement, you have the option of handing the vehicle back to the finance company (i.e. voluntarily terminating) the finance agreement once you have paid 50% of everything payable under the finance agreement. You will have to give the car back to the finance company straight away.

You can settle your agreement at any time and benefit from a regulated settlement figure as they've provided to you, and by all means you can borrow from your bank to settle the car finance agreement in full if you wish, whether it makes financial sense or not.

I'm not sure why you think that you can pay half the settlement figure with a bank loan and keep the vehicle without completing your contractual obligations under the finance agreement? You can make overpayments on the finance agreement if you wish and either lower your monthly payments, or lower the final balloon on your PCP agreement but you'll still be liable to make the monthly payments on the loan until the end of the contract.