Paying off HP

[Mr Statto]

I've just had the Skoda Finance paperwork through for our new Octavia - am I right in thinking I can borrow elsewhere & cancel this within the next 14 days & they can't claim back the £3k deposit contribution? It should save us between £1,100 & £1,600 in total (assuming we take an additional loan to pay the balloon payment) so strikes me as a sensible option

[BlueclouduK]

I would be very surprised if the £3K deposit contribution isn't dependent on you using Skoda Finance.

Read T&Cs very carefully.

[ahenners]

AFAIK plenty of people do this to get the deposit contribution but not suffer a poor interest rate. Just be aware though that if you're planning to borrow elsewhere i.e. loan and you take the Skoda finance, you'll have 2 hard searches on your credit file within a very short space of time.

[Mr Statto]

5 minutes ago, ahenners said:

AFAIK plenty of people do this to get the deposit contribution but not suffer a poor interest rate. Just be aware though that if you're planning to borrow elsewhere i.e. loan and you take the Skoda finance, you'll have 2 hard searches on your credit file within a very short space of time.

 

This is potentially an issue - we're looking at moving house in the near future & don't want to jeopardise mortgage applications. That said, our credit score is excellent so it shouldn't make a huge impact

[MattChr]

We did this for a previous car...

Take loan out with manufacturer's finance

Pay first month

Settle with another loan or cash.

That way you have taken the finance out in line with T&Cs, but exercised your right to settle debt early.

[SashaGrace]

Once you’ve gone past 14 days, you can pay off the finance and keep the contribution. Just be aware of credit searches, also be aware that having manufacturer finance has some benefits also, particularly if there are warranty issues down the line etc. Even a £1600 saving isn’t all that much in the grand scheme of things. Unless you have a great desire to settle the manufacturer finance, I wouldn’t bother.

[ahenners]

4 minutes ago, Mr Statto said:

 

This is potentially an issue - we're looking at moving house in the near future & don't want to jeopardise mortgage applications. That said, our credit score is excellent so it shouldn't make a huge impact

 

I'm no expert, but I believe credit score only to be one of many factors that lenders use. Other lenders (such as your mortgage provider) will be able to see the searches for the loan + finance. Personally, I'd hold off if possible until the mortgage is signed and sealed.

[Mr Statto]

1 minute ago, SashaGrace said:

Once you’ve gone past 14 days, you can pay off the finance and keep the contribution. Just be aware of credit searches, also be aware that having manufacturer finance has some benefits also, particularly if there are warranty issues down the line etc. Even a £1600 saving isn’t all that much in the grand scheme of things. Unless you have a great desire to settle the manufacturer finance, I wouldn’t bother.

 

That is also true - there's a 2 year service plan included as part of the finance which I guess wouldn't be valid if we cancelled it

[SashaGrace]

Don't know, you would have to read the T&C’s regarding settling early for that one.

[DaveLees]

9 minutes ago, Mr Statto said:

 

That is also true - there's a 2 year service plan included as part of the finance which I guess wouldn't be valid if we cancelled it

When I cancelled my Skoda finance after a couple of weeks it did not affect the 2 year service plan included in the agreement.

I made sure that I got email confirmation from Skoda finance, just in case this was quiered futher down the line.

[juan27]

If you let the agreement start and make a payment or two then settle early you should still save most of the money you can by financing elsewhere.  The settlement amount should be way less than than the amount you would pay if you just made all the payments, to allow for interest you won't be paying. Check T&C carefully though as others have said.

 

One thing you might want to think about is that if you are refinancing to effectively include the balloon payment depending on the new term your monthly payments could be quite a lot higher, which might be unattractive if taking on a potentially increased mortgage if moving house soon.   

[Mr Statto]

5 hours ago, juan27 said:

If you let the agreement start and make a payment or two then settle early you should still save most of the money you can by financing elsewhere.  The settlement amount should be way less than than the amount you would pay if you just made all the payments, to allow for interest you won't be paying. Check T&C carefully though as others have said.

 

One thing you might want to think about is that if you are refinancing to effectively include the balloon payment depending on the new term your monthly payments could be quite a lot higher, which might be unattractive if taking on a potentially increased mortgage if moving house soon.   

 

Switching from a 42 month term to a 6 year loan from M&S at 2.8% reduces monthly payments from £220 to £208. Total cost of credit (excluding what we might need to borrow to pay off the balloon payment) would reduce from £2,230 to £1,190

[juan27]

53 minutes ago, Mr Statto said:

 

Switching from a 42 month term to a 6 year loan from M&S at 2.8% reduces monthly payments from £220 to £208. Total cost of credit (excluding what we might need to borrow to pay off the balloon payment) would reduce from £2,230 to £1,190

 

Yes when the PCP is at a relatively high APR the interest ramps up as you are paying interest on the whole of the balloon for the whole term.

 

[Guest]

Last time I took a finance agreement out was approx 25 years ago. 2.5yr loan arranged by dealer (toyota). After a year I came in to some money so thought why pay that interest when I could just pay off the loan. Contacted the finance company - after all the fees, it meant I'd save a mere £10 by ending the agreement 20mths early. That's when I decided I'd try never to get involved with finance again.

 

Yes it's true that you have a cooling off period when taking out finance - usually 7 or 14 days. But after this time, you're in contract. Are people seriously suggesting you can simply pay off the outstanding debt and just walk away? Don't you mean pay off the outstanding debt PLUS a cancellation fee and/or a fair amount of interest?  I'd be more than surprised if they allow you to simply pay off the debt after the cooling off period - surely there must be an additional penalty otherwise how does a finance company make profit?

 

The other thing I find confusing when purchasing is interest fees, balloon payments, discount offers, APR, PCP etc.   All I want to know is whats the total sum am I going to be paying for my car - it's a very simple question that salespeople find impossible to answer without using their pretentious language - all designed of course to confuse the customer.  So when you say:

 

'Switching from a 42mth term to 6 year term reduces mthly payments from £220 to £208.' ?  

 

Are you saying: 72 payments of £208 = paying £14976 in total,  is better than 42 payments of £220 = paying £9240 in total.  Surely I've misunderstood?

 

 

 

 

 

 

 

[Boundy123]

12 minutes ago, Scot5 said:

Last time I took a finance agreement out was approx 25 years ago. 2.5yr loan arranged by dealer (toyota). After a year I came in to some money so thought why pay that interest when I could just pay off the loan. Contacted the finance company - after all the fees, it meant I'd save a mere £10 by ending the agreement 20mths early. That's when I decided I'd try never to get involved with finance again.

 

Yes it's true that you have a cooling off period when taking out finance - usually 7 or 14 days. But after this time, you're in contract. Are people seriously suggesting you can simply pay off the outstanding debt and just walk away? Don't you mean pay off the outstanding debt PLUS a cancellation fee and/or a fair amount of interest?  I'd be more than surprised if they allow you to simply pay off the debt after the cooling off period - surely there must be an additional penalty otherwise how does a finance company make profit?

 

The other thing I find confusing when purchasing is interest fees, balloon payments, discount offers, APR, PCP etc.   All I want to know is whats the total sum am I going to be paying for my car - it's a very simple question that salespeople find impossible to answer without using their pretentious language - all designed of course to confuse the customer.  So when you say:

 

'Switching from a 42mth term to 6 year term reduces mthly payments from £220 to £208.' ?  

 

Are you saying: 72 payments of £208 = paying £14976 in total,  is better than 42 payments of £220 = paying £9240 in total.  Surely I've misunderstood?

 

 

 

 

 

 

 

I think you have missuderstood, you have the right to end a finance agreement and you will also receive a rebate on the amount of interest that you would of paid over the full term. 

Your calculations are also not correct, you have failed to include the balloon payment in your figures. I would guess it over 6k or the whole thing would be pointless 

[juan27]

5 hours ago, Boundy123 said:

I think you have missuderstood, you have the right to end a finance agreement and you will also receive a rebate on the amount of interest that you would of paid over the full term. 

Your calculations are also not correct, you have failed to include the balloon payment in your figures. I would guess it over 6k or the whole thing would be pointless 

Thread title is a bit misleading to be fair, but true the 3rd party loan is to buy the car outright. whereas the Skoda finance is a PCP with more to pay after 42 months to own the car.

[SurreyJohn]

You may be better speaking to a mortgage broker before doing anything.   Whilst mortgage company will look at your outgoings, a general loan will result in more questions than a car loan.   Both will have outgoings so will reduce your mortgage affordability test.

 

In an ideal world get the mortgage agreed before taking other loans for cars etc.  But timing doesn’t always make this practical.    

 

Op should be considering how options affects pending mortgage application before changing loans.  But if not planning to take out further loans in near future obviously minimising interest makes sense.

 

[Guest]

7 hours ago, Boundy123 said:

I think you have missuderstood, you have the right to end a finance agreement and you will also receive a rebate on the amount of interest that you would of paid over the full term. 

Your calculations are also not correct, you have failed to include the balloon payment in your figures. I would guess it over 6k or the whole thing would be pointless 

 

Isn't that only true when you've already paid half the payments (or half the interest - I'm not sure how it works).

 

I'm just curious as to how the finance companies make money? Plus, what would be the point of a 7 / 14 day 'cooling off' period if after 15 days you can effectively cancel the loan without penalty and walk away?

 

The other point is, as I mentioned before - words such as balloon payments...  totally meaningless when asking advice. Like others have said, my advice to the OP and anyone who is considering finance is get the actual figures. And even then, you need to read the small print T&C.  Which is especially true for the 72mth M&S loan - 6 years is a very long time for a car loan - when taking out a loan, don't you have to declare what the loan is going to be used for? Would a finance company approve a 6 year car loan? I've never heard of any car loan taking 6 years (then again I'm old, times change) but it means paying off just the interest for a very long time rather than paying off the asset. Wouldn't it be more sensible to get rid of the Octavia and buy something cheaper? 

[GoneToBeemer]

I’ve it was me, I’d just leave it as is...especially if you’re looking at mortgages etc.

 

Seems an awful lot of fuss and hassle to save £1100-£1500. Are you really going to miss that over 3/4 years? Probably not!

[SunsetZed]

I've just done this with mine and you don't have to wait the 14 days either. I signed the paperwork for the PCP 7 days before getting the car, took delivery and then phoned to cancel the PCP the following day to pay it off (I think it was about £15 in interest for the 8 days!). I keep the £3k deposit contribution (the dealer already has this from Skoda and there's no mention of it anywhere in the T&C's) and also the 2 free services. 

[Boundy123]

1 hour ago, Scot5 said:

 

Isn't that only true when you've already paid half the payments (or half the interest - I'm not sure how it works).

 

I'm just curious as to how the finance companies make money? Plus, what would be the point of a 7 / 14 day 'cooling off' period if after 15 days you can effectively cancel the loan without penalty and walk away?

 

The other point is, as I mentioned before - words such as balloon payments...  totally meaningless when asking advice. Like others have said, my advice to the OP and anyone who is considering finance is get the actual figures. And even then, you need to read the small print T&C.  Which is especially true for the 72mth M&S loan - 6 years is a very long time for a car loan - when taking out a loan, don't you have to declare what the loan is going to be used for? Would a finance company approve a 6 year car loan? I've never heard of any car loan taking 6 years (then again I'm old, times change) but it means paying off just the interest for a very long time rather than paying off the asset. Wouldn't it be more sensible to get rid of the Octavia and buy something cheaper? 

Have a little read, should explain better than I can

 

https://www.citizensadvice.org.uk/debt-and-money/borrowing-money/your-rights-when-you-borrow-money/

[juan27]

5 hours ago, Scot5 said:

 

I'm just curious as to how the finance companies make money? Plus, what would be the point of a 7 / 14 day 'cooling off' period if after 15 days you can effectively cancel the loan without penalty and walk away?

 

The other point is, as I mentioned before - words such as balloon payments...  totally meaningless when asking advice. Like others have said, my advice to the OP and anyone who is considering finance is get the actual figures. And even then, you need to read the small print T&C.  Which is especially true for the 72mth M&S loan - 6 years is a very long time for a car loan - when taking out a loan, don't you have to declare what the loan is going to be used for? Would a finance company approve a 6 year car loan? I've never heard of any car loan taking 6 years (then again I'm old, times change) but it means paying off just the interest for a very long time rather than paying off the asset. Wouldn't it be more sensible to get rid of the Octavia and buy something cheaper? 

 

You can't cancel the loan after 15 days without paying some interest and possibly a penalty for settling very early, but you shouldn't have to pay all the interest as if you'd hung onto the money for the loan period, surely you can see that?  

 

The OP clearly understands what a PCP and a balloon payment is, and is looking at the big picture over a long period of time.  He is certainly considering his total outlay.  

 

In an ideal world what he wanted was a £3K discount on the cash price and to finance buying the car cash with a low interest (2.8%APR) unsecured BANK loan.   He's trying to play the system to achieve something along those lines. 

 

I agree that a 72 month term loan is quite extreme for a car purchase, but if he was thinking of paying the PCP for 42 months then finding a loan to finance the balloon payment to actually own the car it makes sense.   Who knows what interest rates will be available to finance the balloon payment in 42 months time?    

 

His total outgoings are going to be lower than taking out a PCP at 6%APR or more. PCPs are quite expensive interest wise even at comparable rates as the balloon payment accrues interest for the whole term as you are not reducing it every month like conventional HP.

 

A possible downside to his plan is if the car is seriously worth less than he owes after 42 months on the loan he won't be able to sell it and clear the loan. At least with the PCP he can hand it back and walk away at that point.  I guess the other side of the coin on that is with a bank loan you can sell the car if you're desperate for cash without clearing the loan immediately. I have to say that point has always appealed to me. 

    

Edited 7 March, 2018 by juan27

[Guest]

5 hours ago, SunsetZed said:

I signed the paperwork for the PCP 7 days before getting the car, took delivery and then phoned to cancel the PCP the following day to pay it off (I think it was about £15 in interest for the 8 days!).

Shouldn't the PCP have begun upon delivery? Paying for a vehicle you have no access to doesn't sound right.

[juan27]

18 minutes ago, Scot5 said:

Shouldn't the PCP have begun upon delivery? Paying for a vehicle you have no access to doesn't sound right.

 

You are paying to borrow the money, not drive the car.  If it helps sweeten the pill the day when you won't have to pay interest anymore all those months away would be a week sooner.

 

Nothing to stop you signing the finance agreement on the day of delivery in theory, but the car dealer probably won't like it much.   

 

(You signing the agreement doesn't  automatically mean the finance company have agreed to hand over the money - clearly the dealer would like money in the bank before you drive off)   

Edited 7 March, 2018 by juan27

[SunsetZed]

18 hours ago, juan27 said:

 

You are paying to borrow the money, not drive the car.  If it helps sweeten the pill the day when you won't have to pay interest anymore all those months away would be a week sooner.

 

Nothing to stop you signing the finance agreement on the day of delivery in theory, but the car dealer probably won't like it much.   

 

(You signing the agreement doesn't  automatically mean the finance company have agreed to hand over the money - clearly the dealer would like money in the bank before you drive off)   

 

This, the interest starts when the agreement starts.

 

You usually can't sign it on the day of delivery as it doesn't give the dealer time to get the deposit contribution from Skoda to release the car, this was the latest the dealer suggested I should do it to avoid any chance of compromising the delivery date.