When Can a Customer Early Settle a Pcp Agreement
When Can a Customer Early Settle a PCP Agreement
A personal contract purchase (PCP) agreement is a popular finance option for buying a car. It allows you to spread the cost of the car over a fixed monthly payment, making it more affordable. However, circumstances can change, and you may want to end the agreement early. But when can a customer settle a PCP agreement?
Firstly, it`s worth noting that you have a legal right to settle your PCP agreement early at any point during the term of the agreement. You can do this by paying off the outstanding balance of the finance agreement, also known as the “settlement figure.” This figure typically includes the total amount borrowed, plus any interest and fees.
However, settling a PCP agreement early can come with some restrictions and costs. Here are some key factors to consider:
1. The Halfway Point
If you want to settle your PCP agreement early, you need to have reached the halfway point of the finance agreement. This is because of the “50% rule” imposed by the Consumer Credit Act. Once you`ve paid off 50% of the total amount payable, you can voluntarily terminate the agreement.
2. Early Termination Fees
If you haven`t reached the halfway point of the agreement, you may be subject to early termination fees. These fees are designed to compensate the lender for the anticipated loss of income. The amount you`ll pay will depend on the terms of your agreement and the lender`s policy.
3. Balloon Payment
Most PCP agreements require a “balloon payment” at the end of the agreement. This is a final lump sum payment that you need to make to own the car outright. If you settle your PCP agreement early, you`ll need to pay the balloon payment in full, even if you haven`t reached the end of the agreement.
4. Depreciation
One of the downsides of PCP agreements is that the car`s value can depreciate faster than the finance balance reduces. If you settle the agreement early, the settlement figure may be higher than the car`s value. This means that you`ll have to top up the difference to settle the finance agreement.
In conclusion, settling a PCP agreement early can be a good option if your circumstances change. However, you need to be aware of the 50% rule, early termination fees, balloon payments, and depreciation. It`s always worth seeking financial advice before making any decisions.
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