Withdrawing from finance agreement - lose incentives?
Discussion
Hello All, hoping the PH experienced can provide some clarity on this.
Recently purchased a used BMW, partly financed with HP from BMW Financial Services. This is expensive money (9.9% APR), so as an incentive to take out the finance, the dealer made a contribution to reduce the balance to change, and threw in £1,500 of extras.
Effectively, I was given incentives which more than cover the cost of interest, so although paying 9.9%, in my head it became "interest free money".
My question is: if I settle now, at a much lower cost than allowing the agreement to run its course, will I lose out on the incentives that the dealer offered to get me into their finance?
I can save about £1,800 by borrowing from my bank and repaying BMW Financial Services now, but that's no good if the dealer comes back to me in respect of the incentives provided on the deal.
Recently purchased a used BMW, partly financed with HP from BMW Financial Services. This is expensive money (9.9% APR), so as an incentive to take out the finance, the dealer made a contribution to reduce the balance to change, and threw in £1,500 of extras.
Effectively, I was given incentives which more than cover the cost of interest, so although paying 9.9%, in my head it became "interest free money".
My question is: if I settle now, at a much lower cost than allowing the agreement to run its course, will I lose out on the incentives that the dealer offered to get me into their finance?
I can save about £1,800 by borrowing from my bank and repaying BMW Financial Services now, but that's no good if the dealer comes back to me in respect of the incentives provided on the deal.
You'll be fine. You have a right to settle the agreement at any time pursuant to s.99 of the Consumer Credit Act (and do make it clear that this - settling - is what you are doing). This is a different legal thing from withdrawing from a finance arrangement within a cooling off period - if you withdraw within a cooling off period then it is as if the finance deal, including incentives, never existed. With 'settling' the original finance agreement still stands, it's just been brought to an end much earlier than the original term anticipated.
As an aside, AIUI it is usually the case that even if you do say that you want to 'withdraw' you will be able to keep the incentives anyway, I presume because it is so obvious that what you really want to do is 'settle' that it would be very sharp practice of the dealer/finance co to treat it as a true 'withdrawal'.
As an aside, AIUI it is usually the case that even if you do say that you want to 'withdraw' you will be able to keep the incentives anyway, I presume because it is so obvious that what you really want to do is 'settle' that it would be very sharp practice of the dealer/finance co to treat it as a true 'withdrawal'.
Thanks. I should clarify - I am within the 14 day window and at the moment have the right to withdraw.
I could withdraw now, hence my question about the dealer incentives, or I could leave it another week then settle early, although that would be more expensive.
To put some detail on this,
- the amount that I elected to put on HP was £20,000, but the paperwork says the initial credit was £18,493. (Dealer reduced the capital sum, presumably a notional contribution from them, to compensate for high APR). Cost to me is the same as borrowing £20K at a much lower rate.
- Withdrawal figure today is £18,549.
- Other dealer incentives were free GAP insurance and paint / interior protection.
I have now spoken to BMW FS and they advise that withdrawing from the agreement and paying off today SHOULDN'T affect the deal done with supplying dealer.
IF the incentives remain intact, then in my head I have financed £20K but can withdraw for £18,549, in effect "cashing in" the dealer contribution. If I finance the withdrawal figure with a bank loan at 3.3%, I save £1,800 over three years.
I could withdraw now, hence my question about the dealer incentives, or I could leave it another week then settle early, although that would be more expensive.
To put some detail on this,
- the amount that I elected to put on HP was £20,000, but the paperwork says the initial credit was £18,493. (Dealer reduced the capital sum, presumably a notional contribution from them, to compensate for high APR). Cost to me is the same as borrowing £20K at a much lower rate.
- Withdrawal figure today is £18,549.
- Other dealer incentives were free GAP insurance and paint / interior protection.
I have now spoken to BMW FS and they advise that withdrawing from the agreement and paying off today SHOULDN'T affect the deal done with supplying dealer.
IF the incentives remain intact, then in my head I have financed £20K but can withdraw for £18,549, in effect "cashing in" the dealer contribution. If I finance the withdrawal figure with a bank loan at 3.3%, I save £1,800 over three years.
To be clear - you have a right to settle early at any time - those exact words are in the legislation. If you are in the 14 day cooling off period then it just so happens that you can exercise a right of withdrawal too, but if there's a risk that you might lose incentives by withdrawing I'd err on the side of caution and say that you want to settle. If memory serves they can charge a few months' interest which won't amount to much; the main thing is that you'll be financing the £18-odd thousand at 3.3% rather than 9.9%. I may well be doing exactly the same thing with BMW before too long as it happens.
Thanks again. I have done some digging and it seems the maximum fee that can be applied for early repayment is 1% of the amount repaid (if above £8K).
So for the sake of a c. £186 fee, I'm going to leave it until after the withdrawal period and settle early next week.
I understand your point re the legislation but BMW FS have been very clear in their terminology on e-mails - right now they quote a "Right to Withdraw" payment. Next week this will be an early settlement figure, slightly higher but peace of mind for me re c. £3K worth of incentives.
As you say the main thing then is I'm refinancing from 9.9% to 3.3%.
If you'll be doing similar, for info by opening up to their finance the dealer became much more generous in their approach to a deal. I was / am actually very happy with the deal I got from them, but I realised over the weekend that there was nothing to stop me improving the position further through a bit of refinancing!
So for the sake of a c. £186 fee, I'm going to leave it until after the withdrawal period and settle early next week.
I understand your point re the legislation but BMW FS have been very clear in their terminology on e-mails - right now they quote a "Right to Withdraw" payment. Next week this will be an early settlement figure, slightly higher but peace of mind for me re c. £3K worth of incentives.
As you say the main thing then is I'm refinancing from 9.9% to 3.3%.
If you'll be doing similar, for info by opening up to their finance the dealer became much more generous in their approach to a deal. I was / am actually very happy with the deal I got from them, but I realised over the weekend that there was nothing to stop me improving the position further through a bit of refinancing!
BlueJ said:
Hello All, hoping the PH experienced can provide some clarity on this.
Recently purchased a used BMW, partly financed with HP from BMW Financial Services. This is expensive money (9.9% APR), so as an incentive to take out the finance, the dealer made a contribution to reduce the balance to change, and threw in £1,500 of extras.
Effectively, I was given incentives which more than cover the cost of interest, so although paying 9.9%, in my head it became "interest free money".
My question is: if I settle now, at a much lower cost than allowing the agreement to run its course, will I lose out on the incentives that the dealer offered to get me into their finance?
I can save about £1,800 by borrowing from my bank and repaying BMW Financial Services now, but that's no good if the dealer comes back to me in respect of the incentives provided on the deal.
I did this on an approved Mini - well tried to. When I applied for a low APR loan to pay off the HP (a loan I had a very high chance of being accepted for at that rate) the offer I received didn’t match the low rate - by taking HP it had knocked my excellent credit rating so I wasn’t offered the best loan rate, and worse by applying for the loan my credit rating dropped to ‘good’. Just be aware sometimes you can try to be too cleverRecently purchased a used BMW, partly financed with HP from BMW Financial Services. This is expensive money (9.9% APR), so as an incentive to take out the finance, the dealer made a contribution to reduce the balance to change, and threw in £1,500 of extras.
Effectively, I was given incentives which more than cover the cost of interest, so although paying 9.9%, in my head it became "interest free money".
My question is: if I settle now, at a much lower cost than allowing the agreement to run its course, will I lose out on the incentives that the dealer offered to get me into their finance?
I can save about £1,800 by borrowing from my bank and repaying BMW Financial Services now, but that's no good if the dealer comes back to me in respect of the incentives provided on the deal.
Edited by LightningBlue on Monday 7th February 15:46
LightningBlue said:
I did this on an approved Mini - well tried to. When I applied for a low APR loan to pay off the HP (a loan I had a very high chance of being accepted for at that rate) the offer I received didn’t match the low rate - by taking HP it had knocked my excellent credit rating so I wasn’t offered the best loan rate, and worse by applying for the loan my credit rating dropped to ‘good’. Just be aware sometimes you can try to be too clever
Yeah good point. I'm not an expert when it comes to credit ratings, but I'm guessing it might make sense to secure the bank loan at a low rate first and then see if you can still get the finance from BMW (or whoever)? This is on the assumption that credit checks for car finance tend to be a bit less stringent than for loans from banks (which is reflected in the 9.9% they're charging). I might be wrong there though. The worst that would happen is that you end up paying the 'full' price but at a lower % rate. Edited by LightningBlue on Monday 7th February 15:46
Thanks highet, RI
I can live with a slightly higher settlement with a bit of fee / interest for the extra week, so I'm not too focused on the 14 day window and I'll still end up with a big saving over current agreement.
I plan to get a settlement quote early next week, apply for bank loan, then settle the expensive BMW FS. I've been with my bank for over 20 years and I'd hope that the loan process is OK - current pricing is 3.3% as I mention.
Thanks for the input, much appreciated.
I can live with a slightly higher settlement with a bit of fee / interest for the extra week, so I'm not too focused on the 14 day window and I'll still end up with a big saving over current agreement.
I plan to get a settlement quote early next week, apply for bank loan, then settle the expensive BMW FS. I've been with my bank for over 20 years and I'd hope that the loan process is OK - current pricing is 3.3% as I mention.
Thanks for the input, much appreciated.
I always buy on finance due to the incentives and pay it straight off. I've done it twice recently on BMW's.
If you ring BMW finance you can pay it off on the spot. They don't ask any awkward questions or give you a hard sell, they simply give you a figure, you read out your debit card details and its all done. No guilt, no nothing and quite refreshing really.
Sensible decision all round. I never mention I'm a cash buyer, just play into their daft interest rate finance deal, play a bit dumb and pocket the incentive (which was a grand on my last purchase)
Best of luck.
If you ring BMW finance you can pay it off on the spot. They don't ask any awkward questions or give you a hard sell, they simply give you a figure, you read out your debit card details and its all done. No guilt, no nothing and quite refreshing really.
Sensible decision all round. I never mention I'm a cash buyer, just play into their daft interest rate finance deal, play a bit dumb and pocket the incentive (which was a grand on my last purchase)
Best of luck.
I withdrew from a similar HP a few years ago on a new car purchase. No GAP, free servicing etc just a mega high discount (when they were around!) and I had no issues at all from either BMW FS nor the supplying dealer.
The dealer even called me after a couple of years asking if I’d consider changing the car etc lol.
Per the above, ensure you follow the “withdrawal” process rather than anything else - it’ll revert to as if the finance never existed.
Providing the T&Cs don’t specify you losing GAP by withdrawing (I can’t see that being included in any GAP policy with any dependency on another product) you should be good to go.
The dealer even called me after a couple of years asking if I’d consider changing the car etc lol.
Per the above, ensure you follow the “withdrawal” process rather than anything else - it’ll revert to as if the finance never existed.
Providing the T&Cs don’t specify you losing GAP by withdrawing (I can’t see that being included in any GAP policy with any dependency on another product) you should be good to go.
BlueJ said:
Thanks again. I have done some digging and it seems the maximum fee that can be applied for early repayment is 1% of the amount repaid (if above £8K).
So for the sake of a c. £186 fee, I'm going to leave it until after the withdrawal period and settle early next week.
Where are you getting the 1% from? Maybe it's changed, but I think the Consumer Credit Act sets the settlement terms - you have to give 28 days notice and they can take 30 days as a penatly, so in practice it's basically two months interest, which on a chunky value and interest rate deal could easily be a few hundred quid.So for the sake of a c. £186 fee, I'm going to leave it until after the withdrawal period and settle early next week.
Sheepshanks said:
Where are you getting the 1% from? Maybe it's changed, but I think the Consumer Credit Act sets the settlement terms - you have to give 28 days notice and they can take 30 days as a penatly, so in practice it's basically two months interest, which on a chunky value and interest rate deal could easily be a few hundred quid.
Just something I found on the internet earlier - one of the money price comparison sites - I may have misinterpreted it as I was at work so not exactly delving deep!Based on the last couple of responses - thanks DT1975 and ukpolak - I think I'll just get on and withdraw tomorrow.
I have reviewed the GAP policy and there's no reference to it being in any way linked to a continuing finance agreement - it's a fixed 3 year term, pretty straightforward.
My example above was HP, but the 14 day withdrawal period is I believe a statutory requirement (Consumer Credit Act?), so should apply to PCP. Basically it's a cooling off period. I'm not sure after that with PCP as I don't have any experience.
When discussing price to change, my stance was to say that I would put "around" £20K on HP but that I could borrow at c. 3%, so there was no way I would do a deal at BMW FS rates. The dealer very quickly brought the monthly payment down to my target level by reducing the amount of credit (via dealer contribution) but leaving the interest rate at 9.9% (presumably they don't have much room on rate).
I didn't go into the deal intending to settle early, but I was left with a lower capital / higher interest deal, so it made sense to then withdraw. Extra incentives were the GAP and paint / interior protection.
When discussing price to change, my stance was to say that I would put "around" £20K on HP but that I could borrow at c. 3%, so there was no way I would do a deal at BMW FS rates. The dealer very quickly brought the monthly payment down to my target level by reducing the amount of credit (via dealer contribution) but leaving the interest rate at 9.9% (presumably they don't have much room on rate).
I didn't go into the deal intending to settle early, but I was left with a lower capital / higher interest deal, so it made sense to then withdraw. Extra incentives were the GAP and paint / interior protection.
BlueJ said:
I have reviewed the GAP policy and there's no reference to it being in any way linked to a continuing finance agreement - it's a fixed 3 year term, pretty straightforward.
I'm aware of GAP but have never bought it - aren't there different types, ie Finance, Return to Invoice, Replacement Vehicle etc?I'm wondering, as it was thrown into the deal, if yours might be Finance GAP, designed to settle any finance shortfall? So if you pull out of the finance deal, then there would be no finance to have a shortfall on! Or is there an alternative benefit?
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