PAYMENT DEFERRALS EXPLAINED.
These explanatory notes are for Select PCP (Personal Contract Purchase), Hire Purchase and Personal Loan agreements. If you have had a Payment Deferral in relation to a Personal Contract Hire agreement, and would like information on the effect on your agreement, please call us on 0370 5050 150.
For more information on Payment Deferrals, options and their implications please click here to view a video message from our Chief Executive Officer, Mike Dennett.
IMPORTANT NOTE: this video was recorded when the closure date for payment deferrals applications was 31 October 2020. This closure date was extended to 31 March 2021 and therefore the deadline for new payment deferral applications (in accordance with FCA guidance) has now passed. The maximum payment deferral period was six months, and all deferrals were required to end by 31 July 2021. All other information in the video remains applicable.
How Payment Deferrals work
During a Payment Deferral you make no payments on your agreement. The length (or ‘term’) of your contract is extended by the same number of months.
After providing a deferral to you, we do not collect any payments on your finance agreement during the deferral period.
During a Payment Deferral period it is possible to make partial payments if you can afford to do so. It is likely to be in your interests to make voluntary payments at the level you can afford to limit the additional interest to pay, after payment of any arrears.
Extension of your agreement
The length (known as ‘term’) of your agreement is extended by the same number of months as your deferral period (up to six months in total).
Extending a finance agreement by the same number of months deferred means that the number of payments made in total remains the same.
You are, of course, able to continue using the vehicle during the Payment Deferral period and the extension to the term of the agreement.
Additional interest to pay
As it will take longer to pay back the amount borrowed, there is additional interest to pay. This is calculated using the same rate stated on your finance agreement and will be spread across remaining monthly repayments, causing them to increase.
If you have a Select PCP agreement, an additional Payment Deferral will further delay the date of your Optional Final Payment by the number of monthly payments deferred. The interest charged for the deferral includes interest on this amount, because this will be outstanding for longer.
A Payment Deferral therefore increases your overall debt.
How will this affect my Optional Final Payment and mileage allowance on a PCP agreement?
If you have a Select Personal Contract Purchase (PCP) agreement, a Payment Deferral delays the date of your Optional Final Payment by the number of monthly payments that you defer.
Your car is therefore likely to be worth less at the end of the agreement. This may affect how you decide to exercise your choice of options available at the end of your PCP agreement. You still have the option to return the vehicle without paying the Optional Final Payment but please be aware that vehicle damage and excess mileage charges may be payable, as per your original contract.
For Payment Deferrals of up to three months in total (whether taken as one deferral or as more than one deferral adding up to three months in total):
- The amount of your Optional Final Payment will not change. However, the interest you are charged for the deferral period includes interest on this Optional Final Payment because this amount will be outstanding for longer.
- The mileage allowance (total contract mileage) in your agreement will not change. If you choose to return the vehicle at the end of the agreement you will be charged for any excess mileage over this allowance. The mileage allowance and excess mileage charge per mile is shown on your agreement. You can view your contract details anytime via our MyBMWFinance self-service facility.
For Payment Deferrals of four, five or six months in total:
- As the vehicle will be up to six months older at the end of the agreement, on any Payment Deferral that exceeds three months, there will also be an increase in your monthly payments for the anticipated depreciation in the value of the vehicle in the extended period over three months and the Optional Final Payment will be reduced. The Optional Final Payment is sometimes known as the Guaranteed Minimum Future Value (GMFV) and is payable if you choose to purchase the vehicle at the end of the agreement.
This depreciation will be calculated using the rate of depreciation set at the beginning of your agreement. It is not affected by any change to market conditions.
We have decided not to make this change for depreciation on initial Payment Deferrals of up to three months. This means that, also taking into account the additional interest, the impact on monthly payments is higher for deferrals exceeding three months than for deferrals of three months or less.
- On any deferral exceeding three months, we increase your total mileage allowance so that you are not charged extra for continued use of the vehicle during the extended period (up to six months in total), providing you do not exceed the new mileage allowance. The mileage allowance will be increased in proportion to the increased term of your agreement.
For example, if you have an agreement of 48 months with a contractual mileage of 40,000 miles, and we provide Payment Deferrals for a total of six months, your agreement will be extended to 54 months and your mileage allowance will be increased to 45,000 miles. This means you will not be charged excess mileage charges unless you exceed 45,000 miles.
Please remember that on an initial Payment Deferral of up to three months, the mileage allowance will not change.
Please see the illustrations below to see how this can impact monthly payments.
The following examples illustrate how the additional interest will affect monthly payments after a deferral of three months:
These examples are based on an Original Contract Term of 48 months, 9.9% APR with a Payment Deferral Duration of three months, and a New Contract Term of 51 months (to print or download the table below, please click here for the PDF version):
The following examples illustrate how the additional interest and depreciation adjustment will affect monthly payments after a deferral of six months:
These examples below are based on a Payment Deferral Period of six months on an agreement with an Original Contract Term of 48 months, Original Contract Mileage of 40,000 miles, and 9.9% APR, which will result in a New Contract Term of 54 months and New Contract Mileage of 45,000 miles (to print or download the table below, please click here for the PDF version):
IMPORTANT NOTE: These are illustrations only. The impact on an individual agreement will depend on a number of factors, including the original amount of credit and contract term, APR, Payment Deferral period and the stage of the agreement at which the deferral is granted. For example, if a deferral is granted nearer to the end of an agreement, the increase in monthly payments is likely to be higher as there will be fewer monthly payments on which to spread the additional costs.
How can I see the specific impact on my agreement?
After agreeing to a request for a Payment Deferral, we email a ‘letter of concession’ detailing the additional interest on your agreement, your new monthly payments and, for deferrals over 3 months in total, your new Optional Final Payment and Total Contractual Mileage. If you have a query or decide not to proceed with your deferral you should call us as soon as possible.
How can I reduce the additional interest I have to pay?
After being granted a Payment Deferral, you can make voluntary payments if you can afford to do so. This will reduce the interest charged for the deferral, after payment of any arrears incurred prior to the start of the deferral. You can make payments by calling us on 0370 5050 150.
Will I have any other additional costs?
You will also need to pay for your car to remain taxed and insured with fully comprehensive car insurance during the extra month(s) that your agreement will run. You may also need to pay for an additional MOT or vehicle service if these fall due. As the agreement will be extended, the vehicle is likely to be worth less at the end of the agreement. Please see above.
Notices we may subsequently send to you.
Due to the way a Payment Deferral is arranged, we are legally obliged to send statutory notices on a regular basis which will show your deferred payments as arrears.
These arrears notices are for information purposes only and to keep you up to date with the current status of your agreement. You will not need to take any further action in relation to deferred payments shown in this arrears notice as long as you adhere with the deferral arrangements. You may need to take action in relation to any other payments in arrears which are included in an arrears notice.
Will my credit file be negatively affected?
Whilst we will not report a worsening status to your credit file in respect of any payment deferral taken, it may still affect our and other lenders’ future lending decisions as we and other lenders may take into account other information resulting from a deferral when making future lending decisions to ensure a suitable affordability assessment is made, e.g. information provided by applicants or bank account information.
We will also report any future arrears in the usual ways, so it is important that you consider the increased payments following a deferral.
What if I have a payment due in the next few days?
If your monthly payment is due within the next five days, then due to direct debit and standing order arrangements, collection of this payment may still take place. In this case, the period of deferral that you have selected will start from the following month’s payment.
What if before I apply for my deferral I am already in arrears as a result of circumstances relating to Coronavirus?
Your deferral will start from your next payment date and we will contact you to discuss the options available to you in relation to your arrears. Any arrears that you may have at the time of starting the deferral will still need to be repaid after your deferral period ends.
What happens at the end of my Payment Deferral period?
We will contact you in good time before the end of your Payment Deferral period about your options.