Understanding the 'Total Amount of Credit' when buying a new or used car

Total amount of credit, total to be repaid or total principal owed is the actual value of the loan taken by the borrower. Car loan providers use this amount for calculating monthly installments.

Total amount of credit in detail

Every car loan will have two parts as standard:

  1. principal
  2. interest

Additionally there are other parts such as deposit and administration fees. In the case of PCP finance, there is an additional component called final payment or GMFV.

Total to be repaid includes the car price and administration fee. Note that it does not include interest, which is why it is also called 'total principal owed.'

Let's look at a few examples:

Example 1:

Suppose you are looking at a new Honda Civic Hatchback, worth around £15,000. You want to buy this car under PCP finance. There is an administration fee of £100 and a cash deposit of £1,000. Final payment or GMFV is £4,000. In this case, your total to be repaid is £10,100 (£15000+£100-£1000-£4000). The financing company will use this amount to calculate your monthly installments.

Example 2:

Suppose you want to buy the same Honda Civic Hatchback and intend to pay a higher deposit of £2,000. All the other terms are the same. In this case, your total to be repaid is £9,100 (£15,000+£100-£2,000-£4,000) and it will result in lower monthly installments.

Example 3:

Let's take an example if you want to buy this new car worth £15,000 as an exchange on your current PCP plan. Your PCP is expiring, and you are set to receive a GMFV of £3,000 on your old car. In such a case, the £3,000 can serve as part exchange value towards a new car, and so you will have to pay £3,000 less on the £15,000. To make the deal sweeter, the dealer may offer you £1,000 extra on your old car. This surplus of £1,000 can also serve as part contribution to the new car. So the total to be repaid will include the new car price + administration fees and deduct the old car's GMFV and surplus and also, the new car's GMFV.

In this scenario, your total to be repaid will be only £7100 (£15000+£100-£3,000-£1,000-£4,000). This is assuming there's no additional cash deposit. In case there's a deposit, this amount will be reduced further. Moreover, the monthly installments will be calculated on £7,100.

Why is it important to calculate the total to be repaid?

Total to be repaid plays an important role when buying a car. When buying a new or used car under PCP, you should try to keep the total to be repaid as low as possible as this will result in lower interest and thus lower monthly installments. You can even settle the loan faster by going for higher installments in a shorter period.

These are just a few examples of total to be repaid. You can make your own calculations using our free PCP calculator.