First 3 years of ownership as seen in finance

September1

Apparently PCP car purchasing is quite popular those days as people do not want to give away their cash - this means that most manufacturers advertise deals where you can get car in this system. You simply pay only for value lost by your car and interest - in the end you are left with car that has guaranteed minimum value, which is what dealer or manufacturer or finance company think is worst case scenario of its value, assuming you treated it well and drove only small mileage. You can look at it also as a bet, and obviously other side does not want to lose by having value drop below agreed one.

If you take this final value or final payment, then divide it by on the road price you will get a percentage that is a SAFE bet on future value of vehicle. General rule of thumb is that cars would lose half of value every three years and it would seem no offer goes above 47%. I did so for quite a few brand, using data they presented today on their webpages. I usually rounded number unless it was really in the middle - in general the higher number, the more trust dealer/finance/maker has in the car. I took values from their examples, and they usually used cheapest version of car - this calculation may not hold very true for higher spec ones.

VW Polo 40%
VW Golf 38%
VW Jetta 38%
VW Passat/Tiguan/Beetle 39%
Opel Adam/Astra/Corsa/Zafira/Insignia 38%
Opel Mokka 37.5%
Toyota Auris/Avensis/Corolla/Prius 39%
Volvo V40 42%
Volvo S60 40%
Audi A1 38%
Audi A3 39%
Audi A4 41%
Audi A6 43%
Audi Q3 39%
Renaul Clio/Captur/Scenic/Megane 40%
Citroen DS3/DS3 Cabro/DS4/DS5 35%
Kia Picanto/Venga/Rio/cee'd/Carens/Optima/Sorento 30%
Kia Sportage 35%
Nissan LEAF/Qashqai/Juke 43%
Nissan Micra 40%
Nissan Note 42.5%
Honda Jazz/Civic 40%
Honda Accord 38%
Honda CR-V 41%
BMW 1/3/5 47%
BMW X5 45%
BMW 7 32%
Dacia Duster 44%
Dacia Logan/Sandero 41%

Please add info from manufacturers I missed.

Biggest surprise for me was high value of BMW as I always though premium brands are costly to own.

SJT1

BMW does seem to be on the high side alright. Best case scenario is after the 3 years you are left with a bit of equity in your car to cover the minimum deposit required(normally 10%) so you can take out another PCP or HP offer and renew your car in 3 years time.

ctlsleh

but can anyone tell me how these PCPs can be any better value than outright ownership? i just cant see the point of them, you are still financing the depreciation and still have a baloon payment in the end, am i missing something or are you stillm better off with a normal loan to buy a 2 year old can and then trade it in after 3 more years? would love to see the numbers if anyone has them on something like a BMW 5 series that holds its value reasonably well........?

SJT1

I suppose the idea of these PCP's is to get people focus off the cost to change, trade in prices etc and more focused on monthly repayments. So people when shopping for new cars can say I can get an 5 series for €500 a month over 3 years instead of saying I can get a 5 series for €50k.

In the UK over 60% of new vehicles purchased are done this way. In the US its much higher then that. Was in the US last year and saw an add on the telly for a new Audi A3, paid attention to it cause I was curious as to how much the price of the car was over there compared to how much we get ripped off here! Nowhere in the add was the price of the car mentioned at any stage except for "get a new A3 for $199"

Leasing is the best way to fund cars, unfortunately in Ireland consumers can't legally lease cars so the only alternative option is a HP with a balloon payment guaranteed by the manufacturer.

Its typical in Ireland that we have to 'OWN' everything outright, land, cars etc, but whats the point! Its takes hell of a long time to save up the bobs for brand new cars to pay for all of it upfront for it to start depreciating straight away on you. Its much easier to hand over an affordable few bob every month for a car you like and know you can change it again in a few years and are protected by the manufacturer against things like the prices of cars dropping dramatically which we have experienced before

Del2005

SJT1 wrote: »

I suppose the idea of these PCP's is to get people focus off the cost to change, trade in prices etc and more focused on monthly repayments. So people when shopping for new cars can say I can get an 5 series for €500 a month over 3 years instead of saying I can get a 5 series for €50k.

In the UK over 60% of new vehicles purchased are done this way. In the US its much higher then that. Was in the US last year and saw an add on the telly for a new Audi A3, paid attention to it cause I was curious as to how much the price of the car was over there compared to how much we get ripped off here! Nowhere in the add was the price of the car mentioned at any stage except for "get a new A3 for $199"

Leasing is the best way to fund cars, unfortunately in Ireland consumers can't legally lease cars so the only alternative option is a HP with a balloon payment guaranteed by the manufacturer.

Its typical in Ireland that we have to 'OWN' everything outright, land, cars etc, but whats the point! Its takes hell of a long time to save up the bobs for brand new cars to pay for all of it upfront for it to start depreciating straight away on you. Its much easier to hand over an affordable few bob every month for a car you like and know you can change it again in a few years and are protected by the manufacturer against things like the prices of cars dropping dramatically which we have experienced before

Why is it illegal to lease?

SJT1

Del2005 wrote: »

Why is it illegal to lease?

Sorry, illegal is the wrong choice of word! Its just not possible for ordinary consumers to lease cars, only business users.

I don't know the exact reason behind why we can't but if I was to stab a guess I would think it would have something to do with the consumer credit act.

Derek Zoolander

SJT1 wrote: »

I suppose the idea of these PCP's is to get people focus off the cost to change, trade in prices etc and more focused on monthly repayments. So people when shopping for new cars can say I can get an 5 series for €500 a month over 3 years instead of saying I can get a 5 series for €50k.

In the UK over 60% of new vehicles purchased are done this way. In the US its much higher then that. Was in the US last year and saw an add on the telly for a new Audi A3, paid attention to it cause I was curious as to how much the price of the car was over there compared to how much we get ripped off here! Nowhere in the add was the price of the car mentioned at any stage except for "get a new A3 for $199"

Leasing is the best way to fund cars, unfortunately in Ireland consumers can't legally lease cars so the only alternative option is a HP with a balloon payment guaranteed by the manufacturer.

Its typical in Ireland that we have to 'OWN' everything outright, land, cars etc, but whats the point! Its takes hell of a long time to save up the bobs for brand new cars to pay for all of it upfront for it to start depreciating straight away on you. Its much easier to hand over an affordable few bob every month for a car you like and know you can change it again in a few years and are protected by the manufacturer against things like the prices of cars dropping dramatically which we have experienced before

Exactly - in a pure financial sense it isn't the cheapest form of ownership however with 15% - 20% deposits required on houses these days its one way of owning a car without losing 30+k in cash. The APR on the PCP deals is normally reasonably competitive [Audi are typically between 4-5% APR which is well under a bank loan] so when cash is king there is some merit to financing this way

ctlsleh

Thanks for the replies, I got the principle, but the idea of the ongoing 500 per month isnt actually realistic, because after your 3 year term, you still have to come up with the 15K deposit for the 520D if we stay on that example, which in reality is another 500 per month, so the real cost of your PCP is 1000 a month.......although i know that that's based on achieving the minimum guaranteed value, it would be interesting to hear how the dealers are actually valuing the cars........have i got that right, or am i still missing something on the PCP? im struggling to see the value of it or why its a better deal?

SJT1

ctlsleh wrote: »

Thanks for the replies, I got the principle, but the idea of the ongoing 500 per month isnt actually realistic, because after your 3 year term, you still have to come up with the 15K deposit for the 520D if we stay on that example, which in reality is another 500 per month, so the real cost of your PCP is 1000 a month.......although i know that that's based on achieving the minimum guaranteed value, it would be interesting to hear how the dealers are actually valuing the cars........have i got that right, or am i still missing something on the PCP? im struggling to see the value of it or why its a better deal?

You're 90% there

The thing is you don't have to go back to the dealer, you can sell it privately, if you want to change brands altogether go to another dealer, there are plenty of options for you at the end of the 3 years etc.

Your car will be valued the same way any other car is valued. Just this time you will have a settlement that needs to be cleared on your car and as I was saying earlier these PCP deals will work best if the Balloon isn't set to high and you have a bit of equity at the end of the 3 years to use toward your deposit on your next car for example;

In 3 years time your car might be worth €16000, the Guaranteed Future Value might be €12000, therefore you have €4k equity to put as a deposit on your next car.

Problem is I can see these greedy manufacturers setting really high GFV's as in your examples on the BMW's, making it really attractive now to go down the PCP road where fact there is a fine balance that needs to be achieved to make the PCP look good now but also making it easier to come up with a deposit for a new one again in 3 years time so these deals can keep on rolling over making life much easier for the consumer

ctlsleh

yea......that makes sense. So i'm thinking that buying a 2 year old where the highest-rate of depreciation has already been paid for and where you secure a 2 year warranty, then trading-up every 3-4 years is probably a better financial solution overall that pretty much gets you there........would you say? difficullt to do the numbers i know, but it would seem to be a better financial strategy?

Zubeneschamali

September1 wrote: »

Biggest surprise for me was high value of BMW as I always though premium brands are costly to own.

It's a percentage. The BMWs are much more expensive than a Kia, say, so a higher percentage value retained still translates to more actual cash in depreciation.

The surprise for me is the high % on Renaults and Dacias. This will translate to "trapped buying another from the dealer" since no-one but the dealer will give you 44% for a Duster after 3 years.

September1

Zubeneschamali wrote: »

It's a percentage. The BMWs are much more expensive than a Kia, say, so a higher percentage value retained still translates to more actual cash in depreciation.

The surprise for me is the high % on Renaults and Dacias. This will translate to "trapped buying another from the dealer" since no-one but the dealer will give you 44% for a Duster after 3 years.

If final value is more than actual value of the car then you are winner, PCP has protected you from some part of depreciation loss.

Zubeneschamali

September1 wrote: »

If final value is more than actual value of the car then you are winner, PCP has protected you from some part of depreciation loss.

Only if you go back to the dealer, which is what everyone with a Renault or Dacia will have to do. It's a kind of subsidy from the marque to try and lock in customers.

September1

Zubeneschamali wrote: »

Only if you go back to the dealer, which is what everyone with a Renault or Dacia will have to do. It's a kind of subsidy from the marque to try and lock in customers.

Not true, you can just hand over car worth 5000 to Renault in exchange of repayment of debt of 7004 (that is basic Duster case). You can then proceed to purchase any car, perhaps buy back this Duster from dealer for 5000 ?

Anan1

Presumably those depreciation %s are for standard cars. The figures might rise a lot with optional extras.

SJT1

ctlsleh wrote: »

yea......that makes sense. So i'm thinking that buying a 2 year old where the highest-rate of depreciation has already been paid for and where you secure a 2 year warranty, then trading-up every 3-4 years is probably a better financial solution overall that pretty much gets you there........would you say? difficullt to do the numbers i know, but it would seem to be a better financial strategy?

Depends really on the brand you're buying. Most manufacturers offer 3 years warranty so if you bought a 2 year old you would still get 12 months man. warranty. So brands are now offering 5 years which would be ideal.

I suppose if you buy a 2 year old car then the capitol amount you'll be borrowing will be less and you will pay less interest.

I used to sell PCP in a previous life. Many a time someone came into me looking for finance options on a 1 or a 2 year old car and using the same deposit I would show them a PCP example on a brand new car, because of the balloon payment the monthly repayments on the PCP would always come in less, as that was protected by the manufacturer it was nearly always the better option.

If you are in the market for a car and do find that 2 year old you should compare the monthly repayment on a new one with PCP and see for yourself!

It's funny this thread should come up as my Brother is thinking about a new Audi and I was telling him to check out PCP and so we started checking it out.

What we gathered from it is that you either have a trade in or pay a deposit and agree a term, usually 3 years and of course agree a mileage limit.

At the end you can either pay off the car, hand it back or sign up for a new deal.

What we're not sure about is if you still need to come up with another deposit for a new car ?

I get the fact you're paying the depreciation + interest and that the dealer can sell the car and still make money.

It does sound attractive, after all why own something that depreciates so much ? why buy a car outright and pay interest on the full amount ?

For me doing 20K miles a year would probably make it expensive as there would be a higher depreciation.

ElizKenny

Im very confused on this PCP thing.
We want to buy our daughter a car and she like the Dacia Sandero.

So looking on the Dacia.ie website it has this deal.

RRP €9999
Deposit €3299
Optional Final Payment €4096

and then €99 per month for 3 years.

Heres where I get confused.
I understand you can pay the final payment and keep the car, or just give back the car.

But what happens at the end of these 3 years if she wants to trade in for a new Sandero under the same deal?
Does she just hand back the car, and the value of the car covers the deposit to start again with a new car at €99 per month for another 3 years?

Or is there a shortfall, and if so about how much?

BAsically im trying to figure out what the cost is if she wanted to start again with the €99 per month for 3 years, after the end of the first 3 years.

Also they dont say how many Km this deal is for, or what the price per Km is if you go over.

Marcusm

ctlsleh wrote: »

but can anyone tell me how these PCPs can be any better value than outright ownership? i just cant see the point of them, you are still financing the depreciation and still have a baloon payment in the end, am i missing something or are you stillm better off with a normal loan to buy a 2 year old can and then trade it in after 3 more years? would love to see the numbers if anyone has them on something like a BMW 5 series that holds its value reasonably well........?

In economic terms, you have acquired an option to sell the car at that preset price in X years time. Think about it as effectively insurance against the value of the car falling below that level. Whether it is good value can only be determined by experience and your own particular circumstances.

SJT1

ElizKenny wrote: »

Im very confused on this PCP thing.
We want to buy our daughter a car and she like the Dacia Sandero.

So looking on the Dacia.ie website it has this deal.

RRP €9999
Deposit €3299
Optional Final Payment €4096

and then €99 per month for 3 years.

Heres where I get confused.
I understand you can pay the final payment and keep the car, or just give back the car.

But what happens at the end of these 3 years if she wants to trade in for a new Sandero under the same deal?
Does she just hand back the car, and the value of the car covers the deposit to start again with a new car at €99 per month for another 3 years?

Or is there a shortfall, and if so about how much?

BAsically im trying to figure out what the cost is if she wanted to start again with the €99 per month for 3 years, after the end of the first 3 years.

Also they dont say how many Km this deal is for, or what the price per Km is if you go over.

At the end of the 3 years you will still owe €4096. So ideally if you want to get the same car again you would want your trade in value to cover that amount to clear the outstanding finance and then it will be a case of putting up a similar deposit like you're looking at doing now and going again for another 3 year.

The big question is, is a 3 year old Dacia that was purchased for €10k worth €4k at the end of 3 years, I would think not but it really doesn't matter because as long as you're within the agreed mileage you can hand back the car and walk away.

It's a cheap car for cheap money and if that's what you're after I say go for it, don't be put off by the finance element of it.

ElizKenny

ElizKenny wrote: »

But what happens at the end of these 3 years if she wants to trade in for a new Sandero under the same deal?
Does she just hand back the car, and the value of the car covers the deposit to start again with a new car at €99 per month for another 3 years?

Usually the GFV (guaranteed future value) is calculated so you'll have enough for a deposit going forward, however excess mileage, damage, scratches etc inside and out will also be deducted from this GFV. If your daughter is not someone who can take proper care of the car then PCP is not the route you want to be going down.

ElizKenny wrote: »

Also they dont say how many Km this deal is for, or what the price per Km is if you go over.

This is how they get you to the showroom !

All PCP prices advertised are for the minimum mileage of about about 15,000 kms or less per year to make it sound a lot more attractive with really "low" monthly payments.

FGR

I liked the look of these offers but then saw those ridiculous mileage limits. I'd cover 40,000km a year never mind 15,000.

ElizKenny

Thanks guys.
So to put it another way.
The cost of keeping the car for 3 years and then rolling over for the next 3 years is.

(€99 x 36) + €3299 deposit = €6863 for 3 years.

Or €2290 per year. Doesnt seem like such a great deal like that then.

If what was left in the car covered the deposit it would be attractive, but not this way.

September1

ElizKenny wrote: »

Thanks guys.
So to put it another way.
The cost of keeping the car for 3 years and then rolling over for the next 3 years is.

(€99 x 36) + €3299 deposit = €6863 for 3 years.

Or €2290 per year. Doesnt seem like such a great deal like that then.

If what was left in the car covered the deposit it would be attractive, but not this way.

If you buy car upfront than it will cost you with same assumptions 5903 so this deal marginal cost is 960E for 3 years.

SJT1

ElizKenny wrote: »

Thanks guys.
So to put it another way.
The cost of keeping the car for 3 years and then rolling over for the next 3 years is.

(€99 x 36) + €3299 deposit = €6863 for 3 years.

Or €2290 per year. Doesnt seem like such a great deal like that then.

If what was left in the car covered the deposit it would be attractive, but not this way.

I disagree. The car will be covered by manufacturers warranty, you'll pay low road tax, you'll have lower servicing costs. €2290 per year is only €190 per month, a lot of car in that if you ask me!

Whats the alternative?

ElizKenny

ElizKenny wrote: »

Thanks guys.
So to put it another way.
The cost of keeping the car for 3 years and then rolling over for the next 3 years is.

(€99 x 36) + €3299 deposit = €6863 for 3 years.

Or €2290 per year. Doesnt seem like such a great deal like that then.

If what was left in the car covered the deposit it would be attractive, but not this way.

PCP allows you to reduce your monthly payments because you pay interest + depreciation and not interest and repayments on the full amount of the car so it can work out a lot cheaper on more expensive cars per month especially if you do low mileage.

PCP gives you 3 years to decide if you want to keep the car or own it after the contract expires.

PCP is attractive for someone who does not care about owning a car.

PCP does not mean someone who could not otherwise afford to buy a new car can all of a sudden buy a new car.

You need cash in the bank if after the 3 years you go way over the mileage limit or are a careless owner and don't take care of your car. Or circumstances change so you have to buy the car and can't sign a new contract, you'll have to pay the balloon.

If you want to keep the car then it doesn't matter how many miles are on the car at the end of the contract.

SJT1

SJT1 wrote: »

Whats the alternative?

There are better 2nd hand cars for the money or less.

SJT1

Deleted User wrote: »

There are better 2nd hand cars for the money or less.

Agreed, better second hand cars that aren't Dacia's!

rrrrrrrr

A friend of mine bought a new golf using this system a few years ago and is coming up to the end of his payment period.

He now has the option to either pay off the car, hand it back or sign up for a new deal and he's planning on signing up for a new deal and getting another new golf.

I'm wondering if it would make sense for me to buy his old car off him, for the price he would have to give VW to buy it (i.e. the optional final payment) plus a bit more for his trouble, and for him to use this moneyto clear the amount owed to VW on the old car. He could then start again with a new contract.

If he gives the old car back, is he allowed anything on it or does he need to still pay a full deposit?

I haven't gone through the exact figures , engine sizes etc in detail, but the optional final payment seems to be a good bit less than what similar aged golfs are going for online.

Won't they will just add on a markup and sell it on, so he might as well just start from scratch, or am I missing something?

MuppetCheck

He needs to see how much he will get for the car from the dealer before giving you the price.

He then needs to see how much he can buy one for straight cash.

Whatever price ye agree on would obviously be mutually beneficial but bear in mind you're on your own if the anything goes wrong - no warranty or comeback.

SJT1

rrrrrrrr wrote: »

A friend of mine bought a new golf using this system a few years ago and is coming up to the end of his payment period.

He now has the option to either pay off the car, hand it back or sign up for a new deal and he's planning on signing up for a new deal and getting another new golf.

I'm wondering if it would make sense for me to buy his old car off him, for the price he would have to give VW to buy it (i.e. the optional final payment) plus a bit more for his trouble, and for him to use this moneyto clear the amount owed to VW on the old car. He could then start again with a new contract.

If he gives the old car back, is he allowed anything on it or does he need to still pay a full deposit?



I haven't gone through the exact figures , engine sizes etc in detail, but the optional final payment seems to be a good bit less than what similar aged golfs are going for online.

Won't they will just add on a markup and sell it on, so he might as well just start from scratch, or am I missing something?

You seem to understand it alright. If he sells his old car to you he will need to clear the settlement as you said. If he takes out a new PCP he will also need to come up with a minimum of a 10% deposit on the new deal, that said, as he will have no trade in he'll get a little bit more off the price of the new car which might result in the same or lower monthly repayments. He'll really have to call into the dealer and price it up without no trade in to see.