PCP finance.

mickdw

I always say that you should check whether or not you could afford to buy the car now using 15 percent deposit. If you can, all is good, if not, you might struggle to swap it for a new one in 3 years.
You are correct in saying the position at the end is exactly the same regardless of how much deposit you put it. The thing is, you will likely only have 15 percent deposit based on equity at end of the deal so for the next car, the monthly will payment go up compared to buying this time round with 22 percent deposit.
To be honest in your case, it sounds fine as you say you can afford 400 per month. The problems arise when some just barely manages to afford the monthly after putting in 30 percent. If they struggle with that, when they go back in 3 years and the equity only gives them 10 to 15 percent, the repayment on the next car is completely out of reach.
In short, if you don't like the look of the repayments based on a 15 percent deposit- it might not be a wise buy unless your finances are such that you will be happy to throw a few thousand into the deal every 3 years.

Lantus

DaveyDave wrote:

I've read people saying if you put in 25-30% you're in for a shock when swapping to a new car, why is this? The minimum value is the same isn't it? Therefore if the car is in good condition the excess should be the same and can be used as a deposit for the next car?

The equity in the car as a percentage is the same after 3 years regardless of the deposit or monthly repayments. It is generally set at about 15% give or take. So if you load up the deposit it will reduce your monthly but your deposit at the start of the second term is still 15%. So if you did have a higher deposit your monthly would increase. Car inflation and interest rates can compound this raise.

If the monthly payment was only just affordable your in trouble.

With vw and zero interest it makes no difference if your loading up front. The only saving is in PCP deals with higher interest rates where a higher deposit reduces interest over the term.

DaveyDave

Lantus wrote: »

The equity in the car as a percentage is the same after 3 years regardless of the deposit or monthly repayments. It is generally set at about 15% give or take. So if you load up the deposit it will reduce your monthly but your deposit at the start of the second term is still 15%. So if you did have a higher deposit your monthly would increase. Car inflation and interest rates can compound this raise.

If the monthly payment was only just affordable your in trouble.

With vw and zero interest it makes no difference if your loading up front. The only saving is in PCP deals with higher interest rates where a higher deposit reduces interest over the term.

It must be the man flu because I can't figure out in my head why a higher deposit would screw me for the next car How big of monthly payments are we talking? Let's say the higher end of payments is €400...if I got the same car would the high payments not be the same, as if someone was getting one for the first time with a low deposit?

Or is it because the equity is only worth X, and won't cover the higher deposit, thus lower monthly payments?

mickdw

If a golf for example is 300 per month with max deposit of 30 percent, it may be 400 per month with 15 percent deposit.
If you would be comfortable with 400 per month and 15 percent deposit, you should be grand and easily jump into a new car every 3 years.
If on the other hand someone else wants a golf and they can barely scrap together 300 per month but have full deposit of 30 percent only because they own outright a half decent car to trade in. They will get into their new golf for 3 years but come the end of term, payment will got to 400 for next car or else they will need cash to throw in.
This is all relately trivial when talking golf priced cars but go up to something like an Audi A6 and you can be in deep trouble.
Example. Buyer entering first pcp turns up with valuable fully owned trade in worth 16k. They are sorted for deposit and monthly might be 450 quid.
Next time around if they only manage 10 percent equity - maybe 9k, there is 7k shortfall versus last deal that will have to be made up in either cash deposit or higher monthly. That's an extra 200 per month, up to 650 per month for the A6 next time around.

Bmw deals seem even more dangerous. High gfv approaching expected value at year 3 meaning very little equity at end of term. Put 30 percent deposit into that deal day one which could easily be a 20k deposit and you could find yourself looking for something very close to 20k in cash to input into the next deal to keep monthly reasonable.
Pcp is only a problem for people who cannot afford the car.
Its not magic. It's basically very similar to taking out a 5 year car loan then changing the car 3 years in. You still owe money but the car is worth alittle more than you owe.

Lantus

Bpmull wrote:

I personally think Pcp is for people who can't afford a new car. The low monthly repayments and low deposit in some cases suit them down the ground. Anytime you work out the actual costs it seems a lot more expensive unless your paying some rediculous interest rate on the traditional loan like 8-10%. But in the case of vag new cars where you can get a loan for around 2-4% Pcp makes no sense.

As Mick says. The deposit / monthly ratio is variable but everyone will arrive at the same point after 3 years. That's because the gmfv is the same in all calculations.

So you can pay 2k deposit (10%) and 8k over 3 years

Or 4k deposit (20) and 6k monthly payments.

Or 6k deposit (30) and 4k monthly payments.

In all cases each owner paid 10k. They just got there in a different manner.

However the real world equity of the three cars above after 3 years is the same. And that's usually equivalent to a deposit for the next car of 12 to 15 percent.

So if you paid in or around this deposit level your monthly remains relatively​ stable. A higher deposit would result in the monthly increasing.

The amount is smaller in cheaper cars but then people buying these cars can have less money anyway so the real world effect can be just as harmful.

Soarer

Lantus wrote: »

As Mick says. The deposit / monthly ratio is variable but everyone will arrive at the same point after 3 years. That's because the gmfv is the same in all calculations.

So you can pay 2k deposit (10%) and 8k over 3 years

Or 4k deposit (20) and 6k monthly payments.

Or 6k deposit (30) and 4k monthly payments.

In all cases each owner paid 10k. They just got there in a different manner.

However the real world equity of the three cars above after 3 years is the same. And that's usually equivalent to a deposit for the next car of 12 to 15 percent.

So if you paid in or around this deposit level your monthly remains relatively​ stable. A higher deposit would result in the monthly increasing.

The amount is smaller in cheaper cars but then people buying these cars can have less money anyway so the real world effect can be just as harmful.

Is that not €10k + interest unless 0%?

So the smaller deposit equates to bigger monthly repayments?

Lantus

Soarer wrote:

Is that not €10k + interest unless 0%?

Soarer wrote:

So the smaller deposit equates to bigger monthly repayments?

I omitted interest for simplicity but yes you would pay interest on your monthly sum. So the larger the deposit the less interest you would generally pay as the outstanding sum is reduced. This makes sense when your buying the car after 3 years if you can max the deposit.

But yes a larger deposit will give the smallest monthly like all the ads they use to market the deals. However, if you roll into a second 3 year deal your equity in the car which is your next deposit will always be in the 12 to 15% range. It's a fixed element.

Soarer

Lantus wrote: »

I omitted interest for simplicity but yes you would pay interest on your monthly sum. So the larger the deposit the less interest you would generally pay as the outstanding sum is reduced. This makes sense when your buying the car after 3 years if you can max the deposit.

That's the bit I was trying to tease out.

If you've every intention of buying the car in 3 years' time, you're better off maxing the deposit.

Irish Gunner

Reading through the posts. We have 2 cars that we wish to trade in and use for the deposit for a new car is it better to put in a high deposit so that the value of the car should not depreciate to much in 3 years, and pay off sooner, if we do decide to upgrade again and use the existing value of the car as the deposit with maybe additional cash also?

Lantus

Irish Gunner wrote:

Reading through the posts. We have 2 cars that we wish to trade in and use for the deposit for a new car is it better to put in a high deposit so that the value of the car should not depreciate to much in 3 years, and pay off sooner, if we do decide to upgrade again and use the existing value of the car as the deposit with maybe additional cash also?

Value of car after 3 years is totally independent of the deposit. On PCP you pay over 3 years and the rest as you wish if your buying.

If your rolling into a new deal yes you can use extra cash but this is counter intuitive. If you have the money you can afford the higher monthly payments so why increase your deposit artificially?

Irish Gunner

Lantus wrote: »

Irish Gunner wrote:

Reading through the posts. We have 2 cars that we wish to trade in and use for the deposit for a new car is it better to put in a high deposit so that the value of the car should not depreciate to much in 3 years, and pay off sooner, if we do decide to upgrade again and use the existing value of the car as the deposit with maybe additional cash also?

Value of car after 3 years is totally independent of the deposit. On PCP you pay over 3 years and the rest as you wish if your buying.

If your rolling into a new deal yes you can use extra cash but this is counter intuitive. If you have the money you can afford the higher monthly payments so why increase your deposit artificially?

Cheers
Ok so its better to pay higher monthly payments rather than have a large deposit? So just use the value of the cars as a deposit and don't put any extra cash in as deposit?

grogi

Irish Gunner wrote: »

Cheers
Ok so its better to pay higher monthly payments rather than have a large deposit? So just use the value of the cars as a deposit and don't put any extra cash in as deposit?

There is no "better". Simply speaking what you don't put up as deposit, you will accumulate in the monthly payments. And at the end of 3 years you will be exactly in the same situation - owing the finance company exactly GMFV.

Paying bigger deposit only means you'll pay slightly less interest (unless there is 0% APR in place) over the years.

jelutong

Whether you pay a deposit of 20%.30%,40% and so on the GFMV will be exactly the same. It's the same story with the monthly payments.

Lantus

So you need to get your cars valued asap and see where they stack against the value of the car you want.

If you are looking to get a new car in 3 years then I would want to start with a deposit in the 12 to 15 % range. If your going to buy outright then there is no detriment to a higher deposit. In fact if there is interest on the contract the higher the deposit the better.

If your cars exceed the deposit above then maybe just trade 1 and sell the other privately. Or you could drop both and accept the higher monthlys in 3 years.

Get a few PCP calcs run from the dealer and if possible use the online calculator if there is one.
To get a good idea of monthlys in 3 years use a 13% deposit and add 1k to the price to allow for inflation.

If that figure is difficult then think hard if this is the right deal for you.

By way of real world example Mrs lantus is on her second car. Initial 22% deposit. Same car went up by 1k in price. Real world increase in monthly by 75eu. New car is on zero interest as well! Not much but she hates it. Loves the car but hates the increase and it grates. She is planning her exit! By contrast I'm running on a 13% deposit so better. We learned from doing and in hindsight we were just lucky our initial trade in was not worth more.

Speaking of exits I would look at an exit strategy fund as well. Over two deals or possibly 3 you should look towards saving the gmfv or as much of it as possible. That way the money is ready to provide an interest free exit strategy if circumstances or needs change.

This isn't talked about much but my feeling is that the smart buyers will factor this in from day 1.

ShadowHearth

Lantus wrote: »

So you need to get your cars valued asap and see where they stack against the value of the car you want.

If you are looking to get a new car in 3 years then I would want to start with a deposit in the 12 to 15 % range. If your going to buy outright then there is no detriment to a higher deposit. In fact if there is interest on the contract the higher the deposit the better.

If your cars exceed the deposit above then maybe just trade 1 and sell the other privately. Or you could drop both and accept the higher monthlys in 3 years.

Get a few PCP calcs run from the dealer and if possible use the online calculator if there is one.
To get a good idea of monthlys in 3 years use a 13% deposit and add 1k to the price to allow for inflation.

If that figure is difficult then think hard if this is the right deal for you.

By way of real world example Mrs lantus is on her second car. Initial 22% deposit. Same car went up by 1k in price. Real world increase in monthly by 75eu. New car is on zero interest as well! Not much but she hates it. Loves the car but hates the increase and it grates. She is planning her exit! By contrast I'm running on a 13% deposit so better. We learned from doing and in hindsight we were just lucky our initial trade in was not worth more.

Speaking of exits I would look at an exit strategy fund as well. Over two deals or possibly 3 you should look towards saving the gmfv or as much of it as possible. That way the money is ready to provide an interest free exit strategy if circumstances or needs change.

This isn't talked about much but my feeling is that the smart buyers will factor this in from day 1.

Thats good advice, I picked up saturday myself a car on pcp with 20%. My repayments are very reasonable, but I dont plan doing whole trade in thing. I will be buying it out. Its only 8.5k at the and I am puttting away 50eu a week just for that day.
Pcp is great to get a good scrapage and 0% apr on brand new car and makes demo or 1-3 year old cars very bad value. Problem is, some people still dont understand how it works and will get a surprise in 3 years.

Lantus

ShadowHearth wrote:

Thats good advice, I picked up saturday myself a car on pcp with 20%. My repayments are very reasonable, but I dont plan doing whole trade in thing. I will be buying it out. Its only 8.5k at the and I am puttting away 50eu a week just for that day. Pcp is great to get a good scrapage and 0% apr on brand new car and makes demo or 1-3 year old cars very bad value. Problem is, some people still dont understand how it works and will get a surprise in 3 years.

Congrats on car. Looks like you have planned out your strategy and well understand the logistics. Very impressive to see that 50 being squirreled away for the future gmfv. Your a good example of someone looking at all the elements of PCP; deposit, scrappage, interest rate, gmfv and not just cheap monthly payments.

Cost comparison against other vehicles including second hand helps justify your decision based on sound financial reasoning.

Fiskar

What you pick up with scrapage ShadowHeart?

ShadowHearth

Fiskar wrote: »

What you pick up with scrapage ShadowHeart?

I got 3k scrapage for my alfa gt 04 and 0% apr. Could not have gotten anything better then that. I got myself Seat ibiza cupra.

joebloggs32

Lantus wrote: »

So you need to get your cars valued asap and see where they stack against the value of the car you want.

If you are looking to get a new car in 3 years then I would want to start with a deposit in the 12 to 15 % range. If your going to buy outright then there is no detriment to a higher deposit. In fact if there is interest on the contract the higher the deposit the better.

If your cars exceed the deposit above then maybe just trade 1 and sell the other privately. Or you could drop both and accept the higher monthlys in 3 years.

Get a few PCP calcs run from the dealer and if possible use the online calculator if there is one.
To get a good idea of monthlys in 3 years use a 13% deposit and add 1k to the price to allow for inflation.

If that figure is difficult then think hard if this is the right deal for you.

By way of real world example Mrs lantus is on her second car. Initial 22% deposit. Same car went up by 1k in price. Real world increase in monthly by 75eu. New car is on zero interest as well! Not much but she hates it. Loves the car but hates the increase and it grates. She is planning her exit! By contrast I'm running on a 13% deposit so better. We learned from doing and in hindsight we were just lucky our initial trade in was not worth more.

Speaking of exits I would look at an exit strategy fund as well. Over two deals or possibly 3 you should look towards saving the gmfv or as much of it as possible. That way the money is ready to provide an interest free exit strategy if circumstances or needs change.

This isn't talked about much but my feeling is that the smart buyers will factor this in from day 1.

I bought on pcp in 2015 with a 33% deposit due to my trade in. I sat down and looked at the gmfv. I divided that figure by 36 and started saving it in to the credit union every month.
Next year when I go back to the dealer it will be nice to have the option of simply buying out the gmfv if I'm not happy with their trade in offer.
I have a sneaky feeling that the value of 3 year old cars will not be good as a lot will start coming onto the market as the first big wave of pcp renewals starts to hit Ireland in the next 12 months.

Lantus

joebloggs32 wrote:

I have a sneaky feeling that the value of 3 year old cars will not be good as a lot will start coming onto the market as the first big wave of pcp renewals starts to hit Ireland in the next 12 months.

It's an unknown alright. But the first big wave of PCP deals has already hit. Changes to the car market and automation plus electric will likely have a bigger effect.

Soarer

ShadowHearth wrote: »

Thats good advice, I picked up saturday myself a car on pcp with 20%. My repayments are very reasonable, but I dont plan doing whole trade in thing. I will be buying it out. Its only 8.5k at the and I am puttting away 50eu a week just for that day.
Pcp is great to get a good scrapage and 0% apr on brand new car and makes demo or 1-3 year old cars very bad value. Problem is, some people still dont understand how it works and will get a surprise in 3 years.

Or maybe keep your savings going, and 6 months out from end of contract, buy an old beater for a couple of hundred quid on DoneDeal.
At least then you've the option of walking away from your current car, receive scrappage on the beater, and have a lump sum to put as a deposit!

You never know what'll be available in 3 years' time.

who_ru

I think a lot of folks have been put off by the high price of 2nd hand cars in Ireland and have gone to the uk to buy instead. Are dealers pricing 2nd hand cars too high because of PCP deals now..new car sales are down and imports substantially up.

Gael23

https://www.rte.ie/lifestyle/motors/2017/0603/880092-warning-about-regulation-of-pcps/
Interesting

youcancallmeal

Gael23 wrote: »

https://www.rte.ie/lifestyle/motors/2017/0603/880092-warning-about-regulation-of-pcps/
Interesting

I'm not sure what he's saying. Does he mean that PCP's need to be regulated so that the dealer selling them has to ensure that the person taking out the PCP has to fully understand all aspects of it?

ShadowHearth

Gael23 wrote: »

https://www.rte.ie/lifestyle/motors/2017/0603/880092-warning-about-regulation-of-pcps/
Interesting

Pcp has its own issues and it is product like anything else. Biggest issue is people who dont understand it or its not suiting them will go for it and will land on their arse.

They are comparing it to mortgage crysis and in a way they are right. On the other hand, england, who is doing it for way longer then we do, have this scary problem too, but banks and dealerships came up with some numbers.
New car cost is big, but not as big as overpriced 1 bed flat for half a million. Car cannot be inflated like that. Its just a luxury item that devalues over time. Non repayments figures in uk are less then 1% and they are doing it for years. People just paying it and at very worst they can walk away from it. You couldn't do it with that apartment for half a million. You were ****ed. Repayments were way damn bigger too.

As always, there will be a lot of people who understood, what they sign up for and it will be all grand, but you will have a few Muppets who will over stretch and get new car, that they cant afford. Those will be the most vocal and it will be doomsday all over the place.

My worry is, that banks and all money, portfolio flippers will get on that, start selling/buying stuff and money, which does not exists. Then it will be crysis not because people could not afford cars, but because capitalism took its fat finger in to good idea and **** it up for eceryone.

ShadowHearth

Soarer wrote: »

ShadowHearth wrote: »

Thats good advice, I picked up saturday myself a car on pcp with 20%. My repayments are very reasonable, but I dont plan doing whole trade in thing. I will be buying it out. Its only 8.5k at the and I am puttting away 50eu a week just for that day.
Pcp is great to get a good scrapage and 0% apr on brand new car and makes demo or 1-3 year old cars very bad value. Problem is, some people still dont understand how it works and will get a surprise in 3 years.

Or maybe keep your savings going, and 6 months out from end of contract, buy an old beater for a couple of hundred quid on DoneDeal.
At least then you've the option of walking away from your current car, receive scrappage on the beater, and have a lump sum to put as a deposit!

You never know what'll be available in 3 years' time.

Thats actually very sneaky and cheeky idea, I love it. Food for thought.

This way you actually might save a good chunk of money and get in to new car again with all balls and whistles deals.

Masala

ShadowHearth wrote: »

Thats actually very sneaky and cheeky idea, I love it. Food for thought.

This way you actually might save a good chunk of money and get in to new car again with all balls and whistles deals.

As a matter of interest.... would you get away with trading a 'Scrapage' car against a PCP vehicle and hence start the loan off with €4,000 immediately written off the total amount????

mickdw

I think we will end up in a few years going more towards uk style deals where they offer contract deals with tiny deposit equal to maybe 3 or 6 monthly payments up front and 36 monthly payments to follow then hand back at end. It's harder here with our inflated prices but if the likes of bmw want to sell any cars in a few years they will have to do this even if it means big discounts because too many of their customers are coming back with tiny equity currently.

Fiskar

I think when PCPs and HP are included in the remit of the Central Credit Register that getting a PCP will be more difficult especially if the arse falls out of the market in the next year or 2 with defaults etc.

Klopp

Hi Guys, looking for advice and opinions. I have a 161 on finance over three years and i am currently just into my second year. The value of the car on trade in is roughly worth €21,000. I am looking to downsize and get a worth between €11,000 to €12,000. I know a dealer won't probably want to deal and i am probably wasting my time.

Any opinions from anyone in a similar situation?