Another PCP Question - When handing back?

justindublin

Guys when did car buying get so complicated?

I'm considering purchasing a new car next month, PCP seems like an attractive option but I've two things I'm hoping trusty boards could help me figure out.

Lets say the new car is 27k and the agreement has a GFV of 10k.
At the end of the three years am I correct saying the dealer values the car just like a trade in, and if it's worth say 15k, then I get a 5k deposit to carry forward to the next deal?

If I'm right then what happens If I decided to hand back the keys and walk away - would I be entitled to a 5k refund?

DriveSkill

Sadly no...but it would be a nice option

Your options at the end of the 3 years are :

1. Hand the car back and walk away, you owe nothing and they owe you nothing.
2. Trade the car back in and start a new PCP in which case the garage will calculate the equity you have in it - assume GMFV is €10K and they value at €12K for trade then you have €2K as deposit on new PCP
3. You buy the car outright and the cost will be the GMFV

That is the basics, there are some T&C about keeping within certain mileage etc which may impact costs when you come to the end.

justindublin

I promise you I'm a smart man, but I must be missing something here...

Where the hell is my equity going? How do I've equity to use trading up, even with another dealer, but not if I walk away?

This is annoying me because to use (rough) real world numbers from my proposal...

The car is €30k

Deposit plus monthly payments after three years will have totalled €20k

The GFV is €10k -

How when the car would likely be worth €17ish?

How would walking away make sense to anyone? Hell wouldn't it be better to sell it, pay off the GFV and keep the change?

DriveSkill

justindublin wrote: »

Where the hell is my equity going? How do I've equity to use trading up, even with another dealer, but not if I walk away?

Not so sure about the other dealer part unless they are all part of the same group. Remember you don't own the car so you cant just trade it in as normal it has to go back to the dealership you financed it with. If you want to bring it somewhere else to trade you are going to have to buy it out first.

justindublin wrote: »

This is annoying me because to use (rough) real world numbers from my proposal...

The car is €30k

Deposit plus monthly payments after three years will have totalled €20k

The GFV is €10k -

How when the car would likely be worth €17ish?

How would walking away make sense to anyone? Hell wouldn't it be better to sell it, pay off the GFV and keep the change?

Walking away doesn't really make sense in most cases, what the dealer wants is you to start again with a new PCP and in this case it sort of makes sense. If you are happy to pay €200-300 a month indefinitely you will always have a relatively new car and change it up every 3 years..that is the system you are buying into.

The other 2 options in my view are not good ones...obviously walking away is not really a good option but even buying it out is not great as the overall cost will be higher typically than if you simply did normal financing over say 5 years although your initial monthly repayments on the PCP will be lower.

I recommend you work out the TOTAL cost of the credit and then see if its worth it.

BTW there was one case I heard of where walking away sort of made sense...young college student spending €100+ per month on trains/buses etc got a basic small car for pretty much same price per month so her plan was to hand it back in 3 years, she has had the use of a car for more or less the same cost of public transport but with more flexibility.

tmg

"Where the hell is my equity going?"

so thats kinda the thing. you really need to think of PCP as a lease more than a hire purchase contract.

Drummerboy08

It doesn't have to go back to the original dealer, at least not with the majority of Manufacturers. You can still trade it in as normal elsewhere.

If you decide to hand the car back (pure lunacy IMO unless the country collapses again) you can forget about any equity in the deal.

You'd be better off selling the car, paying the GFV and keeping the profit.

MarkN

If you want to have equity from putting in a deposit and getting *something* back down the line in the way of cash then you need traditional finance or a bank loan so that if you sell the car you get to physically keep what is left from you clearing the loan. You pretty much never get the physical cash you put in at the start with PCP - unless you decided to buy the car after 3 years and sell it a month later for more than the GVF you got on it.

Drummerboy08

MarkN wrote: »

If you want to have equity from putting in a deposit and getting *something* back down the line in the way of cash then you need traditional finance or a bank loan so that if you sell the car you get to physically keep what is left from you clearing the loan. You pretty much never get the physical cash you put in at the start with PCP - unless you decided to buy the car after 3 years and sell it a month later for more than the GVF you got on it.

If you decide to trade it in against another car your equity goes as a deposit against it so you do get it back.

The only time you won't see any equity is if you decide to hand the car back.

stesaurus

Sell privately and then pay off the balloon is that actually technically possible? I mean is the logbook in your name or somewhat like a lease and still owned by the dealer meaning you cannot realistically sell it until you've paid the balloon and had it transferred to you? It might be difficult to have ~10k at the time on hand.

Handing the car back would be stupid unless like mentioned already there's a market crash.

Drummerboy08

Logbook is in your name, not the dealers.

Soarer

Drummerboy08 wrote: »

Logbook is in your name, not the dealers.

So how come you "don't own the goods until the final payment is made"?

stesaurus

So no issues selling privately then. I can see that getting some abuse over the next few years. Dealers are pushing PCP in a big way lately and I could see some people selling the car off and ignoring the payments/balloon.

pippip

A logbook only really proves who the car is registered to.

Drummerboy08

Soarer wrote: »

So how come you "don't own the goods until the final payment is made"?

A log book doesn't really prove ownership, more so who is the registered keeper.

Just like HP, the finance company have an interest in the vehicle until the final payment is made.

Drummerboy08

s.welstead wrote: »

So no issues selling privately then. I can see that getting some abuse over the next few years. Dealers are pushing PCP in a big way lately and I could see some people selling the car off and ignoring the payments/balloon.

Thats fine if they want to do that, but they'll never get finance again, including a mortgage. Their ICB will be ruined for quite a few years.

sunnysoutheast

s.welstead wrote: »

So no issues selling privately then. I can see that getting some abuse over the next few years. Dealers are pushing PCP in a big way lately and I could see some people selling the car off and ignoring the payments/balloon.

I think it would still show outstanding finance though, so if the buyer did the sensible thing and ran a check they shouldn't get stung.

mickdw

Back to the ops question, the walking away option is really just a back up position and really should never be considered.
As previously mentioned, in almost every case you would be well advised to clear the balloon and sell on.
On a side note, I was very interested in audi A6 pcp deals and whether audi were pushing it abit in terms of returning customers behind left alittle sort on deposit at time of changing car.
Anyone have rough figures on how things turned out for people who bought a6 new in 11 or 12 with max deposit based on trade in of fully owned old car. How did they work out for deposit this time ?
I ask because audi were doing 15k deposit and 19.5k gfv. The 3 year old a6 would have to be making 34.5k to put someone in similar position for next car or else face a cash injection or larger monthly payment.

Drummerboy08

I know with VW we're seeing roughly 15% equity after 3 years.

In some case slightly more if the customer decides to change early.

mickdw

Drummerboy08 wrote: »

I know with VW we're seeing roughly 15% equity after 3 years.

In some case slightly more if the customer decides to change early.

Interesting. So 15 percent deposit is roughly where it should be at for someone going into a new pcp on a passat for example. That should leave them in a sustainable situation where they can change after 3 years, use only trade in for deposit and then keep paying same monthly figure.
Depending on car and mileage of course.

pippip

There was an article in one of the Sunday papers a few weeks back. One point it highlighted was that some pcp package's GMFV are effected by mileage. It highlighted Kia who have a 20000km per year limit. The GMFV goes down by 10c for every km over that.

If you were unaware of this you could be stung at the end.

mickdw

pippip wrote: »

There was an article in one of the Sunday papers a few weeks back. One point it highlighted was that some pcp package's GMFV are effected by mileage. It highlighted Kia who have a 20000km per year limit. The GMFV goes down by 10c for every km over that.

If you were unaware of this you could be stung at the end.

Mileage and condition will of course affect the value of the car but you will only get stuck with the 10c per Km if handing the car back. I'd you buy the car outright at 3 years, you pay only the originally agreed gfv as that is what you owe and the condition of the car is then of no concern to anyone else.
If taking in for another new car, high mileage or poor condition will affect its trade in value but you shouldn't be stung with the 10c per Km nonsense, more just given a realistic trade in value as after all you are free to shop around.

justindublin

Thanks for the advice lads!

I had a feeling that walking away was the 'disaster' option - like losing a job or something. Confirmed!

Something else I came across was the 'Halves Rule' which basically entitles anyone to end a PCP or HP agreement once half the agreed finance has been paid. (http://www.consumerhelp.ie/car-finance-debt)

So lets take my actual agreement into stock here...

- The value of the car is €29,000.
- The trade + deposit is €6400
- Total finance: €22,600

Repayments work out at €400 per month for 36 months, at the end of which the GFV is €10500.

However, after 28 months I'll have paid half the value and could walk away 8 months early (3k early). Again, makes no sense really, but still I it's good to know the option is there in disaster.

I wonder what the average person is paying per month on these deals and if I'm getting robbed somewhere here?

It's drilled into my mind from parents that new cars are a bad idea so I'm forever second guessing myself! :rolleyes:

Drummerboy08

What car are you looking at?

justindublin

Drummerboy08 wrote: »

What car are you looking at?

One of the higher spec VW TDI Golfs Edition R

Drummerboy08

Look at a Highline too, with the lower APR for July it may work out similar per month and you'll get a much higher spec.

There isn't anywhere really for dealer to rob you except on the cost to change so price around one or two other dealers to make sure you're getting the best deal that way.

The rate is the rate, there isn't any scope to change that with VW Bank so it's only your trade in or the discount off the new car that can change.

Cee-Jay-Cee

I still dont get the whole PCP thing, can someone clarify one point for me.

If I buy a car today and in 3 years time decide I want to trade up to another new car, does the car I'm giving back act as the deposit for the new car or do I have to raise the €6k or €7k deposit again and start afresh?

Drummerboy08

The equity in your current car acts as your deposit.

€16000 trade in value
€10000 GFV

Leaves you with €6000 equity as a deposit for the next car.

JoyPad

justindublin wrote: »

[...] after 28 months I'll have paid half the value and could walk away 8 months early (3k early). Again, makes no sense really, but still I it's good to know the option is there in disaster.

I think you can also upgrade early using this option, if you're interested in getting a new car earlier than the 3 years.

Limbo123

s.welstead wrote: »

So no issues selling privately then. I can see that getting some abuse over the next few years. Dealers are pushing PCP in a big way lately and I could see some people selling the car off and ignoring the payments/balloon.

Any prespective buyer that does a vehicle check will see finance is still owing on the vehicle and run a mile.

bmwguy

Cee-Jay-Cee wrote: »

I still dont get the whole PCP thing, can someone clarify one point for me.

If I buy a car today and in 3 years time decide I want to trade up to another new car, does the car I'm giving back act as the deposit for the new car or do I have to raise the €6k or €7k deposit again and start afresh?

Pay the GMFV and then use the car as the deposit. The whole idea is that people are lowering payments because they are only making payments on a portion of the cars value, but many have been confused here about how to get into a new car. If you want equity in your car either to sell on or trade in, you have to pay deposit + monthly payments + GMFV. It is not as attractive as the manufacturers make it out to be with their headline figures of a small monthly payment. However, the car may be worth 15k and the GMFV might be 10k, so you could have a 5k equity after paying off.

Can't have low monthly payments and build up much equity, cant have it every way unfortunately.

BMW are doing one now, something like drive a new €37,000 3 series for €325 a month. But that is with €11k deposit and €16k final payment, so the €325 is only paying off the rest, i.e. €10k. Many people will see this as €325 is paying for the entire car.

If you had a few grand now, it would seem very attractive, put down a deposit, low monthly payments and impress the neighbours with your new 3 series. Down the line you need to have 16k to keep it or change it for another new one. Can see a lot of people doing PCP once and once only as they are unsure of the complete details and will just nod and agree and sign.

That said, if you do fully understand and it suits you, go for it! But make sure you do the sums, compare the GFMV to 3 years old prices today to see if they are making sense.

Slattsy

Whats the jazz with re-financing the car after the initial 3 year term has finished exactly? It is an option. (I think?)

SpannerMonkey

DriveSkill wrote: »

Not so sure about the other dealer part unless they are all part of the same group. Remember you don't own the car so you cant just trade it in as normal it has to go back to the dealership you financed it with. If you want to bring it somewhere else to trade you are going to have to buy it out first.



Walking away doesn't really make sense in most cases, what the dealer wants is you to start again with a new PCP and in this case it sort of makes sense. If you are happy to pay €200-300 a month indefinitely you will always have a relatively new car and change it up every 3 years..that is the system you are buying into.

The other 2 options in my view are not good ones...obviously walking away is not really a good option but even buying it out is not great as the overall cost will be higher typically than if you simply did normal financing over say 5 years although your initial monthly repayments on the PCP will be lower.

I recommend you work out the TOTAL cost of the credit and then see if its worth it.

BTW there was one case I heard of where walking away sort of made sense...young college student spending €100+ per month on trains/buses etc got a basic small car for pretty much same price per month so her plan was to hand it back in 3 years, she has had the use of a car for more or less the same cost of public transport but with more flexibility.

not true. it can go back to any main dealer of that brand

mickdw

SpannerMonkey wrote: »

not true. it can go back to any main dealer of that brand

Can be taken anywhere really. Request a settlement figure from finance company to buy out the car, take this to any main dealer and they should be able to set up a new finance deal while taking in the car and issuing a cheque to settle previous finance.

MarkN

Drummerboy08 wrote: »

If you decide to trade it in against another car your equity goes as a deposit against it so you do get it back.

The only time you won't see any equity is if you decide to hand the car back.

I think I was fairly clear in that I said physical cash. If you want physical cash you need a financial situation where you can sell the car yourself and hold onto any equity in cash yourself.

bmwguy wrote: »

If you had a few grand now, it would seem very attractive, put down a deposit, low monthly payments and impress the neighbours with your new 3 series. Down the line you need to have 16k to keep it or change it for another new one. Can see a lot of people doing PCP once and once only as they are unsure of the complete details and will just nod and agree and sign.

Know someone in this exact position. They took out PCP in 2013 on an A5 Sportback, put in a huge deposit and now Audi want another deposit if he wants to get a new A6, whereas others are able to use the equity from the GFV to trade up and not have to hand over anymore cash!

mickdw

MarkN wrote: »

I think I was fairly clear in that I said physical cash. If you want physical cash you need a financial situation where you can sell the car yourself and hold onto any equity in cash yourself.



Know someone in this exact position. They took out PCP in 2013 on an A5 Sportback, put in a huge deposit and now Audi want another deposit if he wants to get a new A6, whereas others are able to use the equity from the GFV to trade up and not have to hand over anymore cash!

Re audi. I am interested to know the figures as I've been saying for a few years that the figures for the audi deals are pushing it. They are capitalising on situation where customers are coming in with high value fully owned trade ins and putting them on pcp with stupidly low payments which will only last for the one deal leaving the customer in a poor position later.
your mate I would suggest didn't do the sums and was taken in by the salesman. If for example he put forward 15k deposit, did he really think the 3 year old A5 would be worth 15k more than gfv. Anything less and he was going to need a cash injection or higher repayments on deal no 2.

Drummerboy08

MarkN wrote: »

I think I was fairly clear in that I said physical cash. If you want physical cash you need a financial situation where you can sell the car yourself and hold onto any equity in cash yourself.

So just sell the car privately, pay the GFV and keep the cash. It's no different to HP in this regard.

MarkN

And there's no issue with you selling it yourself and just giving the finance company the outstanding balance (as you would with traditional finance)? That seems like a good solution so!

So can you advise (and I think Mick has answered it in part) if you need to choose a deposit that is along a fine line of being too high/too low in order to avoid having to add another cash injection if you choose to take another car after the 3 years?

mickdw wrote: »

did he really think the 3 year old A5 would be worth 15k more than gfv. Anything less and he was going to need a cash injection or higher repayments on deal no 2.

I must ask him. I presume early 2013 when he bought the car was also early days for this method of finance in the Irish market and perhaps it wasn't as clear as he's a smart guy but does in this case, seem to have not asked enough questions. Is there any point putting in more than 10% of the cost of the car so? In many cases, no?

mickdw

MarkN wrote: »

And there's no issue with you selling it yourself and just giving the finance company the outstanding balance (as you would with traditional finance)? That seems like a good solution so!

So can you advise (and I think Mick has answered it in part) if you need to choose a deposit that is along a fine line of being too high/too low in order to avoid having to add another cash injection if you choose to take another car after the 3 years?



I must ask him. I presume early 2013 when he bought the car was also early days for this method of finance in the Irish market and perhaps it wasn't as clear as he's a smart guy but does in this case, seem to have not asked enough questions. Is there any point putting in more than 10% of the cost of the car so? In many cases, no?

I asked the question here only a few days ago as to how much generally audis are coming in over gfv at 3 years and the answer I got was that for vw, 15 percent is a rough estimate.
It therefore seems pretty straight forward. Calculate the pcp with 15 percent deposit and if you can live with the payments, it's a reasonable idea and you should be able to go from deal to deal without having to input cash or have increased payments.
If you had a trade in worth significantly more than 15 percent of new car, a traditional finance deal buying the car outright over 4 or 5 years might be a better idea.

Drummerboy08

Some people are happy to put more money in after 3 years in order to get the lowest monthly payments, but we are making sure that people know what to expect come month 36.

Others are happy to pay a higher monthly but know they don't need to add in mad money come month 36 to keep their payments the same.

With BMW, their GFV's seem to be very close to the actual value of the car after 3 years so there is usually very little equity after 3 years.

Absolutely no problem with selling the car privately and paying off the GFV yourself, at least with VW Bank.

MarkN

Drummerboy08 wrote: »

With BMW, their GFV's seem to be very close to the actual value of the car after 3 years so there is usually very little equity after 3 years.

Actually, that's interesting because I priced a Mazda6 Platinum and I priced a 4 Series GC and the monthly repayments on the BMW were almost indentical with a €5,000 deposit yet the BMW cost more to buy. I put it down to the BMW having a stronger residual value and obviously rate differences. Similarly, to buy a Golf GTI for roughly the same price tag as the Mazda, the Golf was a much lower monthyl repayment.

With a new 520d M-Sport currently losing no more than €20,000 in 3 years, I wonder is that helping to shift higher end models/brands that people usually wouldn't have looked at?

Drummerboy08

Yep it's certainly helping BMW to shift a few.

The VW is probably cheaper because of the APR rate.