Is PCP Finance a Con, or not?

stezie

Im looking at a PCP for a new Honda Civic.. the Monthly payments in their online calculator is fierce impressive, at just €239 a month... but is that masking the fact that it will cost you a lot more in the long run??

€22,785 OTR price

€7,450 Deposit
€8,606 for 36 monthly payments

After 3 years you have 3 options
1.Just hand the car back to Honda.
2.Keep the car and pay/finance the balance
3.Use the Guaranteed Minimum Future Value †† in the car to get behind the wheel of the latest model and start again.

So at the end of the three years I would of handed over, €16056 for a car.


Out of the above options, #1,2,3 what would you do? ( I don't fancy walking away after that investment!)

Or none of the above, option A or B below?
A.) get full finance from the bank and pay it off completly over 5 years?
b.) smash the piggy bank and pay out from savings.

Del2005

If you have the cash I'd smash the piggy bank, no point paying several % interest on a loan with money earning near 0% interest.

If you go for PCP your better off constantly flipping at the end, most cars in the US and a lot in the UK are on similar deals. In the US they rarely give the price of the car just the monthly payments.

stezie

Del2005 wrote: »

If you have the cash I'd smash the piggy bank, no point paying several % interest on a loan with money earning near 0% interest.

:rolleyes:
Unfortunately I don't...

BoatMad

having just done a PCP and made extensive comparisons I offer this

1. Many PCPS are currently cheaper then any bank loan, thats if you can get a bank loan
2. with a PCP you finance the balance after any deposits and trade ins , you pay capital and interest on the non GMFV amount and interest only on the GMFV amount
3. with a bank loan you pay interest and capital on the GMFV and balance

hence for a given interest rate, a PCP at least means you havent to find repayments for the GMFV and this decision is put off for three years

while you certainly will not get a 0% bank loan, there are currently 0% PCP deals , these are no brainers ( put no or little deposit down on these)

The key in comparing finance is to calculate the total cost of finance over the duration you have the vehicle , and compare one against the other, subjecting any potential future sale value from the figure

a PCP doesnt mean its better to flip at the end, each deal needs to be evaluated at the time under the financial circumstances you find yourself in.

Bof No1

I believe that it is a con, the whole idea being to keep you rolling over for a new car at the end of the three years. While you're making payments over the three years, your car is depreciating in value. Yes, you have a guaranteed value at the end of the term, but new car prices will have gone up over the three years and you won't receive full value for the car against the next new one; the law of diminishing returns. Probably a simplistic view, but that's my take on it, cheers, Bof No1.

BoatMad

Bof No1 wrote: »

I believe that it is a con, the whole idea being to keep you rolling over for a new car at the end of the three years. While you're making payments over the three years, your car is depreciating in value. Yes, you have a guaranteed value at the end of the term, but new car prices will have gone up over the three years and you won't receive full value for the car against the next new one; the law of diminishing returns. Probably a simplistic view, but that's my take on it, cheers, Bof No1.

I fail to see how any , fully explained finance package can be described as a " con",

PCP are just balloon leases, these have been around in the commercial leasing sector for years

The GMFV is irrelevant , in reality , you car is worth whatever your car would be worth on the open market in three years time, with whatever mileage and condition you have it in.

you can shop around, maybe you get less then the GMFV or maybe you will get more then the GMFV, who knows, what you do know is its no different then any other 2nd hand car sale

There is " no idea that it keeps you rolling over", the fact is the finance deal in three years has no guarantee, that (a) you'll be approved , (b) any PCP will be inplace or (c) you dont like the interest rates etc or the PCP deal


a PCP deal is just a balloon lease, where you guarantee a final value by the finance company holding that portion as security , you still pay the interest on the GMFV ( a factor most people dont under stand)

all it does is give you a delayed capital repayment for a given cost of finance

there nothing more in it then that

Nonoperational

No. It's not a con. The details are clearly available.

micks_address

Some marque's are doing 0 % finance. My dad just bought an Opel.. Traded his octavia and got 0% balance on 36 payments.. No balloon payment... I'm on pcp but paying more than I'd like.. I went for the highest mileage allocated at 25 km per year.. When I looked at the figures though the effect is my balloon payment is smaller at the end.. I'm not quite sure if I'll change the car after 3 years or finance the balance.. It's not likely I'll have saved the balloon payment over the three years...

BoatMad

micks_address wrote: »

Some marque's are doing 0 % finance. My dad just bought an Opel.. Traded his octavia and got 0% balance on 36 payments.. No balloon payment... I'm on pcp but paying more than I'd like.. I went for the highest mileage allocated at 25 km per year.. When I looked at the figures though the effect is my balloon payment is smaller at the end.. I'm not quite sure if I'll change the car after 3 years or finance the balance.. It's not likely I'll have saved the balloon payment over the three years...

you need to clearly evaluate the effect of chosing higher mileage options , especially if we are more then likely Not to want to walk away from the deal ( i.e. leave the car back and walk away, which by the way is rather stupid anyway )

outside of that scenario, all higher mileage options do is force you to pay capital and interest on a higher proportion of upfront finance and less interest on the lower GMFV , generally its not a good idea , unless you want the walk away option


The biggest nonsense is this idea of " building equity ", because you are funding that equity at PCP rates, thats daft , its in effect taking a loan out on the next car while still paying this one.

The GMFV is set at a level for a single reason, its to ensure that the finance company always has more value in the car , then the GMFV ism at any stage over the three years

SEPT 23 1989

Money lenders can only really plough money into vehicles now

When things start to tighten up which they are now unfortunately

People are going to get very badly stung

micks_address

The problem with option 3 is that you have to pay off the balloon and still have enough value in the car to start the deposit on a new pcp.
I need to check my figures but I think my car was about 29k, I'm paying 389 per month.. I paid something like 8k deposit.. I think my balloon is something like 10k.

Will my car be worth more than 10k after three years? Hopefully... Will it be worth 15k? So I have some equity to start a pcp again?

I'll know next year I guess
Thanks
Mick

Fiskar

Debt by Stealth, you never own the car, you roll over in 36 months for another PCP and so on, you carry debt with you the whole time.

mickdw

Nothing wrong with pcp but you need to look at how much deposit your are putting in day one versus how much equity you will have in the car at end year 3 as that will be your deposit next time unless you want to inject an additional lump sum.

Typically the equity over and above balloon at year 3 might be worth 15 to 20 percent of new car cost.
It would be therefore wise to run the figures on buying the same car now with a 15 percent deposit and see can you afford the monthly based on that. If you are happy with that monthly, you are good to go.

micks_address

BoatMad wrote: »

you need to clearly evaluate the effect of chosing higher mileage options , especially if we are more then likely Not to want to walk away from the deal ( i.e. leave the car back and walk away, which by the way is rather stupid anyway )

outside of that scenario, all higher mileage options do is force you to pay capital and interest on a higher proportion of upfront finance and less interest on the lower GMFV , generally its not a good idea , unless you want the walk away option


The biggest nonsense is this idea of " building equity ", because you are funding that equity at PCP rates, thats daft , its in effect taking a loan out on the next car while still paying this one.

The GMFV is set at a level for a single reason, its to ensure that the finance company always has more value in the car , then the GMFV ism at any stage over the three years

Sounds like I'd have been better off just going for the lowest mileage option.. I can't remember the difference in payment.. Might have been 80 euro a month or so

For anyone who can afford a new car and perhaps intends keeping it for a while a 0% PCP deal is fantastic.

Small deposit and interest free credit for 3 years than pay the balance, you drip feed the money to the dealer but get the car upfront.

BoatMad

SEPT 23 1989 wrote: »

Money lenders can only really plough money into vehicles now

When things start to tighten up which they are now unfortunately

People are going to get very badly stung

yes but few people have the money to cash buy cars. so financing is fact of life

in my case I could have bought in cash for a new car , but I evaluated the cost of credit over the term and felt Id be better holding on to my cash

there are always people like you that preach " doom" and no doubt One day you may be right. only borrow what you can afford , its that simple.

why would people " get badly stung" , if you can afford it , you are alright

zzantara

When comparing different PCP Deals it is vitally important to try and predict what will happen in 3 years.
Do some homework on what value a 3 year old Car like you are considering is worth today,then subtract the GFMV from that figure, that should give you an indication of the deposit that you will have next time around, if this figure is about the deposit that you are putting down today your payments should be about the same in 3 years,allow for an increase in the New Car price in 3 years,typically a Car like the Civic will go up by approx €1000 over that period.
If your deposit after the GFMV is less than today your payments will increase, if its more your payments should be lower.
That is why a Car that holds it's value well is a much safer bet .
It's hard to beat the Honda Civic for good residual as the Honda reliability really helps resale value.
The other extreme could be a Fiat or Citroen that has a doubtful residual value.
I hope this helps.

BoatMad

Fiskar wrote: »

Debt by Stealth, you never own the car, you roll over in 36 months for another PCP and so on, you carry debt with you the whole time.

err no, you are under no obligation to roll it over you can simply buy out the balance and sell the car for example

in any form of finance , you never actually own the car

as to why someone actually wants to own a " wasting " asset is beyond me.

Inquitus

At the end of the PCP you will have to find another €7450 deposit in order to start a new 3 year deal, less any amount in which the returned car was worth more than the GFMV the original deal was based off.

i.e. The GFMV is €8000, the dealer assesses the car as worth €10,000, then you have €2k of the €7450 you need to kick off another PCP on another new car.

BoatMad

zzantara wrote: »

When comparing different PCP Deals it is vitally important to try and predict what will happen in 3 years.
Do some homework on what value a 3 year old Car like you are considering is worth today,then subtract the GFMV from that figure, that should give you an indication of the deposit that you will have next time around, if this figure is about the deposit that you are putting down today your payments should be about the same in 3 years,allow for an increase in the New Car price in 3 years,typically a Car like the Civic will go up by approx €1000 over that period.
If your deposit after the GFMV is less than today your payments will increase, if its more your payments should be lower.
That is why a Car that holds it's value well is a much safer bet .
It's hard to beat the Honda Civic for good residual as the Honda reliability really helps resale value.
The other extreme could be a Fiat or Citroen that has a doubtful residual value.
I hope this helps.

sorry there are massive faults in your argument

Firstly you assume that a PCP will even be available in three years time and you further assume that if it is , it will be at the same interest rates or similar GMFVs proportions neither of which hold true, for example you could have a skoda today on 0% and in three years time its at 7% percent or more if interest rates rise , you could easily find there are no PCPs that you can afford

my PCP rules

1. never evaluate PCPs on what you might do in three years time, you cant see the future, it either works for you today or it doesnt, simply view the GMFV as money you have to pay at the end ( like a ballon lease ) note that if you have to finance that you are paying interest on the double. if that is likely , finance the whole sum today as rates are low.

2. the value of the car in the future is only a marginal consideration, one way or the other you will fund the full PCP value, so the car value issue is the same if you paid cash, borrowed from a bank or took out a pcp

3. building equity in a car via a PCP , is nonsense , all you are doing is borrowing a future unknown sum of money and paying for it today. Dealers love this notion of you " building equity " because it gives them a partial lock in on selling you another because if you just walk away they dont give you the " equity" ( which you have partially financed )

save the extra money and put into into a bank over the three years !

micks_address

Inquitus wrote: »

At the end of the PCP you will have to find another €7450 deposit in order to start a new 3 year deal, less any amount in which the returned car was worth more than the GFMV the original deal was based off.

i.e. The GFMV is €8000, the dealer assesses the car as worth €10,000, then you have €2k of the €7450 you need to kick off another PCP on another new car.

It depends.. I think the minimum deposit is usually 10 of the pcp with a maximum deposit of 33.. Lower deposit means higher monthly payments.. There's probably a sweet spot in terms of deposit versus monthly payments

BoatMad

Inquitus wrote: »

At the end of the PCP you will have to find another €7450 deposit in order to start a new 3 year deal, less any amount in which the returned car was worth more than the GFMV the original deal was based off.

i.e. The GFMV is €8000, the dealer assesses the car as worth €10,000, then you have €2k of the €7450 you need to kick off another PCP on another new car.

sure 2K that you financed by paying PCP interest on because you are buying the car with finance

remember its a WASTING asset, at no point does it return a positive investment

by way of example, lets say you financed a car over the period where it was at the end worth zero. then you decided you wanted it to be worth 2k, so you paid more along the way so the dealer at the end could say " here 2K" , thats what happens in a PCP with equity , you are simply borrowing a deposit on your next car and paying for it today !!

BoatMad

micks_address wrote: »

It depends.. I think the minimum deposit is usually 10 of the pcp with a maximum deposit of 33.. Lower deposit means higher monthly payments.. There's probably a sweet spot in terms of deposit versus monthly payments

I ran that up in a spreadsheet , I couldnt find any spot, they have designed that out of most of them , its generally a linear relationship

Fiskar

BoatMad wrote: »

err no, you are under no obligation to roll it over you can simply buy out the balance and sell the car for example

in any form of finance , you never actually own the car

as to why someone actually wants to own a " wasting " asset is beyond me.

It is Debt by Stealth. I could get a PCP far easier than I can get a credit union loan. You cannot buy out the balance because most people simply would not have the cash, therefore you are roped into keeping the debt going by doing a rollover PCP.

micks_address

BoatMad wrote: »

I ran that up in a spreadsheet , I couldnt find any spot, they have designed that out of most of them , its generally a linear relationship

So would you recommend going high or low with deposit? I think generally the idea that youe car will be worth enough after three years to pay both the balloon and deposit for a new pcp is unlikely.. So at end of year three I will owe 10k.. I'm hoping the car be worth about 14... The gmfv is 10 ish.. It's unlikely I'll be able to walk away without financing the balance.. Should I refinance and get out of pcp or stay with it? I'll have to look at the numbers when I get there... I've added leather upholstery and a double din head unit to the car and a couple of extras... I'm doubting but hopeful that I might get a bit more at the end of three years.. If I don't I'll definitely re finance and hold the car.. Maybe till year 5.. The dream is a two year old e class...

micks_address

Fiskar wrote: »

It is Debt by Stealth. I could get a PCP far easier than I can get a credit union loan. You cannot buy out the balance because most people simply would not have the cash, therefore you are roped into keeping the debt going by doing a rollover PCP.

At some point you might not be able to afford a new pcp.. If your cars value isn't enough to pay the balloon payment and the deposit for a new pcp then you might be stuck..

zzantara

PCP has been very popular in the US for over 20 years and in the UK for about 15 years,it is hgighly likely to continue here.
The Manufacturers are very keen on this form of Finance as the Customer typically buys 3 Cars every 9 years against that same Customer probably buying a used car every 5 years or so.
Your point about very low Interest rates perhaps not continuing are so obvious that they are taken for granted.
There are very few deals around below 3-4%, the 0% that you quote from Skoda are only on their badly selling Models such as Rapid/Yeti, Octavia or Superb are not at those rates.
The ECB have stated that they do not see interest rates rising over the next 5/6 years and have stated that they will do whatever is necessary to keep rates low.
PCP is not for everybody, it suits some people that have a way of financing a New Car for the same payments as a Used Car.
It's not compulsory, if you don't think it suits you -what the heck, just don't demean those that think that it suits their needs.

BoatMad

Fiskar wrote: »

It is Debt by Stealth. I could get a PCP far easier than I can get a credit union loan. You cannot buy out the balance because most people simply would not have the cash, therefore you are roped into keeping the debt going by doing a rollover PCP.

you clearly dont understand PCPs

firstly , the car always has a residual value after three years what you owe, is the difference between the GMFV and the residual value , that may be nominal, in which case you can of course " buy " out the balance and simple sell the car.

equally you cannot assume that just because you got a PCP today , that you will roll it over, you may find the deposit requirements are different, the interest rates are higher, the conditions more stringent, or the PCP may not be offered at all.

DO not enter a PCP if you have not a clear way of buying out the GMFV , you are taking on debt that you cannot aford , forget rollovers and that nonsense

I could have got a credit union loan , but the total cost of credit was way above the PCP, made no sense, credit unions are not cheap finance

Fiskar

micks_address wrote: »

At some point you might not be able to afford a new pcp.. If your cars value isn't enough to pay the balloon payment and the deposit for a new pcp then you might be stuck..

Thats the key question, they will probably find you something cheaper to suit your repayments.
When PCP defaults start then it smell familar like the old tracker mortgages that are alas no longer offered.

kirving

A 12k loan from AIB over 3 years is €400 per month for 3 years.

For this I could buy a 2010 Golf.

At the end of this in 2019 I have a 9 year old car, servicing costs, possible NCT failures, no warranty, possible big bills on the way, new tyres needed, etc.

The cost of the above must be taken from the value of the car, which is maybe 6k. Leaving me with maybe 4k equity to go toward my next car because I don't want to drive a 10 year old car.

(For reference, a set of tyres on my own 08 car cost me 600 quid, I also had to buy a clutch and flywheel, and a few other bits. Add in lower fuel economy, insurance being higher on older cars, NCT's, etc, and I would say that is a fair estimate.)


Now, if I can manage to come up with just 4 grand for a 15% deposit on a brand new Golf Comfortline DSG, I can drive a car with no unknown history, better fuel economy, no NCT to worry about, no big bills for clutch, etc.

A 15% deposit leaves me with a payment of €410 per month.

BoatMad

zzantara wrote: »

PCP has been very popular in the US for over 20 years and in the UK for about 15 years,it is hgighly likely to continue here.
The Manufacturers are very keen on this form of Finance as the Customer typically buys 3 Cars every 9 years against that same Customer probably buying a used car every 5 years or so.
Your point about very low Interest rates perhaps not continuing are so obvious that they are taken for granted.
There are very few deals around below 3-4%, the 0% that you quote from Skoda are only on their badly selling Models such as Rapid/Yeti, Octavia or Superb are not at those rates.
The ECB have stated that they do not see interest rates rising over the next 5/6 years and have stated that they will do whatever is necessary to keep rates low.
PCP is not for everybody, it suits some people that have a way of financing a New Car for the same payments as a Used Car.
It's not compulsory, if you don't think it suits you -what the heck, just don't demean those that think that it suits their needs.

You mistake my point, a PCP is simply a form of HP, where you do not pay off the balance of the capital until the end. ( even if you do pay interest on the GFMV all the way through )

Thats all it is.

everything else is simply " gloss", you have no idea whether you will be able to finance a future PCP, merely being in one is not in itself any indicator that you will get the next one.

if you treat a PCP just as a balloon lease , where you have to fund a balancing amount, then thats fine.

note that the ECB is mandated to keep inflation low, it has no brief to keep interest rates low.

BoatMad

mickdw wrote: »

Nothing wrong with pcp but you need to look at how much deposit your are putting in day one versus how much equity you will have in the car at end year 3 as that will be your deposit next time unless you want to inject an additional lump sum.

Typically the equity over and above balloon at year 3 might be worth 15 to 20 percent of new car cost.
It would be therefore wise to run the figures on buying the same car now with a 15 percent deposit and see can you afford the monthly based on that. If you are happy with that monthly, you are good to go.

that " the equity over and above balloon at year 3 might be worth 15 to 20 percent of new car cost" of course is money you have borrowed via the PCP, equally you could not have any equity and save the money and use it to finance a deposit by another means

one way or the other , you are paying for all the monies . if you design in a big " equity" be aware that you are funding that at PCP rates, sticking it under the pillow might be less costly

Marcusm

BoatMad wrote: »

I fail to see how any , fully explained finance package can be described as a " con",

PCP are just balloon leases, these have been around in the commercial leasing sector for years

The GMFV is irrelevant , in reality , you car is worth whatever your car would be worth on the open market in three years time, with whatever mileage and condition you have it in.

you can shop around, maybe you get less then the GMFV or maybe you will get more then the GMFV, who knows, what you do know is its no different then any other 2nd hand car sale

There is " no idea that it keeps you rolling over", the fact is the finance deal in three years has no guarantee, that (a) you'll be approved , (b) any PCP will be inplace or (c) you dont like the interest rates etc or the PCP deal


a PCP deal is just a balloon lease, where you guarantee a final value by the finance company holding that portion as security , you still pay the interest on the GMFV ( a factor most people dont under stand)

all it does is give you a delayed capital repayment for a given cost of finance

there nothing more in it then that

It may be your phrasing but it is not the case that the GMFV is irrelevant although in most nornmal market circumstances it will not kick in. If the car is worth less than GMFV then it is not the same as any other 2nd hand car sale as the GMFV kicks in to insulate the driver from the loss. BAsically, it is an out of the money put option over the car - no one thinks it's going to be relevant but if the market drops precipitously it will kick in. Depending on the marque, this can matter a lot.

BoatMad

look its simple

take a PCP , compute the cost of credit.
add in the means by which you will finance the balloon ( GMFV) either by value in the car, cash or future borrowings. ( if so add in that expected cost )

if you are happy with that go for it.

do not try and anticipate what might happen in three years and rollover etc , its dealer mumbo jumbo.

in this its no different to HP on the full value

BoatMad

Marcusm wrote: »

It may be your phrasing but it is not the case that the GMFV is irrelevant although in most nornmal market circumstances it will not kick in. If the car is worth less than GMFV then it is not the same as any other 2nd hand car sale as the GMFV kicks in to insulate the driver from the loss. BAsically, it is an out of the money put option over the car - no one thinks it's going to be relevant but if the market drops precipitously it will kick in. Depending on the marque, this can matter a lot.

yes , assuming you remain rigidly within the mileage clauses and the car unexpectedly falls in value then they finance company take the hit. you can assume that the GMFV however is well pitched to protect the finance company . it is one of those "nonsense " advantages that appeals to the ill-informed buyer.

( as an aside , predicting catastrophic falls in value is just doom mongering , equally you could be hit by a bus)

In the normal course of things , the GMFV is simply the balloon, a balloon you are paying interest on by the way as you pay interest on the whole value of the finance .

if you want to finance your next cars deposit , get a loan !! or save !!! , even better then using the PCP rates to build one

in reality you want the GMFV to be exactly the value of the car, thats means you did not pay unnecessary interest

MIKEKC

Augeo wrote: »

For anyone who can afford a new car and perhaps intends keeping it for a while a 0% PCP deal is fantastic.

Small deposit and interest free credit for 3 years than pay the balance, you drip feed the money to the dealer but get the car upfront.

There is no such thing as 0%finance it's already added to the price of the car.How is anybody going to give you a free loan?

BoatMad

MIKEKC wrote: »

There is no such thing as 0%finance it's already added to the price of the car.How is anybody going to give you a free loan?

its free from the point of view that the car company has decided to allow you to pay for the car over a period , rather then upfront. its free , i.e. no interest in that the price is the same irrespective of the method of finance

the car company is lending you its asset, its not lending you money

MIKEKC

MIKEKC wrote: »

There is no such thing as 0%finance it's already added to the price of the car.How is anybody going to give you a free loan?

VW, Skoda, Seat, Citroen, Opel and maybe nissan offer 0% PCP.

You might do better with all the cash up front but only negligably so, as I said "you drip feed the money to the dealer but get the car upfront", that's not "a free loan" as you put it, they aren't giving you money.

mickdw

MIKEKC wrote: »

There is no such thing as 0%finance it's already added to the price of the car.How is anybody going to give you a free loan?

Well vw bank are offering various deals from zero to 6.9 percent and from what I can see there is thesame discount and room for bargaining available regardless of option. While I tend to agree with you in general, it would seem that there is true value in the zero percent offers from vw at least.
I see some brands offering 4k discount or zero percent. That is clearly just bull smoke and mirrors.

BoatMad

mickdw wrote: »

Well vw bank are offering various deals from zero to 6.9 percent and from what I can see there is thesame discount and room for bargaining available regardless of option. While I tend to agree with you in general, it would seem that there is true value in the zero percent offers from vw at least.
I see some brands offering 4k discount or zero percent. That is clearly just bull smoke and mirrors.

Nissan scrappage of 4K is merely a discount that is agreed by Nissan and the dealer . its balanced by the higher PCP finance rates , IF you use that route.

clearly its a genuine discount, because if you havent anything to trade in, you will pay a portion of the higher price as the dealer only discount is limited

These deals are deals but they are not free , but they are not bull smoke either , if you have a banger they in effect represent the cash discount that you would not get it you took a dealer finance option

mickdw

BoatMad wrote: »

that " the equity over and above balloon at year 3 might be worth 15 to 20 percent of new car cost" of course is money you have borrowed via the PCP, equally you could not have any equity and save the money and use it to finance a deposit by another means

one way or the other , you are paying for all the monies . if you design in a big " equity" be aware that you are funding that at PCP rates, sticking it under the pillow might be less costly

Yes obviously any equity built up has been paid for in full however the gfv or balloon is set by the manufactures and is set at a level that will give equity if returning a clean low mile car. You are giving the impression that there is an option to go for even lower payments and enter a deal where there will be no equity at the end. This is not an option that is available primarily because the typical balloon figure is kept reasonably low to ensure that the bank doesn't end up with cats being handed back and them being worth less than figure owed.
Keeping that figure low is good for all parties in that is guarantees the lender that they will have an asset at least equal to amount owed and it suits the borrower in that if they return a well kept low mile car, they will have some deposit to go forward.
A pcp with zero percent finance is a no brainer really.

BoatMad

mickdw wrote: »

Yes obviously any equity built up has been paid for in full however the gfv or balloon is set by the manufactures and is set at a level that will give equity if returning a clean low mile car. You are giving the impression that there is an option to go for even lower payments and enter a deal where there will be no equity at the end. This is not an option that is available primarily because the typical balloon figure is kept reasonably low to ensure that the bank doesn't end up with cats being handed back and them being worth less than figure owed.
Keeping that figure low is good for all parties in that is guarantees the lender that they will have an asset at least equal to amount owed and it suits the borrower in that if they return a well kept low mile car, they will have some deposit to go forward.
A pcp with zero percent finance is a no brainer really.

the GMFV is set by the finance company , period

building equity is something a dealer loves, but you do so by financing it at PCP rates. It would be like borrowing today for a car after the one you just bought, cause that is exactly what you are doing , it makes little sense ,

a low GMFV means you pay back more capital upfront then a high GMFV. thats all that it is. the whole amount including the GMFV is borrowed anyway as you pay interest on it . a low GMFV looks more a more like straight HP.

I would actually suggest that you aim to be under the GMFV if you could , as the balance you make up , is interest free.

remember treat a PCP like a HP on the whole amount , because thats what it is. one way or the other you pay for the cars full value

PS equity is such a stupid word, you are not " building equity", you are merely borrowing more money then the car is worth to finance a deposit. equity is built on a rising asset not on a wasting one

bmwguy

I am mid 30s now qualified accountant on a salary of 60k. Mortgage about 900 Euro a month and no other loans. However I did get badly in debt with a credit card about 4 years ago when I bought my house and I missed payments. Wasn't on anything like 60k then.

I bought my credit rating a few months back and it's recorded on it so my credit rating is damaged. I usually buy cars for cash but if I did decide to pcp would the manufacturers and their banks consider me? I do have spare cash at the end of the month but I like the idea of a new or nearly new car for a change. I could put about a 30% deposit on it.

Greenmachine

Any of the PCP deals I have looked at don't include any of free servicing that typically come with new cars so factor in parts and labour there.

BoatMad

bmwguy wrote: »

I am mid 30s now qualified accountant on a salary of 60k. Mortgage about 900 Euro a month and no other loans. However I did get badly in debt with a credit card about 4 years ago when I bought my house and I missed payments. Wasn't on anything like 60k then.

I bought my credit rating a few months back and it's recorded on it so my credit rating is damaged. I usually buy cars for cash but if I did decide to pcp would the manufacturers and their banks consider me? I do have spare cash at the end of the month but I like the idea of a new or nearly new car for a change. I could put about a 30% deposit on it.

the answer is "it depends" , they will most certainly view your credit rating , you may find you are not offered preferential rates or not approved, its hard to say

bmwguy

BoatMad wrote: »

the answer is "it depends" , they will most certainly view your credit rating , you may find you are not offered preferential rates or not approved, its hard to say

Are they, in general, more open for business than a traditional lender since an approval sells a car for them?

BoatMad

bmwguy wrote: »

Are they, in general, more open for business than a traditional lender since an approval sells a car for them?

huh, the dealer has no say in whether you are approved. ( unless you mean the rare VW bank idea )

bmwguy

BoatMad wrote: »

huh, the dealer has no say in whether you are approved. ( unless you mean the rare VW bank idea )

Volkswagen, BMW have their own financial divisions as far as I know. Others probably do too. I'm just wondering though really I come up with different ideas all the time

BoatMad

bmwguy wrote: »

Volkswagen, BMW have their own financial divisions as far as I know. Others probably do too. I'm just wondering though really I come up with different ideas all the time

most car companies are usually commercial PCP lenders , the exception is VW.

whats often not admitted is that many dealers have access to several PCP companies , but push one favourite, always ask off there are alternative quotes. often certain banks provide dealer stock finance in return for preferred PCP lender

mickdw

BoatMad wrote: »

the GMFV is set by the finance company , period

building equity is something a dealer loves, but you do so by financing it at PCP rates. It would be like borrowing today for a car after the one you just bought, cause that is exactly what you are doing , it makes little sense ,

a low GMFV means you pay back more capital upfront then a high GMFV. thats all that it is. the whole amount including the GMFV is borrowed anyway as you pay interest on it . a low GMFV looks more a more like straight HP.

I would actually suggest that you aim to be under the GMFV if you could , as the balance you make up , is interest free.

remember treat a PCP like a HP on the whole amount , because thats what it is. one way or the other you pay for the cars full value

PS equity is such a stupid word, you are not " building equity", you are merely borrowing more money then the car is worth to finance a deposit. equity is built on a rising asset not on a wasting one

You are spouting alot of stuff here as if you are some sort of expert much like the vw emissions thread.
It is not in anyone's interest to have a deal with car worth exactly the gfv at end of deal because it leaves lender open to cars coming back being worth marginally less and it leaves the borrower with no deposit considering most car buyers are not good little savers who will put aside seperate funds for new deposit. So when you consider a deposit was put forward for deal one, why do you suggest it is not good to have overpaid versus actual depreciation to facilitate a deposit going forward at year 3?
A high gfv to match actual value at year 3 is a recipe for disaster.
what you would get in that case is people trading in cars that they fully own, getting a stupidly low monthly and then having zero at end if term.
I think it is beyond argument that one should enter into a sustainable setup whereby if you come to the table with 20 deposit day one, that you would have circa 20 percent deposit within the car to go forward again at end of term. Yes it is clear that the borrower is paying this money but I would suggest that anyone who cannot afford to fund a deal leaving some equity at the end cannot afford the car.
Yes I understand what you say that it would be great if you only paid for the depreciation and saved the additional funds yourself but I zero percent pcp makes this no longer even a factor.
With zero percent, and assuming that various discounts remain the same as via other finance rates, there really is no penalty in building up equity via the low gfv.

Gael23

The only catch I can see is that if you buy a Covic for instance and in 3 years you decide you don't want another Honda, you lose out.