HELP- PCP not making much sense ?

saoirse88

Hi all,

a little help here for someone that’s a bit of a novice.

in the market for a new-ish car. I love the 3 series and CLA’s. Have healthy enough savings but would prefer not to use a huge chunk on a new car.

current car is an A5 which is worth about 5k now at most.

dont really want to get anyhing older than 2018 this time and I’d like to update my car every few years. 3 series, CLA’s at that age seem a lot more expansive than a couple of years ago, roughly 30k.

I looked at PCP, but I’m not necessarily keen on a brand new car either, and since you are paying the very highly depreciation on those during your first 3 years, would it make sense to PCP a 2019 car instead? The depreciation would be much lower which would surely make payments, deposit and balloon payments lower too?

anyone done this or anyone a little more finance saavy have any suggestions?

bazz26

Your not going to get PCP on a 3 year old car. PCP products are designed to get people into brand new cars every 3 years with an affordable repayment structure. Alot of these PCP deals have incentives such as lower interest rates by the car manufacturers through their banks or lending agents to sell new cars.

For them to offer PCP on a 3 year old car they would either need to charge a high interest rate or retain a large balloon payment which won't be feasible on a car that will be 6 years old with a low market value. It would probably work out cheaper to just hand the car back to them if the car's value was less than the balloon payment amount. They would just end up loosing money on a car that is 6 years old.

saoirse88

Thanks Bazz, what would your suggestion be so or what would the best move be?

I was thinking about paying the 30k for a 2019/2020 BMW, Mercedes and then putting aside whatever the depreciation might be on that car every week and then updating it every 2-3 years.

im not sure financially what the best way to approach this is. Or where to get best value while also having a reasonably newish car

saoirse88

im just looking at Mercedes here. A brand new CLA coupe works out as the following on PCP

retail - €46,000

Deposit - € 14,000

36 instalments - €514

GMFV - €17,000

The GMFV seems very low here. A quick look online and a 3 year old CLA coupe is roughly €35,000

Am I missing something here? Seems like the GMFV is set very low and every 3 years your deposit would be covered

jamesf85

This is something I don't understand either. The GMFV seems very low on most cars now. Seems to be set roughly 10-15k lower than what they'd actually be fetching when 3 years old. I can't make sense of it or if there is a catch somewhere.

eusap

The GMFV is always low as the dealer needs to Guarantee it, who knows in three years where the car market will be. Most dealers will tell you the GMFV - Real selling price = new deposit for next car. From reading some Boards members experience this seems to work out for some car brands

saoirse88

I’m confused though. If the deposit is €13k and the GMFV is €17k then even if Mercedes depreciation speeds up in the next few years, you could reliably say a 3 year old CLA Coupe wouldn’t be less than €30k. That would still cover your next deposit.

This doesn’t make sense to me as where is the garages margin?

liamog

Roughly speaking the point of PCP is.

Company sells you a car today for €30,000, they predict the car will be worth €20,000 in 3 years so give you a guaranteed value of €15,000. You pay off the €15,000 between day 0 and the last day of the PCP. You go into the garage to hand the car back and they say, hey look you have €5,000 in equity in the car, would you like to use that €5,000 as a deposit on a new one.

micks_address

https://www.boards.ie/discussion/comment/118768842#Comment_118768842

its interesting... second hand car prices have gone up.. so in theory if you were on pcp.. and changing now.. you might find yourself with more equity to put towards a new pcp... im on year 2 of a 3 year pcp on a vw tiguan.. i think the gmfv is something like 16.5k after 3 years.. i should get north of 25k next year at trade in so i would have 10k deposit to stick on a new pcp and off again.. i checked with a honda recently and they were offering me north of 30k for my tiguan now.. on the other hand.. im just tempted to keep the car as its a lovely spec.. and for what its costing me on the pcp.. about 420 a month.. ill do well to replace it with something electric in the same spec

the garage still get their margin as you are financing the full amount of the car through the bank attached.. so if i buy a tiguan for 42k off a vw garage they get 42k.. vw are underwriting the gmfv.. i can pcp elsehwere at any point if i want.. i went from skoda to vw in my last change as they gave me significantly more for my octavia than skoda were offering

saoirse88

https://www.boards.ie/discussion/comment/118768898#Comment_118768898

That’s my understanding also.

The thing with Mercedes at the minute (from what I can tell on their website) is they are saying the guaranteed value will be €17k in 3 years but online right now the same 3 year old models are selling for €35k.

That’s a serious difference which doesn’t seem to make sense

liamog

In that case you'll end up with lots of equity. If you do decide to roll over on to a new PCP and you end up with more than 30% of a deposit you'll get cashback when you change the car.

There is a disconnect between the car dealers and the finance houses, the future values don't reflect the extraordinary second hand prices that we currently see.

saoirse88

https://www.boards.ie/discussion/comment/118768928#Comment_118768928

Ah ok, so what actually happens is they say GMFV is €17k but car value is actually €25k for example rather than the €30k-€35k it would cost to actually buy one

Casati

https://www.boards.ie/discussion/comment/118768917#Comment_118768917

Depreciation is v low now because U.K. imports have almost completely stopped due to the duty, vat and higher vat/ not charges UK imports attract. Secondly availability of new cars is limited further driving used prices (artificially) higher. PCP seems to be of no benefit as interest rates are 4.9% rather than the 0% which made pcp popular.

Market for 3 series is always strong on the used market and buying something like this might work out to be a good purchase - PHEV will reduce your petrol consumption if you can charge at home https://www.carzone.ie/used-cars/bmw/3-series/fpa/202202172659882?journey=Search

Lantus

Nearly new cars cost nearly as much as new ones currently so it's tough to justify. Problem is the new cars are hard to get!

Mike2006

Lots of supply and demand factors at play at the moment:

UK imports not coming into Ireland in the same numbers - this makes the 2nd hand car market smaller and makes 2nd hand prices stronger.

Availability of new cars - long lead times can turn people off buying new as the wait it long so they purchase 'nearly new' and this strengthens the demand/price for 2nd hand cars...

Chip shortage associated with Covid-19 and now cable harness supply issues coming with conflict in Ukraine - again will strengthen 2nd hand car prices.

My view is that there is very little value in the 2nd hand car market at the moment. Really are better off buying new (again, my view) - example - Recently purchased a new car in my house (BMW). Car we traded in was a Mercedes - Bought for €39k in 2019, now on sale for €35k by the dealer. I got a strong trade-in price from dealer against the new car.... That looks to be the case for ICE.

Lots of the EVs are on very long lead times which again, makes things difficult. DO I place an order for an EV today which will be delivered in 2023 (with a range of X and technology of Y) when a competitor EV could come along in the meantime with a range of X +200kms and better technology...)

On PCP - If the interest rate is lower than the bank or credit union then it still makes sense (if you want a new car).

If you plan on changing/upgrading in 3yr time then you will have plenty of equity (likely) to change.

If not, then you need to have saved the GMFV (final balloon payment) over the 3 yrs - better that is it lower and you are paying a bit more each month in this case... Or else you re-finance through bank or credit union...

Mike

Toyotafanboi

The thead is a bit confusing IMO.

If the GMFV is €17k and in three years time the same model is retailing second hand for €30k, the dealer will offer you a trade in price on your current car based on mileage/ condition etc.

If the car is low mileage, good condition etc, you could expect to get offered €25-26k for it. 25 offer - 17 gmfv = €8k you can put into your next deposit on a new HP/ PCP deal.

Lantus

The crunch on chips is going to end towards the end of this year and early 23. When that happens used car sales will drop by around 30 percent so not a good time to buy as new sales flow back in with short delivery times

Some estimates put this as early as 6 months but I'd hedge towards the latter a bit more.

Toyotafanboi

It's more than just the semi conductors upsetting the new and used car markets, there's going to be no flip of a switch in 6 months time.

Lantus

It will be an incremental improvement and some manufacturers and cars will do better than others.

Toyotafanboi

Incrimental in the same sort of way as how the housing shortage is going to get better. As in, very slowly indeed.

Killer K

I would agree. Don't see where the supply will come from in the short term other than new cars becoming available and supply meeting demand.

Another issue is with the affordability or perceived affordability of new cars. I can only see prices increasing here due to increased costs, even with the government heavily subsiding EVs (and there is no certainty that this will continue).

Big economic uncertainty to gobal recession just around the corner. Highly inflated prices. If you car is reliable with acceptable mileage sit tight and save

bazz26

I think the days of cheap PCP interest rates will be gone for a while. With inflation only going one way, the ECB looking to raise lending rates and car manufacturers struggling with supply chains and spiralling production costs I cannot see them getting cheap money to fund the likes of 0% PCP deals on new cars anytime soon.

Griffinx

Could I clarify something please. I have a PCP which will finish in a few months. I don't need a car anymore so had intended giving it back. However if I wanted to keep the car, it would cost me just ~€13k and I would then own it outright. If I look at carzone.ie, the current price for a similar aged car is ~€35k. Am I mad to be giving it back. I could sell it and make a profit of ~€20k or am I missing something?

bazz26

Asking prices are not selling prices. If a dealer is asking 35k then you won't get 35k for it you sell it to them or privately. Dealers have their margin built into their selling price along with warranty, etc. However dealers are paying strong money for used cars now just to get their hands on stock. So if you get an offer of 28k/29k then pay off the 13k owed and pocket the rest. Shop around for the best offer for your car as it can vary substantially.

Lantus

https://www.boards.ie/discussion/comment/118879204#Comment_118879204

In general you never want to give a car back unless you are no longer able to drive or have severe financial issues. In your case it would be better to sell given the cost of cars. If you can get 27 or 28 for it it could be a nice deal and net you 15 or 16k in cash if you don't even pay off the 13k. The dealer will do this.

Selling a car at 30 something k privately will not be impossible but will be a challenge as you offer no guarantee or comeback.

Better to get prices from several dealers and see what's the best offer.

bazz26

Another thing is if you are selling privately then it will be off putting to a buyer if there is outstanding finance on the car if using the proceeds from the sale to pay off the owed finance. Most private buyers will run away from that when they do a history check. The fastest and most painless way will be to sell to a dealer who will be able to settle the finance amount and write you a cheque for the remainder. Just make sure to shop around for the best price for your car and play them off each other as it's a seller's market at the moment.

mickdw

Do not just hand back the car. Would be lunacy.

Dealers are actively looking for used stock.dont even bother with private sales.

Request settlement figure from your current finance deal via dealer.

Travel a few dealers, tell them the situation and take best offer. They will be able to take your car, clear the finance and write you a cheque for the remainder.

You don't need to wait til end of 3 year term either.

Buddy Bubs

https://www.boards.ie/discussion/comment/118879204#Comment_118879204

I don't care what it is but I'll give ya 25k for it!

Seriously though, that's your equity built up from your deposit and the increase in used cars leading to a higher valuation than expected. You are one of the lucky ones, if you don't need a car you should get as much as you can far it and clear the 13k finance and pocket the rest, I agree with posters it will be in the region of 15k or so if Carzone dealers are asking 35k

Water2626262

Doesn’t make sense shifting the gmfv values just based on current conditions. At the height of the cheap UK imports some cars were approaching their GMFV values. Particularly the likes of BMW 5 series etc.

While a dip in used prices doesn’t look likely who knows what’s around the corner given recent events.

Killer K

https://www.boards.ie/discussion/comment/118883301#Comment_118883301

Pretty cheap motoring there looking back with the current circumstances. If you are in a position where you no longer need a car and have a reasonably new one to sell, you are in a comfortable place at the moment.

Griffinx

https://www.boards.ie/discussion/comment/118879204#Comment_118879204

The reason I don't need a car is that I'm going abroad for 6 months. When I come back I'll need one though. Will it be difficult to get 2nd hand cars next spring? I'm wondering if I should buy the car for €13k at PCP end but keep it rather than selling it.

brokenangel

https://www.boards.ie/discussion/comment/118927277#Comment_118927277

Why not? if only 6 months it's not like the car will drop dramatically in price

mickdw

I'd say do anything bar hand the car back.

Buy it out and sell it.

Buy it out and keep it.

Refinance to buy it out and keep it.

Wildly Boaring

You could go on Zucar and couple others (I got best off We Buy Cars), this minute and get an offer for it.

Then talk to a few dealers too.

If that's what they're making, bound to be a few quid in it for you.

Don't hand it in anyway