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PCP finance.

[Deleted User]

Ok so after a while of my brother and I trying to figure out the benefits of PCP we can't find any.

He's looking at getting a new Audi and we've been looking into pcp, he changes every 2 years or so and might have 15 k miles maximum on the clock so we thought pcp might suit him better.

You got to come up with a large deposit if you don't have a trade in and while your monthly payments appear low when you add in the fact you need a new deposit for the new pcp after 3 years your 300 a month pcp suddenly turns into 600+ pm.

So what's the benefit over hp or bank loan ?

The only hing with hp or loan is you pay the full interest where as pcp yup don't ?

Either way I see little benefit on a normal loan and trade in and re finance after 3 years or so. Only thing is VW bank has much lower interest than any other bank or finance.

For me doing 20-25 k miles a year pcp would leave me with not much on the gfv.

It seems to me that people could get caught out at the end because you can be damn sure you won't have much over the gfv to use as a deposit.

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Zonda999

grogi wrote: »

True... However many marketing materials claim otherwise...

This graphics suggests that you're financing only the part that's remaining after taking GFV and deposit... We all know, after sixtish pages, that's the lie...

Is this not completely misleading advertising then and should probably be reported?

In this regard, surely the APR on a PCP cannot really be compared to that of a HP, because in a HP, the total financed amount is paid down in the term of the loan, whereby with the PCP, it is not. I have no issue with PCP's in general but I just think some people (by their own fault, for the most part) fail to understand the big picture.

ablelocks

what happens if you go back to the dealer after 3 years and want a new car under the PCP arrangement - your 3 yr old car is the deposit, you continue on with more or less the same monthly repayments?

Zonda999

ablelocks wrote: »

what happens if you go back to the dealer after 3 years and want a new car under the PCP arrangement - your 3 yr old car is the deposit, you continue on with more or less the same monthly repayments?

In this situation, you can only continue to pay the same repayment if your cars value in excess of the GMFV is enough to cover the deposit. If it is not, you will have pay an amount to reach the required deposit

26000 Elephants

ablelocks wrote: »

what happens if you go back to the dealer after 3 years and want a new car under the PCP arrangement - your 3 yr old car is the deposit, you continue on with more or less the same monthly repayments?

You still haven't paid for your three year old car, so cant use t as a deposit.

you might have a little equity in it, but you would have to make sure you were paying enough each month to be sure.

Lantus

fits wrote: »

Monthly payment definitely more manageable but you'd have to save an extra 14500/36 = 402 euro per month to meet final balloon payment.

Why? I'd just get a loan or finance product. Otherwise your suggesting that all cars must be bought cash only?

fits

Lantus wrote: »

Why? I'd just get a loan or finance product. Otherwise your suggesting that all cars must be bought cash only?

Well then you should factor in the cost of interest on that finance product into the overall car cost.

The only way pcp makes sense Imo is if you are happy to change cars every three years and happy to take the risk that there will be equity in the car and that the interest rates might not always be as favourable as they are now.

Soarer

Lantus wrote: »

Why? I'd just get a loan or finance product.

Why wouldn't you just do that at the start?

EndaHonesty

Soarer wrote: »

Why wouldn't you just do that at the start?

PCP is a finance product.

Soarer

EndaHonesty wrote: »

PCP is a finance product.

Christ, look who showed up!

He mentioned he'd get a loan or finance product to pay for the balloon payment at the end of the PCP term. So I asked why wouldn't he get a loan at the start.

What's your issue with that?

bidiots

Drummerboy08 wrote: »

You do realise that leasing and PCP are pretty much the same, only without the 10% deposit up front on the lease agreement.

However the lease will have no equity at the end of the agreement either, so it's much of a muchness.

Of course I realise they are similar.
But, the leasing example I showed does not have a big deposit or balloon. Over a couple of years the car will cost around 8k. That's an option I would jump at, I wouldn't need equity, just sign up to another 2 years on another new car.

The only reason that personal leasing is cheap in the UK is volume.

They have the option, regardless, we don't.

fits

Just thinking on this further. When committing to the PCP deal, the deposit you put down on the car, you don't get any of this back unless you buy it outright at the end of the term. So if you hand back the car at the end of the deal, in Gavman's example, you are essentially paying an astonishing 24,700 for three years of motoring. over 8000 euro a year with no asset at the end of it.

If you refinance the balloon payment (14,500) at current rates with AIB over 3 years, you are paying another 2000 euro in interest. So the car costs in total 4500 euro in interest over 6 years. But you have some asset left at the end.

If you continue with another deal, you never get your deposit back.

Whoever thought up PCP is a genius, it really obfuscates the real costs of car ownership, and locks people into paying interest for years.

bidiots

Agreed.
But what about a scenario with a minimum deposit, 0% rate, slightly higher monthly? PCP may be a viable option if you want to roll the contract into another similar deal in 3 years.

air

I don't think there's anything wrong with PCP so long as you realise you are effectively leasing the car with an option to purchase (at a possible discount to market value) at the end of the lease.

Owning a new car is expensive in depreciation and the cost of the car needs to be financed for the period of ownership.
PCP doesn't change any of this, these are facts of life.

In simple terms PCP is a lease with a deposit required at the start and a mileage cap.
Just keep in mind that you need to save for your next deposit while you pay your monthlies.

Soarer

bidiots wrote: »

Agreed.
But what about a scenario with a minimum deposit, 0% rate, slightly higher monthly? PCP may be a viable option if you want to roll the contract into another similar deal in 3 years.

In an ideal scenario, PCP would definitely work.

But all it takes is something to happen, like having a crash, to scupper everything.

All in all

The main issue is the mis-selling of PCP, it seems you are not able to go into a main dealers to buy a second hand car without PCP being pushed, with the promise of the same monthly payments as you would have with a 2/3 year old car. The options after 3 years are glossed over.

With the high car sales this year, I believe in 3 years the second hand market will be flooded with 2016 cars and prices that people are using as a base of 3 year old cars will be irrelevant (2013 cars now where sales were low and the demand is met imports and supply can be controlled), which will seriously dent the equity that people have in their car if they wish to roll on to 2019 car, which seems to be the majority of peoples preferred option.

bidiots

All in all wrote: »

The main issue is the mis-selling of PCP, it seems you are not able to go into a main dealers to buy a second hand car without PCP being pushed, with the promise of the same monthly payments as you would have with a 2/3 year old car. The options after 3 years are glossed over.

With the high car sales this year, I believe in 3 years the second hand market will be flooded with 2016 cars and prices that people are using as a base of 3 year old cars will be irrelevant (2013 cars now where sales were low and the demand is met imports and supply can be controlled), which will seriously dent the equity that people have in their car if they wish to roll on to 2019 car, which seems to be the majority of peoples preferred option.

That's what I've been saying the last 3 pages... Think I need a trumpet.

sheff the ref

Soarer wrote: »

In an ideal scenario, PCP would definitely work.

But all it takes is something to happen, like having a crash, to scupper everything.

Or putting up a huge amount of mileage!!!

vintagevrs

Soarer wrote: »

In an ideal scenario, PCP would definitely work.

But all it takes is something to happen, like having a crash, to scupper everything.

Can you explain to me how having a crash whilst financing a car using pcp is any worse than someone who is financing it under a different type of package or bought the car with cash?

Lantus

vintagevrs wrote: »

Can you explain to me how having a crash whilst financing a car using pcp is any worse than someone who is financing it under a different type of package or bought the car with cash?

Mileage won't affect it but a crash would lower the real world value potentially wiping out any equity. Insurance companies will pay out a PCP adjustment settlent to account for the loss of value.

[Deleted User]

fits wrote: »

Just thinking on this further. When committing to the PCP deal, the deposit you put down on the car, you don't get any of this back unless you buy it outright at the end of the term. So if you hand back the car at the end of the deal, in Gavman's example, you are essentially paying an astonishing 24,700 for three years of motoring. over 8000 euro a year with no asset at the end of it.

If you refinance the balloon payment (14,500) at current rates with AIB over 3 years, you are paying another 2000 euro in interest. So the car costs in total 4500 euro in interest over 6 years. But you have some asset left at the end.

If you continue with another deal, you never get your deposit back.

Whoever thought up PCP is a genius, it really obfuscates the real costs of car ownership, and locks people into paying interest for years.

I remarked some weeks ago that a seemingly intelligent colleague was similarly confused regarding the deposit.

The deposit and all of the payments are to cover the PCP period, the GFMV is just what you'll owe at the end if you want to keep the car, the car might & should be worth more so you could have some equity however that's far from guaranteed.

Conisdering the numbers of PCP financed cars out there, 2019 might be interesting when folks who don't fully understand what they've signed up to find out they won't be getting their deposit back & they might not be getting a new one if there isn't enough equity on their 2016 reg.

vintagevrs

Lantus wrote: »

Mileage won't affect it but a crash would lower the real world value potentially wiping out any equity. Insurance companies will pay out a PCP adjustment settlent to account for the loss of value.

The real world value of the car would be lower if it was bought with cash or alternative finance arrangement. Pcp is irrelevant, you are no worse or better off if you crash the car because of the way the car was bought.

bidiots

vintagevrs wrote: »

The real world value of the car would be lower if it was bought with cash or alternative finance arrangement. Pcp is irrelevant, you are no worse or better off if you crash the car because of the way the car was bought.

If you are handing the car back after 3 years, of course it will have an effect.

grogi

vintagevrs wrote: »

The real world value of the car would be lower if it was bought with cash or alternative finance arrangement. Pcp is irrelevant, you are no worse or better off if you crash the car because of the way the car was bought.

A bit of mind spliting? You claim PCP is irrelevant for future value yet the car will have better value if bought on PCP?

Interesting...

vintagevrs

I should have included the word "also". The real world value of the car would also be lower on non pcp bought cars.

Soarer was implying if you are using a pcp package to finance your car, and you have a crash then you're in bother. I am making the point that the method of finance does not have an impact on how much a crash will cost you. If it devalues the car by 5k, then you'll be out that 5k regardless of pcp or whatever way the car was bought.

Lantus

vintagevrs wrote: »

The real world value of the car would be lower if it was bought with cash or alternative finance arrangement. Pcp is irrelevant, you are no worse or better off if you crash the car because of the way the car was bought.

It has a significant bearing because you are in a contract. Take the three options. Buy, roll over, hand it back.

In a normal PCP deal each one should not be detrimental to the consumer. However a car that has devalued due to a crash would require the customer to reinvest potentially thousands to make up for this.

You have no choice but to do this.

Different to having bought a car outright where ideally you can keep the car beyond 3 years. You still see drop in value but you don't hit a contract deadline where you have to do something. At least you can wait it out.

Lantus

As far as I can see PCP deals tend to fall into two main categories.

1/ you want a new car every three years. Keep a low deposit as possible that matches the predicted equity after three years. That way monthly payments remain steady. Use near to zero interest rates as possible.

2/ if you want to keep the car Max out the deposit to reduce payments to reduce interest impact over three years. Again the zero rates are even better. Use that time to ideally save for the final payment. Or prepare for how you will finance the outstanding bit. If you can buy half the car at zero interest then that is a good deal although the repayment period is longer. (5 to 6 years say)

Where PCP falls down is where you use a good valued car as the deposit with the intention to get a new car after three years. Your monthly will rise unless you change car or re invest.

Also some interest deals are especially poor on higher value cars.

Again you have to compare the total running costs of your cars over three years like for like with loans, credit unions etc. Only then will you see the complete picture. Even small improvements in tax, insurance and fuel use can tip the favour towards a newer car in some cases. But not all. It will be specific to your needs and the particular car you want or need.

Soarer

vintagevrs wrote: »

I should have included the word "also". The real world value of the car would also be lower on non pcp bought cars.

Soarer was implying if you are using a pcp package to finance your car, and you have a crash then you're in bother. I am making the point that the method of finance does not have an impact on how much a crash will cost you. If it devalues the car by 5k, then you'll be out that 5k regardless of pcp or whatever way the car was bought.

But if you're using PCP and looking to trade up after 3 years, surely you can see the problem with the car being worth less than the GMFV?

vintagevrs

Of course I can. But that is not unique to pcp was my point. If you buy a car with a case full of cash, or on hp, if you go to change in 3 years time it will be the same scenario. Your trade in will be worth less, that is all.

grogi

Soarer wrote: »

But if you're using PCP and looking to trade up after 3 years, surely you can see the problem with the car being worth less than the GMFV?

Well - in that case a PCP is a brilliant option. Hand it back without any hassle and buy something similar on the open market for less.

monkeysnapper

I'm a person that's always buys cheaper cars straight out , no loans .

I'm thinking of buying my next car now (171) , I want a petrol because I do a lot of small runs to work but with having dogs , children,bikes ect plus a drive to UK once or twice a year want something decent and reliable .

With selling my car private and getting around 2 k plus adding another 2/3 k to deposit I was for the 1st time ever considering buying a new car. A dacia Logan( approx 11.5k)

From what I can see at end of 3 year PCP the car would be paid off and still have another 2 years warranty.

Now I don't see me changing it at year 3 , with my lot can't see car being in any condition

The interest rates seem better than any credit union and there won't be any further loan at end of PCP period .

In people in the knows opinion is this the cheapest route.