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Child Item

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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bazz26

From what I have been reading, normally the max deposit on a PCP deal is around 30% which is €16,800 on a 56k car. If I'm correct you would need the dealer to give you back just over 9k in cash to meet that target if your current car is valued at 26k as a trade in. Would be a nice little sum to put into a savings account for 3 years earning a bit of interest and then use to either pay towards the final balloon payment or new deposit for another car. Not sure many dealers would like the idea of giving cash your way though.

carsfan2

Dealers don't care about giving you back cash as they get paid in full for the car straight away by whoever underwrites the finance.

The pcp side is seperate to haggling the price of the car.

ctlsleh

mickdw wrote: »

I doubt you can pay 26k deposit on a PCP on a 56k car.

what is the gfv cause the more that is left outstanding til the end, the more interest you will pay.

On straight forward hire purchase, the 5.9 rate while borrowing 4k less due to contribution would certainly be the best but I will run rough figures if you give pcp details re deposit and gfv

Am checking on the GMV, thanks. i assume they will only take 30% max deposit

TheBigEvil

ctlsleh wrote: »

Am checking on the GMV, thanks. i assume they will only take 30% max deposit

The one thing that got me when looking into PCP deals is the fact that the GMFV is purely the financial value of the loan that is outstanding (your balloon payment) and has actually not relationship to the actual value of the car. And this is what trips a lot of people up, as they think the fact that they paid a 30% deposit and did 2 or 3 years of payments, that there will be equity in the car. Most likely there will be none, or it will be very small.

This means that if you want to go again, you have to find your 30% deposit yourself, as you have no where near enough equity in the car for your next PCP deal if you want to keep the repayments the same the next time around.

I would recommend people do the sums on this if they are looking to change every couple of years, because it looks like a very expensive way to "rent" a car, as you do not own it because of that balloon payment.

If you putting shown say 11K as a deposit (from a trade in) and paying say 450 a month of 37 months, that over 27K of an outlay of 3 years for a car that you dont own, and you will have to find that 11K again in 3 years time. Because it wont be in the car you are trading in.

Mantis Toboggan

TheBigEvil wrote: »

The one thing that got me when looking into PCP deals is the fact that the GMFV is purely the financial value of the loan that is outstanding (your balloon payment) and has actually not relationship to the actual value of the car. And this is what trips a lot of people up, as they think the fact that they paid a 30% deposit and did 2 or 3 years of payments, that there will be equity in the car. Most likely there will be none, or it will be very small.

This means that if you want to go again, you have to find your 30% deposit yourself, as you have no where near enough equity in the car for your next PCP deal if you want to keep the repayments the same the next time around.

I would recommend people do the sums on this if they are looking to change every couple of years, because it looks like a very expensive way to "rent" a car, as you do not own it because of that balloon payment.

If you putting shown say 11K as a deposit (from a trade in) and paying say 450 a month of 37 months, that over 27K of an outlay of 3 years for a car that you dont own, and you will have to find that 11K again in 3 years time. Because it wont be in the car you are trading in.

If you buy a new car for 30k the gmvf will be around 10k, but the car after 3 years in real terms is worth 18k, pay the final 10k payment and sell the car for 18k then use the 8k as deposit for next car or just keep the car "rent free" !

SteelyDanJalapeno

Just checked my own car there to see what the 3 yr olds are selling at now, and they are over 2 times the gmfv.

I don't get the scare mongering being thrown around here.

TheBigEvil

Tyson Fury wrote: »

If you buy a new car for 30k the gmvf will be around 10k, but the car after 3 years in real terms is worth 18k, pay the final 10k payment and sell the car for 18k then use the 8k as deposit for next car or just keep the car "rent free" !

What if you dont have the 10K to pay off your balloon payment?
Who is buying the car for 18k off you? Are you selling it privately?

SteelyDanJalapeno

TheBigEvil wrote: »

What if you dont have the 10K to pay off your balloon payment?
Who is buying the car for 18k off you? Are you selling it privately?

If you're going down the route of using the surplus as the next deposit, just give the dealer the car back and use the surplus equity as the deposit it should be the same as the balloon minus the market value.

Some people over complicate this.

vintagevrs

Your point is true that people need to know what they are getting into, however I would expect a 38k car to be worth more than 11k in 3 years.

Mantis Toboggan

TheBigEvil wrote: »

What if you dont have the 10K to pay off your balloon payment?
Who is buying the car for 18k off you? Are you selling it privately?

In fairness dealerships are fairly upfront on the costs, why would someone buy a car they cannot afford?

If you cannot afford the final payment you can just hand back the keys and walk away.

vintagevrs

TiltedBrain wrote: »

Just checked my own car there to see what the 3 yr olds are selling at now, and they are over 2 times the gmfv.

I don't get the scare mongering being thrown around here.

It's not scaremongering, just people trying to show all sides. Current 2ñd hand car values are strong as few cars were sold in 2013. Compare that to how many new cars are sold now. Supply and demand will change and as such it would be logical to believe that 2nd values will not be as strong in 2020.

SteelyDanJalapeno

vintagevrs wrote: »

It's not scaremongering, just people trying to show all sides. Current 2ñd hand car values are strong as few cars were sold in 2013. Compare that to how many new cars are sold now. Supply and demand will change and as such it would be logical to believe that 2nd values will not be as strong in 2020.

So theres more cars being sold now? so the supply and demand should also mean the price of new cars should also be coming down. It's relative

26000 Elephants

TiltedBrain wrote: »

I don't get the scare mongering being thrown around here.

Its not scaremongering - its just that a lot of people dont understand the details of PCP. GMFV is nothing to do with the value of your car, its just what you owe the bank.

TiltedBrain wrote: »

So theres more cars being sold now? so the supply and demand should also mean the price of new cars should also be coming down. It's relative

Price of new cars is related more to economic and manufacturing factors, additionally manufacturers can control the rate of production, stockpile, etc.

demand will dictate supply of new cars, not the price.

In second hand cars, the supply is less controlled ( zero control to be fair) so demand has a more direct effect on price.

TheBigEvil

Tyson Fury wrote: »

In fairness dealerships are fairly upfront on the costs, why would someone buy a car they cannot afford?

If you cannot afford the final payment you can just hand back the keys and walk away.

I agree they are fairly upfront about the costs, but they are selling cars on PCP by advertising that you can get behind the wheel of a brand new car for just (for example) €320pm (after your 10, 20 or 30% deposit, however you come up with that)

However, wind on 2 or 3 years, you are not getting back behind the wheel of a new version of the car for €320pm unless you stump up the same deposit that you did previously. And you are not going to get retail value of the car when you trade it in. you will be lucky to get 1 or 2 thousand above the GMFV from the dealer.

PCP deals are a win-win for dealers, and poor for consumers. The dealer holds all the cards. If you decide to walk way, you have flushed away thousands and the dealer will stick the for sale up at the retail price, certainly not the GFMV price ! So it is always stacked in the dealers favour

I'm only posting this so people understand that it is not as simple to turn up in 2 or 3 years and expect to get into a new car for the same repayments. something has to give, either a bigger repayment or you have to fork out of your own savings your new deposit

mickdw

Row back a little there.
Sure I agree that if you come along and pay 30 percent day one, you certainly will have to add cash to the deal if looking to go again in year 3 with same monthly.
If however you started with a 15 percent deposit, were comfortable with the monthly figures, it is quite likely that the equity will form a similar deposit at year 3 meaning same monthly can continue and no additional cash required. In my opinion people should therefore be stress testing themselves to see if they can afford to buy the car day one with 15 percent down. If they can, happy days.
Now if the buyer is foolish enough to buy a run out model, they will likely have zero equity but they would suffer similarly no matter how they bought.

26000 Elephants

TheBigEvil wrote: »

I agree they are fairly upfront about the costs, but they are selling cars on PCP by advertising that you can get behind the wheel of a brand new car for just (for example) €320pm (after your 10, 20 or 30% deposit, however you come up with that)

However, wind on 2 or 3 years, you are not getting back behind the wheel of a new version of the car for €320pm unless you stump up the same deposit that you did previously. And you are not going to get retail value of the car when you trade it in. you will be lucky to get 1 or 2 thousand above the GMFV from the dealer.

PCP deals are a win-win for dealers, and poor for consumers. The dealer holds all the cards. If you decide to walk way, you have flushed away thousands and the dealer will stick the for sale up at the retail price, certainly not the GFMV price ! So it is always stacked in the dealers favour

I'm only posting this so people understand that it is not as simple to turn up in 2 or 3 years and expect to get into a new car for the same repayments. something has to give, either a bigger repayment or you have to fork out of your own savings your new deposit

The trick is to pay as low a deposit as possible to keep the monthlies at a realistic level. This will ensure you drive a car that you can really afford, and at the end of the term you will be in a better position to get yourself into a new car with minimum pain.

I'm no fanboy of PCP, but if you can afford to borrow and repay the full price of a new car, then PCP (esp. at 0%) makes real sense.

If you cant and you are using PCP to get into a car above your budget, then you are in for a painful experience.

Ludo

TheBigEvil wrote: »

However, wind on 2 or 3 years, you are not getting back behind the wheel of a new version of the car for €320pm unless you stump up the same deposit that you did previously. And you are not going to get retail value of the car when you trade it in. you will be lucky to get 1 or 2 thousand above the GMFV from the dealer.

That is simply not true. They will give you fair market value for your car as otherwise you will simply go to another brand dealer who will.
So if your GMFV on your Golf is 9k and your car is currently worth about 18k, the VW dealer you bought it from ( for example) is not going to offer you 11k as you will simply walk across the road to a ford dealer who will offer you the 18k with which you can pay off the VW PCP and have the deposit (or most of it) for a new Focus.

Aka Ishur

TheBigEvil wrote: »

PCP deals are a win-win for dealers, and poor for consumers. The dealer holds all the cards. If you decide to walk way, you have flushed away thousands and the dealer will stick the for sale up at the retail price, certainly not the GFMV price ! So it is always stacked in the dealers favour

I'm only posting this so people understand that it is not as simple to turn up in 2 or 3 years and expect to get into a new car for the same repayments. something has to give, either a bigger repayment or you have to fork out of your own savings your new deposit

Not true at all, GMFV on our Polo was 8200, VW dealer is offering 12500, Toyota and Ford dealers similar. We are up sizing in fact on the back of the equity left on it and no money added to the next deposit. Its equity we have paid for sure, but certainly not flushed away.

MarkN

TheBigEvil wrote: »

I agree they are fairly upfront about the costs, but they are selling cars on PCP by advertising that you can get behind the wheel of a brand new car for just (for example) €320pm (after your 10, 20 or 30% deposit, however you come up with that)

However, wind on 2 or 3 years, you are not getting back behind the wheel of a new version of the car for €320pm unless you stump up the same deposit that you did previously. And you are not going to get retail value of the car when you trade it in. you will be lucky to get 1 or 2 thousand above the GMFV from the dealer.

PCP deals are a win-win for dealers, and poor for consumers. The dealer holds all the cards. If you decide to walk way, you have flushed away thousands and the dealer will stick the for sale up at the retail price, certainly not the GFMV price ! So it is always stacked in the dealers favour

I'm only posting this so people understand that it is not as simple to turn up in 2 or 3 years and expect to get into a new car for the same repayments. something has to give, either a bigger repayment or you have to fork out of your own savings your new deposit

This scenario is only going to be the case if you put in max deposit. I know you're trying to warn people but you're actually confusing the way PCP works just as much by some of your post. If you put in 10-15% chances are you will NOT have to put any further cash deposit into the next car.

jca

Aka Ishur wrote: »

Not true at all, GMFV on our Polo was 8200, VW dealer is offering 12500, Toyota and Ford dealers similar. We are up sizing in fact on the back of the equity left on it and no money added to the next deposit. Its equity we have paid for sure, but certainly not flushed away.

Your deposit entering the next PCP deal is 4300, what was your deposit at the start? Will your new monthly payments be changed?

Lantus

As people have said a well balanced deposit in the 10 to 15 range ensures a sustainable monthly payment moving forwards.

However, there are a few other factors relating to equity. Firstly the type of car may result in a slightly lower equity than expected. Cars from the same manufacturer can vary as some models are rock solid sellers and others less so. Entry level specs depreciate more so upgrading makes better financial sense.

Also cars tend to go up in price so even the same car could be 1 to 2 k more in three years time resulting in 30 to 60 EU more a month. Interest rates can add in another increase. You would of paid this anyway but it can feel like a price hike. Something to be considered or prepared for.

Also, remember you can trade back in at any time. The 3 year term is the max. Most people trade in after 2 years I'm told. A lot are getting monthly valuations from the dealer and weighing up the outstanding balance versus current deals and trading early as car value is slightly higher. Savvy approach and it costs nothing. Has anyone else done this? Or wished they had.

We are preparing to get a new 171 at zero interest with the plan to buy outright. But I will be getting a valuation after 24 months to see where we stand. Cover all angles..

Mantis Toboggan

Bigger deposit is better as you'll have lower monthly repayments and the cost of credit will be less.

Lantus

Tyson Fury wrote: »

Bigger deposit is better as you'll have lower monthly repayments and the cost of credit will be less.

Yes, generally if your buying outright and are paying interest.

However, the equity in any car is independent of deposit and will be the same at the end of the three years. So a max deposit will require another cash deposit if you want to maintain the same monthly payment. Otherwise the monthly payment will rise considerably.

Not an issue if your buying but those looking to get a new car can be in for a shock re monthly payments moving forwards.

It's about getting the right deal. Being well informed and tailoring the system to suit your needs.

Aka Ishur

jca wrote: »

Your deposit entering the next PCP deal is 4300, what was your deposit at the start? Will your new monthly payments be changed?

Deposit was around the same, if we changed to another Polo of the same spec monthly payments would have dropped a small bit as this year's Polo is a bit cheaper.

ShadowHearth

Lantus wrote: »

As people have said a well balanced deposit in the 10 to 15 range ensures a sustainable monthly payment moving forwards.

However, there are a few other factors relating to equity. Firstly the type of car may result in a slightly lower equity than expected. Cars from the same manufacturer can vary as some models are rock solid sellers and others less so. Entry level specs depreciate more so upgrading makes better financial sense.

Also cars tend to go up in price so even the same car could be 1 to 2 k more in three years time resulting in 30 to 60 EU more a month. Interest rates can add in another increase. You would of paid this anyway but it can feel like a price hike. Something to be considered or prepared for.

Also, remember you can trade back in at any time. The 3 year term is the max. Most people trade in after 2 years I'm told. A lot are getting monthly valuations from the dealer and weighing up the outstanding balance versus current deals and trading early as car value is slightly higher. Savvy approach and it costs nothing. Has anyone else done this? Or wished they had.

We are preparing to get a new 171 at zero interest with the plan to buy outright. But I will be getting a valuation after 24 months to see where we stand. Cover all angles..

Just check what's the story with buying it out right.
I was going through Citroën pcp conditions and ot was worded that you can buy it out right in 3 years for balloon payment plus "Buying out fee".
Now that fee is very interesting thing. They don't say how much is it and why you should pay it. I would ask then out right what's the story with it.

26000 Elephants

ShadowHearth wrote: »

Just check what's the story with buying it out right.
I was going through Citroën pcp conditions and ot was worded that you can buy it out right in 3 years for balloon payment plus "Buying out fee".
Now that fee is very interesting thing. They don't say how much is it and why you should pay it. I would ask then out right what's the story with it.

They have to tell you what it is (in the UK anyway) Its usually just an administrative ploy - screw you for a few extra quid but not a deal breaker.

Yes, you should always ask about it.

I know of one specific finance company who stuck the optional 'buy out" fee onto the amount advanced - charging interest at 50%+ apr on it for the duration of the term even though it was never actually 'advanced"..:) Nobody at the regulators ever questioned that. Nor customers. When I spotted it ( i was writing software for them at the time) the accountant tried to convince me I misunderstood it.

Just beware.

mickdw

Lantus wrote: »

As people have said a well balanced deposit in the 10 to 15 range ensures a sustainable monthly payment moving forwards.

However, there are a few other factors relating to equity. Firstly the type of car may result in a slightly lower equity than expected. Cars from the same manufacturer can vary as some models are rock solid sellers and others less so. Entry level specs depreciate more so upgrading makes better financial sense.

Also cars tend to go up in price so even the same car could be 1 to 2 k more in three years time resulting in 30 to 60 EU more a month. Interest rates can add in another increase. You would of paid this anyway but it can feel like a price hike. Something to be considered or prepared for.

Also, remember you can trade back in at any time. The 3 year term is the max. Most people trade in after 2 years I'm told. A lot are getting monthly valuations from the dealer and weighing up the outstanding balance versus current deals and trading early as car value is slightly higher. Savvy approach and it costs nothing. Has anyone else done this? Or wished they had.

We are preparing to get a new 171 at zero interest with the plan to buy outright. But I will be getting a valuation after 24 months to see where we stand. Cover all angles..

There are very few occasions where trading in early is a good idea. Depreciation from new every 2 years is going to be higher than the Depreciation on a new car every 3 years.
That depreciation just gets hidden in the short term within pcp.

Lantus

mickdw wrote: »

There are very few occasions where trading in early is a good idea. Depreciation from new every 2 years is going to be higher than the Depreciation on a new car every 3 years.
That depreciation just gets hidden in the short term within pcp.

You would think so. I have had dealers tell me that 24months is the most common loan length for PCP. Could be improved economic factors pushing people to trade early or desire for a different/ new car. Not sure.

However in our case we would of had a slightly worse equity trading in at 32 months which improved slightly at 34 and then worsened at 36. It was very marginal and not really enough to warrant the Hassel or serious consideration but it existed. This could of been the dealer making fine adjustments to better control the sale and timing, we don't know. But I suspect as much and I would imagine this is what is touted at 24 months. Some dealers sell a lot more 'newish' cars and don't handle vehicles older than 5 years old. Cars at 2 years keep their stock young.

Not sure how the depreciation is hidden as the equity is declared. If it was significantly lower a customer would suddenly have much higher monthly payments which are not so easily hidden. Maybe buying different cars mask this?

Must be a reason why so many are reportadly doing it? Mileage issues?

TheBigEvil

26000 Elephants wrote: »

The trick is to pay as low a deposit as possible to keep the monthlies at a realistic level. This will ensure you drive a car that you can really afford, and at the end of the term you will be in a better position to get yourself into a new car with minimum pain.

I'm no fanboy of PCP, but if you can afford to borrow and repay the full price of a new car, then PCP (esp. at 0%) makes real sense.

If you cant and you are using PCP to get into a car above your budget, then you are in for a painful experience.

Surely a lower deposit means larger monthly repayments because you are financing a larger amount?

Ludo

mickdw wrote: »

There are very few occasions where trading in early is a good idea. Depreciation from new every 2 years is going to be higher than the Depreciation on a new car every 3 years.
That depreciation just gets hidden in the short term within pcp.

Really? I am 24 months in now myself and got a quote to change over the weekend to upgrade slightly..I am considering it as I cant see why I shouldn't.
Can you explain please why I should hold off? My car would presumably lose about a grand over the next year which I would have to come up with to pay into next deposit then to maintain repayment level.
I was also thinking that interest rates may go up slightly by this time next year so may be worth changing now.
What am I missing?

The reason I imagine a lot are doing it by the way is probably the same reason i am considering it...I wanted to know figures for what I will be looking at next year when I have to deal with it and to give myself time to shop around. But now that I have started looking, I may well end up changing now rather than in a year.