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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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TheShow

All the scaremongering about PCPs being a scam is hokem from the "I don't know what a tracker mortgage is" crowd. If you are entering into a financial product and you are unsure as to how it works, or if you can't afford it, then instead of finding out details and trying to understand it, you put your head in the sand and hope for the best, you deserve to be on the losing end.

Make your deposit.
Make your repayments at a low Apr, or zero % if you're lucky.
Be in the knowledge that the GMFV is a balloon payment at the end which may be more than the car is worth, depending on market conditions and this will have financial implications if you wish to trade to a new car. Alternatively the GMFV will be less than the market value, giving you equity to trade up.

I'm not sure why people expect to have the same loan repayment amount on the next finance agreement. It's a new loan for a more than likely different amount.

Get over the shock people. It's all very straight forward.

Cyrus

BadMor wrote: »

They lure people into thinking they can afford a car that they cannot. If you can afford a car through traditional methods and you fully understand the pcp contract then maybe a pcp is for you. Beware though that the lower interest rates advertised are applied to the entire car price by some dealers - so the rate on the financed about is actually 8-9%,

so you don't understand how it works either?

The interest is applied to the entire price (less your deposit) by ALL dealers, and the rate is the rate quoted

acronym Chilli

Cyrus wrote: »

so you don't understand how it works either?

The interest is applied to the entire price (less your deposit) by ALL dealers, and the rate is the rate quoted

The interest rate doesn't really matter, nor what they tell you it's calculated on. What matters are the repayments (all of them). Anything else is part of marketing communication.

e.g. To pitch the deal differently I (as a dealer/manufacturer) can move interest rate up and down while keeping the cost of credit constant by charging it on different amounts (e.g. 1% on 30k or 3% on 10k). The interest rate would be more relevant if you could do things like with a mortgage: e.g. if interest was charged on the reducing balance, and then you could elect to make accelerated payments in early years to reduce your principal and cost of credit.

The other angle is that there are lots of ways for the dealer to tweak the deal and lots of places to hide the cost of credit. e.g. offering/not-offering a discount on the top line price, charge structure for extras packs, the price offered on a traded in vehicle, penalty fees on mileage etc., the headline price for the car itself (list price).

For a no trade in deal, only 3 numbers are important:
P1: the deposit
P2: the monthly repayment
P3: the GFMV payment
Non-discounted total cashflows are in general P1+(12)(3)(P2)+P3.

You should really discount, and if you've a mortgage, then you could do that calculation discounting by your mortgage rate to get Net present value.

That's the financials at least, gets trickier when you start thinking of which cars you prefer, who's more reliable, who has better warranties, parts costs, blah, blah.

And if you really want to settle the "which part of the price is the interest calculated on", then just do the calculations and check. But it's not really that interesting since they give you a fixed monthly repayment and it's €€€ you need to pay, not %%%.

Cyrus

acronym Chilli wrote: »

The interest rate doesn't really matter, nor what they tell you it's calculated on. What matters are the repayments (all of them). Anything else is part of marketing communication.

e.g. To pitch the deal differently I (as a dealer/manufacturer) can move interest rate up and down while keeping the cost of credit constant by charging it on different amounts (e.g. 1% on 30k or 3% on 10k). The interest rate would be more relevant if you could do things like with a mortgage: e.g. if interest was charged on the reducing balance, and then you could elect to make accelerated payments in early years to reduce your principal and cost of credit.

The other angle is that there are lots of ways for the dealer to tweak the deal and lots of places to hide the cost of credit. e.g. offering/not-offering a discount on the top line price, charge structure for extras packs, the price offered on a traded in vehicle, penalty fees on mileage etc., the headline price for the car itself (list price).

For a no trade in deal, only 3 numbers are important:
P1: the deposit
P2: the monthly repayment
P3: the GFMV payment
Non-discounted total cashflows are in general P1+(12)(3)(P2)+P3.

You should really discount, and if you've a mortgage, then you could do that calculation discounting by your mortgage rate to get Net present value.

That's the financials at least, gets trickier when you start thinking of which cars you prefer, who's more reliable, who has better warranties, parts costs, blah, blah.

And if you really want to settle the "which part of the price is the interest calculated on", then just do the calculations and check. But it's not really that interesting since they give you a fixed monthly repayment and it's €€€ you need to pay, not %%%.

totally agreed but people do still get hung up on APR etc

acronym Chilli

Cyrus wrote: »

totally agreed but people do still get hung up on APR etc

I know.
It's like road tax.

An anecdote from a marketing prof I had, where he emphasised the importance of what you charged on. He grew up in Switzerland and family had a local restaurant. From a business point of view: if diner went in, and ate "a salad, fish with potatoes and asparagus, chocolate ice-cream and an espresso"; what matters to the restaurant was what money they paid on the final bill. Say that was CHF56.
What he said was that, at least in Switzerland, people were very particular about the price of a coffee. Say that was CHF1.20. If the restaurant wanted to get an extra franc out of their customer, they could put the price of the coffee up from 1.20 to 2.20; but if they did that customers would be super annoyed and they'd all be complaining to each other about "who do they think they are", "that's crazy money", "coffee in the place down the street is only 1.15", etc., Even a small change would annoy people: 1.20->1.30 would be noticed.

But it was relatively easy to change the price of the main course, even by bigger amounts, say from 22 to 26, nobody notices; especially if you also tweak the contents "fish with potatoes and asparagus" at CHF22 becomes "fish with rice and avocado" at CHF26. It's harder to compare the dishes than to compare 2 cups of black coffee.

Bringing it back to cars, what matters to the dealer/seller is the overall price. What matters most to the buyer should also be the overall price, which simplifies a big chunk of the decision process. Then you can spend some time looking at the product and preferences (you want to eat asparagus or avocado?).

What's funny is that even knowing this rationally, I still fall into same trap. Builder priced a job with 2 components: overall price was fine. His price for part-A was much cheaper than expected, his price for part-B was a bit dearer than expected. It annoyed me so much to look at price on part-B, even though I was happy with the overall bill.

grogi

acronym Chilli wrote: »

I know.
It's like road tax.

An anecdote from a marketing prof I had, where he emphasised the importance of what you charged on. He grew up in Switzerland and family had a local restaurant. From a business point of view: if diner went in, and ate "a salad, fish with potatoes and asparagus, chocolate ice-cream and an espresso"; what matters to the restaurant was what money they paid on the final bill. Say that was CHF56.
What he said was that, at least in Switzerland, people were very particular about the price of a coffee. Say that was CHF1.20. If the restaurant wanted to get an extra franc out of their customer, they could put the price of the coffee up from 1.20 to 2.20; but if they did that customers would be super annoyed and they'd all be complaining to each other about "who do they think they are", "that's crazy money", "coffee in the place down the street is only 1.15", etc., Even a small change would annoy people: 1.20->1.30 would be noticed.

But it was relatively easy to change the price of the main course, even by bigger amounts, say from 22 to 26, nobody notices; especially if you also tweak the contents "fish with potatoes and asparagus" at CHF22 becomes "fish with rice and avocado" at CHF26. It's harder to compare the dishes than to compare 2 cups of black coffee.

Classic example of Penny wise, pound foolish

Bringing it back to cars, what matters to the dealer/seller is the overall price. What matters most to the buyer should also be the overall price, which simplifies a big chunk of the decision process. Then you can spend some time looking at the product and preferences (you want to eat asparagus or avocado?).

What's funny is that even knowing this rationally, I still fall into same trap. Builder priced a job with 2 components: overall price was fine. His price for part-A was much cheaper than expected, his price for part-B was a bit dearer than expected. It annoyed me so much to look at price on part-B, even though I was happy with the overall bill.

Realizing how you react to marketing strategies is first step to starting taking advantage of them.

acronym Chilli

grogi wrote: »

Classic example of Penny wise, pound foolish

absolutely. And also a bias where we latch onto things because we feel able to analyse them, even if not that important. With the coffee: if it's 1.20, you could not possibly be more than 1.20 over-charged for it, so it can't be that important. Yet it is easy to remember what a "coffee should cost" and bring that handy benchmark around in your head.

Realizing how you react to marketing strategies is first step to starting taking advantage of them.

Yep. And coming back to the cars example, the car dealer works with these deals every day and knows the ropes. The more complex it is, the more likely he is to be able to achieve his goals at the (unwitting) expense of the buyer.

grogi

acronym Chilli wrote: »

coming back to the cars example, the car dealer works with these deals every day and knows the ropes. The more complex it is, the more likely he is to be able to achieve his goals at the (unwitting) expense of the buyer.

PCP helps them a lot. It hides future liabilities under very well formed terms, such as GUARANTEED FUTURE VALUE. Not only I pay very little monthly, they guarantee the future value! How awesome it is!

artheb

grogi wrote: »

PCP helps them a lot. It hides future liabilities under very well formed terms, such as GUARANTEED FUTURE VALUE. Not only I pay very little monthly, they guarantee the future value! How awesome it is!

Not sure if this negative or positive comment. PCP is a product same way as any other loan HP or Personal. There are always hidden charges. The main point is that if you understand it you may get a newer car on lower interest with lower monthly repayments.

indizzle

artheb wrote: »

I've been reading the thread and thought I would share a deal I went for.

Audi A6 s line black edition 2015(152) with 22000km on the clock 1y Audi warranty,1y road assistance

traded old car got 7000e
PCP on used car for 3 years
monthly 377e
APR 3.9
mileage 32000km
GFMV 17000

I plan to do over 40000km a year. I am aware that it will impact my GFMV. My plan is to renew the PCP after 2 years. I am aware that I would need to come up with extra cash to enter a new deal but I have no problem with that.

I also wanted to comment on buying an older car for less with better spec. It is definitely a good option if you dont plan to do a lot of mileage. I bought a 2011 Passat CC in 2015 with 160000km on the clock. With that mileage there are wear and tear components which need to be replaced and that cost extra money and downtime.
I had to do following after couple of thousand km: Brake discs and pads, timing belt (seller paid for it), clutch, flywheel. I knew about discs and pads but clutch and flywheel was unexpected.
In the meantime few sensors died which cost 100e each. Within 2 years I did 100000km and EGR valve died - 500e to replace with Indy. Car never totally failed on me but it cost me downtime which I don't want.

When you buy a new car or almost new you don't need to worry about any of those things because that will be a problem of future owner. You also do not need to worry about NCT because you will not have one. I rather to pay more and have reliable car with warranty in place. Just my 2c.

I am interesting to hear about renewals done on PCP.

Thanks!

I wonder was that my old A6. Is there a 000 in the reg? Anyway, I got a new 152 A6 sline black edition 190bhp on PCP. Had it 1.5 yrs when I got a call from the dealer. I did a swap for a brand new 171 back in April, same spec but with self park etc. Paid 1,250euro difference, mine had around 22k on the clock. Dealer told me that new models are harder to shift and that their are people who want a good spec car a year or two old so he was happy to flip my car and sell (new PCP) me a new one so he was quids in on target and I was a happy camper. The 152 needed a service and 4 new tyres plus I was heading over the agreed 15k per annum although they told me not to worry about that, milage really only comes into play when it's seriously excessive or you are moving away from Audi to another brand. Dealer told me the new model was coming out next year and he would give me a shout to see if a similar deal could be done, I'll be waiting for that call.

artheb

indizzle wrote: »

I wonder was that my old A6. Is there a 000 in the reg? Anyway, I got a new 152 A6 sline black edition 190bhp on PCP. Had it 1.5 yrs when I got a call from the dealer. I did a swap for a brand new 171 back in April, same spec but with self park etc. Paid 1,250euro difference, mine had around 22k on the clock. Dealer told me that new models are harder to shift and that their are people who want a good spec car a year or two old so he was happy to flip my car and sell (new PCP) me a new one so he was quids in on target and I was a happy camper. The 152 needed a service and 4 new tyres plus I was heading over the agreed 15k per annum although they told me not to worry about that, milage really only comes into play when it's seriously excessive or you are moving away from Audi to another brand. Dealer told me the new model was coming out next year and he would give me a shout to see if a similar deal could be done, I'll be waiting for that call.

No 000 in the Reg. However description would match the car
It looked like two tyres were changed couple months before the trade in. Front and rear were different brands. I did not like the ride on the initial tyres. I got 4 new goodyears and they transformed the car.

dil999

I recently did another PCP on a new car. This is definitely the best way to purchase a new car. A couple of important points that have been mentioned here that I can vouch for from experience.
1: A PCP in a financial arrangement for the purchase of a car at the present time. Nothing more nothing less. Its got nothing to do with buying a car in 3 years time.
2: Put in the minimum deposit, don't tie up your cash in a car.
3: If the monthly payments are too high with the minimum deposit, the reality is you can't afford the car. go for a different car.
4 Make the assumption that there will be no 'equity' in your car at the end. You won't be disappointed.
5 A car is an expense, not an asset. You buy a car to get you to work or school or wherever. It should not be thought of as a financial investment. in other words to repeat point 2, don't tie up your cash in a car. Tie up someone else's.

maidhc

dil999 wrote: »

I recently did another PCP on a new car. This is definitely the best way to purchase a new car. A couple of important points that have been mentioned here that I can vouch for from experience.
1: A PCP in a financial arrangement for the purchase of a car at the present time. Nothing more nothing less. Its got nothing to do with buying a car in 3 years time.
2: Put in the minimum deposit, don't tie up your cash in a car.
3: If the monthly payments are too high with the minimum deposit, the reality is you can't afford the car. go for a different car.
4 Make the assumption that there will be no 'equity' in your car at the end. You won't be disappointed.
5 A car is an expense, not an asset. You buy a car to get you to work or school or wherever. It should not be thought of as a financial investment. in other words to repeat point 2, don't tie up your cash in a car. Tie up someone else's.

Call me old fashioned, but I think the only way to purchase a car is just to buy it outright. The pcps don't add up at all as a long term proposition, and I do understand them and studied them in some detail.

dil999

maidhc wrote: »

Call me old fashioned, but I think the only way to purchase a car is just to buy it outright. The pcps don't add up at all as a long term proposition, and I do understand them and studied them in some detail.

They are not a long term proposition. They are a 37 month loan arrangement that gives you the most cost effective and risk free way to buy your car outright. If you decide after three years the car is not for you, you don't have to worry about selling it. Hand it back and buy a different one.

If you plan to buy a new car every three years you would be crazy to pay for it all upfront. Think of it this way, You want to buy a 30K car and keep it for 3 years. The value of the car after 3 years may be 12K (40% is a pretty good estimate) would you:
a) give the garage 30K and wait for 3 years then hopefully get 12K back in a trade in
b) give the garage 3K up front, 420 a month over the next 3 years and then have the option to buy the car for 12K, or if you want, walk away.

30K car cost example based on 3.9% PCP and AIB carloan 8.95%
1) buy the car upfront: 10% deposit, 27K 60 month loan from AIB. Total interest 6.5K over 5 years
2) PCP 10% upfront, and then borrow the final 12K from AIB over 2 years - Total interest 3.4K over 5 years

I know which I would do.

Lantus

maidhc wrote:

Call me old fashioned, but I think the only way to purchase a car is just to buy it outright. The pcps don't add up at all as a long term proposition, and I do understand them and studied them in some detail.

My total cost analysis of a variety of car loans and financial products showed PCP to be cheaper for the car I was looking at even compared to 2nd hand cars.

But there will be variation as you look at different makes and models. It's also highly dependant on the type of car you need and its importance for you.

I commute 100km a day and pick up and drop off kids so reliability is a huge factor. Downtime in garages has a huge cost impact on my work and my family in terms of planning and stress. I don't even factor that into my cost analysis.

Traditional loans tend to have higher interest rates and if it suits your circumstances go for it.

Cars are depreciating lumps of metal that one way or another you need to throw money at to run.

I owned a car for years and it was great as I had no loan. But that cars value was 1k when I went to trade it in so swings and roundabouts.

Sweeping statements about one product being better than another are akin to the false assumption that running a diesel car is cheaper than petrol. A mantra most people espouse without thinking about. Most of my cost analysis shows it to be more expensive in many cases. But that doesn't stop old indoctrinated ways of thinking being triggered.

acronym Chilli

dil999 wrote: »

have the option to get at least 12K back as a trade in or buy the car for 12K, or if you want, walk away.

Second and third parts are fine, but first is not: you don't have the car as a 12k trade in after 3 years. You still have the outstanding debt, which is why you might hand car back to clear debt, or why you would pay money to clear debt and hang onto car.

PCP might be a grand option, might even be best in many situations, but it's not the only way, Lantus's post shows right approach/mind-set: get the details and Ts&Cs straight, run the numbers, find the optimum, tweak it with intangibles if necessary (e.g. reliability/disruption/etc.,) and then make a decision.

Casati

acronym Chilli wrote: »

Second and third parts are fine, but first is not: you don't have the car as a 12k trade in after 3 years. You still have the outstanding debt, which is why you might hand car back to clear debt, or why you would pay money to clear debt and hang onto car.

PCP might be a grand option, might even be best in many situations, but it's not the only way, Lantus's post shows right approach/mind-set: get the details and Ts&Cs straight, run the numbers, find the optimum, tweak it with intangibles if necessary (e.g. reliability/disruption/etc.,) and then make a decision.

The main advantage pcp brings is the low interest rate offered. You simply can't get 0% or even 1.9% outside of this dealer financing. As long as you are not paying the interest up front by not getting a discount a cash buyer would get I don't see any downside at all

Sam Kade

Casati wrote: »

The main advantage pcp brings is the low interest rate offered. You simply can't get 0% or even 1.9% outside of this dealer financing. As long as you are not paying the interest up front by not getting a discount a cash buyer would get I don't see any downside at all

You're only getting 0% finance on a third of the cost of the car as you pay a third up front and the balloon payment at the end.

SteelyDanJalapeno

Sam Kade wrote: »

You're only getting 0% finance on a third of the cost of the car as you pay a third up front and the balloon payment at the end.

Not sure you're correct there!

carsfan2

Sam Kade wrote: »

You're only getting 0% finance on a third of the cost of the car as you pay a third up front and the balloon payment at the end.

If 0% finance available, the logical thing is to put minimal deposit of 10% in and then you get 0% interest rate on the other 90%.

artheb

carsfan2 wrote: »

If 0% finance available, the logical thing is to put minimal deposit of 10% in and then you get 0% interest rate on the other 90%.

You get 0% Apr on remaining 90% if you clear the balloon payment without additional loan or if you enter another pcp deal on 0% apr

Casati

artheb wrote: »

You get 0% Apr on remaining 90% if you clear the balloon payment without additional loan or if you enter another pcp deal on 0% apr

You get 0% finance on the full amount less whatever deposit for the length of the agreement. If you have a 3 year pcp on a 34k at 0% and put 4K deposit down, you get 0% finance on the full amount owed for the full 3 years.

walus

PCP must be the best way for buying a new car other than obviously a straight all-in cash purchase. It is designed to target those people who otherwise could not afford one as well as to develop relationship with the customer so he/she goes for a new model every 3 years. This scheme allows to predict future sales much easier and with time ensures nice and steady revenue stream.
Let’s consider a period of 12 years (4x 3 year PCP contracts, or otherwise owning a new car twice and keeping it for 6 years. Why such period? Simply because considering the current warranty periods (5, even 7 years), general quality of modern vehicles and their reliability, as well as technological progress, it is fair to say that buying a new car now and keeping it for 6 years will ensure, in very high majority of cases, trouble free motoring in a relatively modern and safe vehicle. Keeping the car beyond 6 years and 125-150k kilometres (typically) might incur more maintenance cost etc. and most likely is a right moment to buy a new vehicle with the current one still holding decent residual value to be used as a trade-in. Assuming all the above the worst case scenario is to suffer from a chronic upgradis and change cars under PCP scheme every 3 years or more often. One incurs the main cost of vehicle depreciation all the time throughout the full 12 year period without the benefit of owning the car beyond the period of 3 years where the depreciation is not as high and the vehicle is still in a good condition. It is far better/cheaper to do a PCP and buy-out the vehicle after 3 years, keep it for the following 3 years and use it as a trade in for yet another PCP contract after that and repeat the process. This way I feel the benefit of owning new/almost new vehicle is there all the time, yet the cost of ownership is minimized. Doing up quick numbers on a car worth 30k over the period of 12 years one would spend at least 50 % more on jumping on a new PCP every 3 years than doing it half as often.
The industry knows this well and will make sure that they will do their best to get people onto a new PCP deal as often as possible.
For the past 10-12 years I was always buying cars that were 5-7 years old and kept them for 4-6 years. Never had any issues other than the regular maintenance items (clutch, timing, discs and pads, bushes etc). If I was to buy a new car now I would get it on PCP and kept it for additional 3 years beyond the contract. That to me looks like the most beneficial arrangement.
Just my 3ps.

dil999

acronym Chilli wrote: »

Second and third parts are fine, but first is not: you don't have the car as a 12k trade in after 3 years. You still have the outstanding debt, which is why you might hand car back to clear debt, or why you would pay money to clear debt and hang onto car.

Thanks. You are absolutely correct. (It was late when I posted that) I have edited my post to ammend.

acronym Chilli wrote: »

PCP might be a grand option, might even be best in many situations, but it's not the only way, Lantus's post shows right approach/mind-set: get the details and Ts&Cs straight, run the numbers, find the optimum, tweak it with intangibles if necessary (e.g. reliability/disruption/etc.,) and then make a decision.

You are also correct, It is not the only way. Definitely educate yourself. The Competition and Consumer Protection Commission website is an excellent resource. https://www.ccpc.ie/consumers/money/loans/paying-for-your-car/

In my opinion, though, it is the most flexible and cheapest wasy to purchase a new car. Primarily because interest rates are much lower than HP or bank finance and you have the flexibility to decide what to do at any time during the arrangement. You don't have to wait for three years to pay off the remainder, you can do so at anytime.

Also if you get into financial difficulty and can't afford the payments, when 50% of the loan is paid off (usually the PCP is set up so this occurs after 24 months) you can hand back the car with no further payments required.
https://www.ccpc.ie/consumers/wp-content/uploads/sites/2/2017/04/Ending-a-hire-purchase-agreement.pdf

One thing to bear in mind with PCP if you are a high mileage purchaser is that PCP is structured based on a particular Km linit. Usually 15K or 20K Km per annum. If you exeed this your GMFV will be reduced by up to 8c per Km. so if you do 40K km per annum on a 20K km PCP deal, the GMFV will be reduced by almost €4K. In this case any trade in value will certainly be less than what you owe. You then have only 2 options left; pay off the GMFV and keep the car, or hand back the car and pay the €4K. Then again if you purchase up front you will still have the same problem trying to sell a 3 year old car with 120K Kms on it

thierry14

dil999 wrote: »

I recently did another PCP on a new car. This is definitely the best way to purchase a new car. A couple of important points that have been mentioned here that I can vouch for from experience.
1: A PCP in a financial arrangement for the purchase of a car at the present time. Nothing more nothing less. Its got nothing to do with buying a car in 3 years time.
2: Put in the minimum deposit, don't tie up your cash in a car.
3: If the monthly payments are too high with the minimum deposit, the reality is you can't afford the car. go for a different car.
4 Make the assumption that there will be no 'equity' in your car at the end. You won't be disappointed.
5 A car is an expense, not an asset. You buy a car to get you to work or school or wherever. It should not be thought of as a financial investment. in other words to repeat point 2, don't tie up your cash in a car. Tie up someone else's.

Is it not just better to lease a car then?

I see Kearys and Duffys have entry level i30/Golf tdi's for under 300 pm for 4 year 15k km

Zero deposit

Cyrus

thierry14 wrote: »

Is it not just better to lease a car then?

I see Kearys and Duffys have entry level i30/Golf tdi's for under 300 pm for 4 year 15k km

Zero deposit

lease has taken over in the UK from PCP, but we are a few years behind, i agree a functioning lease market with competition and 3rd party brokers is the best situation for consumers

acronym Chilli

Sam Kade wrote: »

You're only getting 0% finance on a third of the cost of the car as you pay a third up front and the balloon payment at the end.

I would say you're getting 0% on 2/3 of the cost of the car (assuming the three slices are equal size, let's say 10k, 10k, 10k). You obviously pay the deposit up front, so you forego the interest/investment income you could have gotten on that money. But since we usually work with Present Values, that has a PV of 10k. Then you pay 36 payments of €10k/36 monthly over 3 years. No interest, and you could work out a discounted present value of that money. Finally there's a balloon payment, which has a lower NPV than 10k (discount rate). So finally the price of the car is less than 30k in NPV terms (i.e. today-euros).

The beauty of 0% is that it doesn't matter what it's 0% interest on, it's always €0 (and it's € that matter, not %)

As Casati says, if you're certain you're not being stealth charged a financing cost somewhere else (e.g. not offered a discount a cash buyer might get, nor not being penalised on your trade-in value, etc.,), then it's absolutely rational to take the 0% financing.
You could negotiate the sale first as a cash sale, no PCP (but you could of course decide to finance outside of dealer). Then ask: "and how would a PCP work out on that", then take away the 2 sets of numbers and crunch them at home.

Also, as CarsFan2 says, with 0% finance, the rational thing is to put minimal deposit and pay the money as late as possible (i.e. most rational thing would be to pay 1/3 today, no monthly repayments, and then pay balloon of 2/3 lumpsum at the end of 3 years; assuming you've the discipline to save the lumpsum in the meantime).

Couple of caveats:

PCP might be best deal today, might not be best deal in 3 years (e.g. maybe the cash discount isn't being taken away today, but might be in 3 years time), so it's mportant to scrutinise numbers and options each time. Keeps the sellers honest.
There are other options (used cars, etc.,) to transport problem (that's always the case).
As walus mentions, part of this is about trying to build brand loyalty. That has a cash value to the dealer/marque. There's a cost to winning a customer, and there's a cost to customer turnover. If offering something "free" reduces turnover such that it saves more costs than the cost of the freebie, that's a rational approach. (Paradoxically, many firms offer freebies to the new customers and punish the old; however e.g. with the energy companies you now see some of them rewarding loyal customers and stopping incentivising endless churn and turnover)

Casati

dil999 wrote: »

Thanks. You are absolutely correct. (It was late when I posted that) I have edited my post to ammend.

You are also correct, It is not the only way. Definitely educate yourself. The Competition and Consumer Protection Commission website is an excellent resource. https://www.ccpc.ie/consumers/money/loans/paying-for-your-car/

In my opinion, though, it is the most flexible and cheapest wasy to purchase a new car. Primarily because interest rates are much lower than HP or bank finance and you have the flexibility to decide what to do at any time during the arrangement. You don't have to wait for three years to pay off the remainder, you can do so at anytime.

Also if you get into financial difficulty and can't afford the payments, when 50% of the loan is paid off (usually the PCP is set up so this occurs after 24 months) you can hand back the car with no further payments required.
https://www.ccpc.ie/consumers/wp-content/uploads/sites/2/2017/04/Ending-a-hire-purchase-agreement.pdf

One thing to bear in mind with PCP if you are a high mileage purchaser is that PCP is structured based on a particular Km linit. Usually 15K or 20K Km per annum. If you exeed this your GMFV will be reduced by up to 8c per Km. so if you do 40K km per annum on a 20K km PCP deal, the GMFV will be reduced by almost €4K. In this case any trade in value will certainly be less than what you owe. You then have only 2 options left; pay off the GMFV and keep the car, or hand back the car and pay the €4K. Then again if you purchase up front you will still have the same problem trying to sell a 3 year old car with 120K Kms on it

BMW's might be a good example. They use 45% / 50% of sales price to estimate GMFV. A new 520d with rrp 60k might have 30k GMFV. Is a three year old 520d with 120km worth 30k today - I don't think so, but the depreciation is the same regardless of if PCP is used or not

dil999

walus wrote: »

PCP must be the best way for buying a new car other than obviously a straight all-in cash purchase. It is designed to target those people who otherwise could not afford one as well as to develop relationship with the customer so he/she goes for a new model every 3 years.

If you are buying a new car and planning to keep it for 5 years a PCP at anything less that 3.5% is cheaper than a straight all-in cash purchase. This has to do with the time value of money. If there is a €10K balloon payment to be paid in 3 years time, that 10K in 3 years costs less to you in real terms than €10K now because of inflation ( average inflation over last 50 years was about 3.3%) so 10K in 3 years is the equivalent of €9K now.

There are many cheap ways of buying a car. Buying a 10 year old every year will cost you a lot less per year than a new car every three years. It depends on what you want or can afford to do. If you think of a car as an expense rather than an asset its easier to understand what is really costs. If you buy a pair of jeans for €70, you don't go for the ones with the highest resale value, you buy the ones you want and can afford. If you want to sell them on after 3 years you might get €10 on adverts.

PCP is just a very useful financing structure tied to the purchase of a car. it has significant advantages, and some disadvantages. And I would agree that it is not always well explained by the car dealers. If you are going to use a PCP to buy your car, then research it properly and fully understand it before signing up. Most importantly make sure you can afford the real monthly costs before purchasing the car. (deposit+payments)/36. You will almost certainly have to find the same deposit again if you want to purchase another new car after 3 years

dil999

thierry14 wrote: »

Is it not just better to lease a car then?

I see Kearys and Duffys have entry level i30/Golf tdi's for under 300 pm for 4 year 15k km

Zero deposit

Now you tell me!
Leasing is definitely the best option if it is available with competitive interest rates