PCP finance.

dil999 · 03-09-2017 05:57PM

bazz26 wrote: »

One thing you need to remember is if you put a large deposit into the first deal ie valuable trade-in, and you want to keep similar monthly payments in the second deal, you need to come up with a similar large deposit again either via a higher trade-in value and/or a lump sum.

I think what bazz has said above is the most important part of PCP to understand.

The GMFV is fixed. So the amount of money that you are putting towards the car is the deposit and the 36 payments. Its really important to make the assumption that after 36 months the car will NOT be worth more than the GFMV which means that after 36 months all of the money that you paid out up to that time is GONE.

You are then starting from scratch. you will need to come up with at least 10% deposit again.

You might be lucky and sell the car or get a trade in for slightly more than the GMFV. but it will be very little, so don't include it in any calculations

Lantus · 03-09-2017 07:30PM

dil999 wrote:

You might be lucky and sell the car or get a trade in for slightly more than the GMFV. but it will be very little, so don't include it in any calculations

No equity is a worst case scenario and not the norm, yet!

A 10 to 15% equity should be reasonable.

PCP is built around the equity principle so if a sudden change to the market eroded this it would be huge from a market and consumer perspective.

No one would be looking to roll over into a new deal. PCP would collapse.

carsfan2 · 03-09-2017 08:20PM

Lantus wrote: »

No equity is a worst case scenario and not the norm, yet!

A 10 to 15% equity should be reasonable.

PCP is built around the equity principle so if a sudden change to the market eroded this it would be huge from a market and consumer perspective.

No one would be looking to roll over into a new deal. PCP would collapse.

I think this is the scenario a lot of of the nay sayers are predicting and one of the reasons a lot of people are wary.

ShadowHearth · 03-09-2017 08:24PM

dil999 wrote: »

I think what bazz has said above is the most important part of PCP to understand.

The GMFV is fixed. So the amount of money that you are putting towards the car is the deposit and the 36 payments. Its really important to make the assumption that after 36 months the car will NOT be worth more than the GFMV which means that after 36 months all of the money that you paid out up to that time is GONE.

You are then starting from scratch. you will need to come up with at least 10% deposit again.

You might be lucky and sell the car or get a trade in for slightly more than the GMFV. but it will be very little, so don't include it in any calculations

I mentioned it a few times here already, but with pcp the most important thing is to plan your exit tactics.
My payments are 272eu per month and baloon is 8.5kish eu. Every week I put 50eu in to separate account to cover my balloon if needed.
In 3 years time I will have ability to walk in and see if there is anything that interest me and if dealer giving me a good deal. If not, I can put that money on the counter and walk away stress free.
If I do decide to take on new car, I can use that saved up money. Lets say add another 4k eu and take new car again. I will still have that 4.5k left over in my savings. Add 50eu per week again to it to bring it up to next ballon.

Tl;dr version: dont just pay monthly payments, but open a savings account and put away few quid in there to cover any expenses after 3 years.

dil999 · 03-09-2017 08:34PM

Lantus wrote: »

No equity is a worst case scenario and not the norm, yet!

A 10 to 15% equity should be reasonable.

PCP is built around the equity principle so if a sudden change to the market eroded this it would be huge from a market and consumer perspective.

No one would be looking to roll over into a new deal. PCP would collapse.

It depends on the car. but I think you are being very optimistic. The GMFV tends to be 40% of the list price. which would be 42 to 44% of the actual selling price. Residuals on a mid size family car Mondeo, Passat, Superb etc are no more than 48% to 50%. CBG and carzone prices tend to be about 40% higher than trade in prices.

PCP is marketed around the "equity principle." The reality is quite different.

maidhc · 03-09-2017 10:05PM

Lantus wrote: »

No equity is a worst case scenario and not the norm, yet!

A 10 to 15% equity should be reasonable.

PCP is built around the equity principle so if a sudden change to the market eroded this it would be huge from a market and consumer perspective.

No one would be looking to roll over into a new deal. PCP would collapse.

With the value coming in from the U.K. At the moment you can forget equity right now.

bazz26 · 03-09-2017 10:20PM

If buying a new diesel I'd be cautious too around resale values as the diesel car market could potentially be in a spin in 3 years time just like the petrol car market was 10 years ago.

Lantus · 03-09-2017 10:41PM

maidhc wrote:

With the value coming in from the U.K. At the moment you can forget equity right now.

Really? And no one is reporting this? You'd think if equity was near zero someone would of mentioned it? The vast majority of new car sales are going to be people already on PCP deals.

I know figures for 172 were down but is there any evidence to support this?

Massive problem for the car industry. People would be furious and tell everyone yet not a whisper except for a few older leafs a year or two ago which was never substantiated fully.

maidhc · 03-09-2017 11:09PM

Lantus wrote: »

Really? And no one is reporting this? You'd think if equity was near zero someone would of mentioned it? The vast majority of new car sales are going to be people already on PCP deals.

I know figures for 172 were down but is there any evidence to support this?

Massive problem for the car industry. People would be furious and tell everyone yet not a whisper except for a few older leafs a year or two ago which was never substantiated fully.

I doubt the majority of sales are to repeat pcp customers. 2014 wasn't a vintage year for car sales.

What I can tell you is that I bought a 2016 Avensis diesel with only 12k klms recently in the U.K. for about 50% it's list price new. The garage in the uk was very honest that they were having a hard time selling the car because it was diesel firstly and not a babywagon or smaller car secondly.

Ivefoundgod · 04-09-2017 12:07AM

maidhc wrote: »

I doubt the majority of sales are to repeat pcp customers. 2014 wasn't a vintage year for car sales.

What I can tell you is that I bought a 2016 Avensis diesel with only 12k klms recently in the U.K. for about 50% it's list price new. The garage in the uk was very honest that they were having a hard time selling the car because it was diesel firstly and not a babywagon or smaller car secondly.

Anecdotal evidence is not evidence. You might have no problem heading to the UK to get a bargain but the majority have no interest in doing that. Yes there are greater numbers heading to UK/NI but to say that this means that the equity is gone from PCP deals is frankly ridiculous. If that really was the case the Irish motor industry would be in full meltdown mode, that clearly isn't the case.

Both of your posts are "i doubt" and "i did", not evidence or proof of anything and are at best misguided.

maidhc · 04-09-2017 12:24AM

Ivefoundgod wrote: »

Anecdotal evidence is not evidence. You might have no problem heading to the UK to get a bargain but the majority have no interest in doing that. Yes there are greater numbers heading to UK/NI but to say that this means that the equity is gone from PCP deals is frankly ridiculous. If that really was the case the Irish motor industry would be in full meltdown mode, that clearly isn't the case.

Both of your posts are "i doubt" and "i did", not evidence or proof of anything and are at best misguided.

So the value of sterling and consequential increase in the supply of second hand cars won't cause a decrease in the value (equity) of the cars already on the road?

Also the fickle vagaries of the human condition will probably cause people to spurn diesel as already mentioned.

I speak not of anecdotal evidence but economics. There will be no equity, accept it and move on!

dil999 · 04-09-2017 08:49AM

maidhc wrote: »

So the value of sterling and consequential increase in the supply of second hand cars won't cause a decrease in the value (equity) of the cars already on the road?

Also the fickle vagaries of the human condition will probably cause people to spurn diesel as already mentioned.

I speak not of anecdotal evidence but economics. There will be no equity, accept it and move on!

In fact, this is one of the advantages of PCP. You are protected from falling residual values, because to have a Guaranteed Minimum Future Value GMFV.

Its very likely that there will be a resurgence in the value of Irish second hand cars in 3 years time due to the UK leaving the EU, I would think that it will be very difficult if not impossible to legally import a car from the UK.

If this is the case, with PCP you will benefit from the upside. As you will be able to purchase your 3 year old car for less than the market value

Bottom line is treat PCP as a loan to buy a car. you will pay 10% upfront and 50% plus any interest in payments over 3 years. The cost is 60% of the price of the car plus interest over 3 years.

Equity and trade in values really have nothing to do with the financial arrangement.

maidhc · 04-09-2017 09:21AM

dil999 wrote: »

In fact, this is one of the advantages of PCP. You are protected from falling residual values, because to have a Guaranteed Minimum Future Value GMFV.

Its very likely that there will be a resurgence in the value of Irish second hand cars in 3 years time due to the UK leaving the EU, I would think that it will be very difficult if not impossible to legally import a car from the UK.

If this is the case, with PCP you will benefit from the upside. As you will be able to purchase your 3 year old car for less than the market value

Bottom line is treat PCP as a loan to buy a car. you will pay 10% upfront and 50% plus any interest in payments over 3 years. The cost is 60% of the price of the car plus interest over 3 years.

Equity and trade in values really have nothing to do with the financial arrangement.

I agree that once people treat PCP as a loan (that might or not be more expensive than other loans) they are fine. If they buy into equity and other magic beans it sounds like 2007 all over again.

dil999 · 04-09-2017 09:46AM

maidhc wrote: »

I agree that once people treat PCP as a loan (that might or not be more expensive than other loans) they are fine. If they buy into equity and other magic beans it sounds like 2007 all over again.

I forgot to mention of course if you don't want to hand back the car, you also have to pay off the 40% at the end. You can do this by using your own cash, or selling the car and using the proceeds to pay off the remainder. This can be privately or to a garage as part of a trade in.

The finance company don't care about how you pay off the 40%, and if you hand the car back, you hand it back to the finance company.

Cyrus · 04-09-2017 10:00AM

maidhc wrote: »

With the value coming in from the U.K. At the moment you can forget equity right now.

At the moment the dealer's are still incentivised to sell new cars

I traded a 152 Audi a5 (now a superceded model ) last week against a new mercedes glc and got a very strong trade in

dil999 · 04-09-2017 10:56AM

Cyrus wrote: »

At the moment the dealer's are still incentivised to sell new cars

I traded a 152 Audi a5 (now a superceded model ) last week against a new mercedes glc and got a very strong trade in

It does depend on the car. The A5 would have much higher residual value than a standard mid size family car. How much discount did you get on the list price? My experience was the "strong trade in" values included the dealers discount. I would be expecting 8 to 10% off list.

Cyrus · 04-09-2017 11:06AM

dil999 wrote: »

It does depend on the car. The A5 would have much higher residual value than a standard mid size family car. How much discount did you get on the list price? My experience was the "strong trade in" values included the dealers discount. I would be expecting 8 to 10% off list.

Obviously as it was a trade in the discount was included in the trade value but I was happy with the trade in having compared it to what was offered at a number of other marques incl BMW Audi and jaguar

I was happy to buy one of 3 different cars so that helped but dealers are still keen to sell new cars and in order to do that they need to prop up used trades

That may change but maidhcs assertion was incorrect in my case ( and remember I was reading a superceded model as well )

dil999 · 04-09-2017 11:37AM

Cyrus wrote: »

Obviously as it was a trade in the discount was included in the trade value but I was happy with the trade in having compared it to what was offered at a number of other marques incl BMW Audi and jaguar

I was happy to buy one of 3 different cars so that helped but dealers are still keen to sell new cars and in order to do that they need to prop up used trades

That may change but maidhcs assertion was incorrect in my case ( and remember I was reading a superceded model as well )

Not necessarily. The trade in value that the dealer said he was giving you was not a trade in value if it included the discount. The real trade in value was probably 5K less than that.

When it comes to PCP its important that you know the actual trade in value, (the trade price) if that trade price is less than the GMFV then you are better off giving back the car. You can then start again and you will get all the dealer discounts in full.

jca · 04-09-2017 11:41AM

dil999 wrote: »

Not necessarily. The trade in value that the dealer said he was giving you was not a trade in value if it included the discount. The real trade in value was probably 5K less than that.

When it comes to PCP its important that you know the actual trade in value, (the trade price) if that trade price is less than the GMFV then you are better off giving back the car. You can then start again and you will get all the dealer discounts in full.

Start again with what? In the real world where people don't have pockets stuffed with fifties they're depending on the car as their deposit to either start their first PCP or continue into a following PCP.

dil999 · 04-09-2017 12:01PM

jca wrote: »

Start again with what? In the real world where people don't have pockets stuffed with fifties they're depending on the car as their deposit to either start their first PCP or continue into a following PCP.

Unfortunately if you want a new car you have to pay for it. PCP is not a magic formula that generates value out of old cars. You need a deposit and you need to be able to pay the monthly payments, and you need to be able to do that every 3 years.
If you get a bit extra in a trade in or sale of the previous car, then great. but if you are relying on that you will be in trouble

jca · 04-09-2017 12:09PM

dil999 wrote: »

Unfortunately if you want a new car you have to pay for it. PCP is not a magic formula that generates value out of old cars. You need a deposit and you need to be able to pay the monthly payments, and you need to be able to do that every 3 years.
If you get a bit extra in a trade in or sale of the previous car, then great. but if you are relying on that you will be in trouble

If you buy the right car, keep the initial deposit around the 15% and know what the balloon payment is you should be able to go into another PCP with some equity plus about 2000. That's how it looks for me anyway. The example posted earlier with the huge deposit, tiny monthlies and big balloon is doomed to failure, but I think the poster knows that already.

Cyrus · 04-09-2017 12:15PM

dil999 wrote: »

Not necessarily. The trade in value that the dealer said he was giving you was not a trade in value if it included the discount. The real trade in value was probably 5K less than that.

When it comes to PCP its important that you know the actual trade in value, (the trade price) if that trade price is less than the GMFV then you are better off giving back the car. You can then start again and you will get all the dealer discounts in full.

if you hand the car back you have no deposit so you start from scratch get the discounts and then you have to come up with a 10-15 percent deposit

I didn't have to come up with anything as my deposit was my trade in so I just continue with a monthly payment I am happy with .

So while you have a point in theory in practice it's probably not as clear cut as you try to make it

Cyrus · 04-09-2017 12:19PM

dil999 wrote: »

Not necessarily. The trade in value that the dealer said he was giving you was not a trade in value if it included the discount. The real trade in value was probably 5K less than that.

When it comes to PCP its important that you know the actual trade in value, (the trade price) if that trade price is less than the GMFV then you are better off giving back the car. You can then start again and you will get all the dealer discounts in full.

In any event if the real trade in was 5k less than I got it was still a strong value in my opinion, but it varied greatly between different marques

dil999 · 04-09-2017 12:37PM

Cyrus wrote: »

if you hand the car back you have no deposit so you start from scratch get the discounts and then you have to come up with a 10-15 percent deposit

I didn't have to come up with anything as my deposit was my trade in so I just continue with a monthly payment I am happy with .

So while you have a point in theory in practice it's probably not as clear cut as you try to make it

Assuming you didn't owe anything on your A5 then the trade value of that car was your deposit. If you decide to use a PCP in 2 or 3 years time you will need to come up with close to that same value in cash to maintain the same payments on your next PCP

dil999 · 04-09-2017 12:42PM

Cyrus wrote: »

In any event if the real trade in was 5k less than I got it was still a strong value in my opinion, but it varied greatly between different marques

The trade in value was almost certainly the same. They all would have called the same trade dealers to price your car. What varied was the discounts you were being offered.

In the end of the day you got a car you were happy with, at a price you were happy with. and the very best of luck with it.

Lantus · 04-09-2017 01:38PM

For pcp to stop working as intended the 2nd hand value of cars has to decrease by a reasonable margin.

UK imports is strong but as a percentage of total sales is it enough to affect the overall market?

Short term slightly but long term doubtful that once brexit has concluded we will as easily import cars from overseas.

I will give my dealer a shout and enquire on terms for a new PCP based on my current car. If he starts to sweat and stutter then I'll know it's all tits up. Ford Skoda and Toyota have the highest residuals so luckily I'm in that group which may help?

Cyrus · 04-09-2017 01:40PM

dil999 wrote: »

Assuming you didn't owe anything on your A5 then the trade value of that car was your deposit. If you decide to use a PCP in 2 or 3 years time you will need to come up with close to that same value in cash to maintain the same payments on your next PCP

I did it was coming off an existing PCP

Hence my point what I was offered left plenty of deposit v the gmfv

dil999 · 04-09-2017 01:58PM

Lantus wrote: »

For pcp to stop working as intended the 2nd hand value of cars has to decrease by a reasonable margin.

UK imports is strong but as a percentage of total sales is it enough to affect the overall market?

Short term slightly but long term doubtful that once brexit has concluded we will as easily import cars from overseas.

I will give my dealer a shout and enquire on terms for a new PCP based on my current car. If he starts to sweat and stutter then I'll know it's all tits up. Ford Skoda and Toyota have the highest residuals so luckily I'm in that group which may help?

If the UK is not in the EU, you won't be importing cars from there without additional customs duties. All the finance companies have to do is adjust the GMFV to allow for changes in the second hand car market.

dil999 · 04-09-2017 02:26PM

Cyrus wrote: »

I did it was coming off an existing PCP

Hence my point what I was offered left plenty of deposit v the gmfv

As I mentioned before, I think the A5 has higher residual %s than a standard family car. Also with a 50K Merc the dealer has a tonne of margin to play with. So your deposit was probably a mixture of excess value of trade in and discount.

My own experiece of trading in a 151, 30K common or garden family car was a 15K trade in (real trade in value) vs 13.7K left to pay off, so I had 1.3K to add to my deposit. That 1.3K is approx 4% of the value of the car. If anyone is thinking 10% to 15% they will be sorely dissapointed at the end of their term.

Lantus · 04-09-2017 02:38PM

dil999 wrote:

My own experiece of trading in a 151, 30K common or garden family car was a 15K trade in (real trade in value) vs 13.7K left to pay off, so I had 1.3K to add to my deposit. That 1.3K is approx 4% of the value of the car. If anyone is thinking 10% to 15% they will be sorely dissapointed at the end of their term.

So how did the dealer explain this?

As the main deposit is 10% did they indicate that an additional 6pc would be needed to roll over?

What was your reaction? (I'd blow a fuse...) And if you don't mind what make and model is this?

PCP finance.

Comments