Returning a PCP car

Cakerbaker · 12-01-2018 10:33AM

Cyclepath wrote: »

Can someone please explain the logic of the above to me? As far as I'm aware, the amount of the deposit you pay alters your monthly payment, not your GFMV. Why is paying a smaller deposit better?

For example, I can walk into Toyota, put down the minimum deposit of €1,816.50 on a 25K Auris Hybrid, pay €416.81 per month for 36 months and end up with a GFMV of €11,158.50.

If I walk in there with a 30% deposit, say €7,510.00, my monthly payment is now €249.14 and my GFMV is still €11,158.50.

So in month 37 my options are the exactly the same. The only difference is that I've been paying €167.67 less per month, helping me manage my finances and live a little better.

Either way, I now have a three year old Toyota Auris Hybrid worth maybe 17K to the garage. So, my new car deposit is 17K less the GFMV, i.e. €5841.50

So regardless of whether I paid a large or small deposit, I'm in the same position. I just paid less per month by paying a large deposit. In fact you could argue that if I'd been smart, I could have saved the difference in a credit union account to help with financing the next car and earn interest in the meantime.

After 3 years if you want to change to a new car you need a new deposit. In an ideal world the car would be worth more than the GFMV which would be your deposit. However it may not be enough to match the 30% deposit you originally paid so you will either have to pay a lump sum to bring your deposit up to 30% or pay a higher monthly repayment which you may not be able to afford. With a lower deposit and a higher monthly repayment there’s a greater chance that the deposit and monthly repayments will stay the same when changing after 3 years (although nothing is guaranteed).

Dakota Dan · 12-01-2018 11:09AM

ShadowHearth wrote: »

Person A: makes 30k a year, is good with money, his rent is not high, has no children, does not spend every saturday smashed in a pub.

Person B: makes 50k, lives in Dublin and rents, has 2 kids, uses money gun, instead of wallet as its more convenient, smokes, newest iphone as soon as its released, takeaways.

In the end person A has more disposable income to afford monthly repayments on a car.
Of course there is a limit what car can you take on. You need that rare skill of common sense though.

Do financial institutions check to see if you drink or smoke nowadays? You can have sweet f all and get a loan for a car in any garage if you go through a bank they'll want to know how much you earn but don't care if you drink or smoke.

Lantus · 12-01-2018 12:16PM

Cyclepath wrote:

So regardless of whether I paid a large or small deposit, I'm in the same position. I just paid less per month by paying a large deposit. In fact you could argue that if I'd been smart, I could have saved the difference in a credit union account to help with financing the next car and earn interest in the meantime.

The equity you may be expected to get at the end of three years will be, based on current market conditions between 5 and 10 percent. Might be a little, may be less or nothing. If your deposit was the minimum 10% then you are going to see the least variation to your monthlys if you roll over. You may need a little more cash to keep going and meet the minimum deposit limit.

But if you dumped the 30pc deposit then your monthlys will jump significantly if you roll over with no additional cash injection.

The gmfv is affected by estimated mileage. The dealer should reduce the gmfv to account for this future value.

You are right that a savvy buyer would it should! use the lower payments with higher depisit to save up with a view to buying some or all the gmfv out to limit or reduce any interest impact.

mickdw · 12-01-2018 12:16PM

Cyclepath wrote: »

Can someone please explain the logic of the above to me? As far as I'm aware, the amount of the deposit you pay alters your monthly payment, not your GFMV. Why is paying a smaller deposit better?

For example, I can walk into Toyota, put down the minimum deposit of €1,816.50 on a 25K Auris Hybrid, pay €416.81 per month for 36 months and end up with a GFMV of €11,158.50.

If I walk in there with a 30% deposit, say €7,510.00, my monthly payment is now €249.14 and my GFMV is still €11,158.50.

So in month 37 my options are the exactly the same. The only difference is that I've been paying €167.67 less per month, helping me manage my finances and live a little better.

Either way, I now have a three year old Toyota Auris Hybrid worth maybe 17K to the garage. So, my new car deposit is 17K less the GFMV, i.e. €5841.50

So regardless of whether I paid a large or small deposit, I'm in the same position. I just paid less per month by paying a large deposit. In fact you could argue that if I'd been smart, I could have saved the difference in a credit union account to help with financing the next car and earn interest in the meantime.

You are right about deposit not altering gfv and also correct in most of what you say however not everyone is wise financially and many people entering pcp will max themselves out in terms of the monthly they take on. Doing this with a small deposit means in 3 years there is a fair chance that they will get another car without the monthly going up because they will have a small deposit again from equity usually.... basically they bought cars that they had the ability to pay for without a big down payment. Then you have people again maxed out on what they can pay monthly but stuck in 30 percent deposit to first deal. They couldnt really afford the car if the monthly is the limit for them afger putting in large deposit. At 3 years, they might have to find 20 percent of next car cost in cash to keep monthly the same.
Big deposit isnt bad as long as you dont stretch yourself with the overall deal. Big deposit will save money if there is interest on the deal.
Its just dangerous as its too eazy to buy a car that is too expensive and too hard to then replace it.
I always say people should do the figures based on 15 percent deposit and see if they can afford the monthly. If so they should be in reasonable shape to replace the car. With the likes of bmw, that doesnt hold true as some of the gfv are shockingly high and many people returning with zero equity.
Someone goes in to buy a golf on hp over maybe 4 years. 10 trade in and maybe 400 per month to own outright at end. Now there would be nothing wrong with them chosing pcp and still buying that golf with much lower monthly, saving the difference etc and being perfectly set up at end of term to replace it. The problems arise when that same customer sees a highline passat loaded with options and the dealer says they can drive it away for same 400 per month as they intended to pay on hp for the golf and that the trade in is the deposit. They can only afford 400 per month put happily pay it for 3 years. They then go back it to get a new car, equity is 3k and they need to find 7k cash to keep monthly the same or else pay 600 per month instead of 400.

Cyclepath · 12-01-2018 01:37PM

mickdw wrote: »

You are right about deposit not altering gfv and also correct in most of what you say however not everyone is wise financially and many people entering pcp will max themselves out in terms of the monthly they take on. Doing this with a small deposit means in 3 years there is a fair chance that they will get another car without the monthly going up because they will have a small deposit again from equity usually.... basically they bought cars that they had the ability to pay for without a big down payment. Then you have people again maxed out on what they can pay monthly but stuck in 30 percent deposit to first deal. They couldnt really afford the car if the monthly is the limit for them afger putting in large deposit. At 3 years, they might have to find 20 percent of next car cost in cash to keep monthly the same.

OK, so the only logic here is that you become accustomed to paying a certain amount per month whether or not it's a convenient amount to pay per month. Then when you trade in, the new payment isn't a hike on what you were accustomed to...

That is unfortunately the sort of financial self-delusion that contributes to credit bubbles. It's not an astute way to manage your finances!

Personally, I wouldn't touch a PCP loan. The credit union is a far better way to finance your purchase as it encourages more realistic saving and lending practices.

PCP can work well for some people but usually just allows people who can't afford a new car right now to skip the part where they save up for a decent deposit and conventionally borrow the rest.

In my experience, people do one of two things:

They commit to a manageable monthly payment that puts them in a brand new car one or two levels below what they could afford by saving up and buying conventionally.
They over-commit to a hefty monthly payment on the car model they believe they should be able to afford... which then just kicks the can down the road in the hope that the GFMV might also provide the deposit on the next car.

iomusicdublin · 12-01-2018 02:22PM

ShadowHearth wrote: »

Hp was 5.9% on top of car cost. So why would I pay bank a few grand for nothing?
In this case I am paying zero to bank and if I want to I can pay off car in 3 years, not 5.
At the same time in 3 years I can take a loan for 4k eu and pay the rest with small loan, keeping another 4k in my bank account as savings for rainy day. 8% apr on 4k is a lot less then 6% on 21k+++.

was the zero % on list price or were you allowed negotiate

mickdw · 12-01-2018 02:39PM

Cyclepath wrote: »

OK, so the only logic here is that you become accustomed to paying a certain amount per month whether or not it's a convenient amount to pay per month. Then when you trade in, the new payment isn't a hike on what you were accustomed to...

That is unfortunately the sort of financial self-delusion that contributes to credit bubbles. It's not an astute way to manage your finances!

Personally, I wouldn't touch a PCP loan. The credit union is a far better way to finance your purchase as it encourages more realistic saving and lending practices.

PCP can work well for some people but usually just allows people who can't afford a new car right now to skip the part where they save up for a decent deposit and conventionally borrow the rest.

In my experience, people do one of two things:
They commit to a manageable monthly payment that puts them in a brand new car one or two levels below what they could afford by saving up and buying conventionally.

They over-commit to a hefty monthly payment on the car model they believe they should be able to afford... which then just kicks the can down the road in the hope that the GFMV might also provide the deposit on the next car.

Im not talking personally. People differ. Some use pcp perfectly and some over commit. My point is that those who dont take a step back and look at what they are signing up to do get taken in by pcp and do buy more expensive cars than they can afford.

You might want to also take a look at that credit union finance. Very very expensive loans.

hooch-85 · 12-01-2018 03:01PM

mickdw wrote: »

You might want to also take a look at that credit union finance. Very very expensive loans.

Before i bought my last car I had a loan with CU, i didn't realise until i sold the car and cleared the loan that i was paying nearly 11% interest on it, crazy! New car finance is much cheaper

Cyclepath · 12-01-2018 03:04PM

mickdw wrote: »

You might want to also take a look at that credit union finance. Very very expensive loans.

5.1 to 8.1% APR depending on the amount and my savings in the CU ;-)

I can more than make up for 'interest free' loans when I'm in control of the financing. For a start I don't pay the list price... :-D

Dakota Dan · 12-01-2018 04:14PM

ShadowHearth wrote: »

Hp was 5.9% on top of car cost. So why would I pay bank a few grand for nothing?
In this case I am paying zero to bank and if I want to I can pay off car in 3 years, not 5.
At the same time in 3 years I can take a loan for 4k eu and pay the rest with small loan, keeping another 4k in my bank account as savings for rainy day. 8% apr on 4k is a lot less then 6% on 21k+++.

A lot of the time there is a catch with 0% finance, did you check out the list price of the car in different garages to make sure that they weren't lumping the interest onto the price if the car? When they do give 0% you'd have to pay at least 40% deposit.

mickdw · 12-01-2018 04:45PM

Cyclepath wrote: »

5.1 to 8.1% APR depending on the amount and my savings in the CU ;-)

I can more than make up for 'interest free' loans when I'm in control of the financing. For a start I don't pay the list price... :-D

Factor in the amount of money tied down in the credit union in order to release a loan and the very very poor interest on that and the true cost of credit union borrowing can be seen.

jimmycrackcorm · 12-01-2018 05:08PM

Pelvis wrote:

Well an argument can be made that spending 25k+ on a new car is crazy regardless of your salary. I personally don't "get it", and couldn't see myself ever buying a new car unless my salary was running into 6 figures. I realise this wouldn't be a view held by the majority in this forum though.

I spent 36k on my car. However I have it 10 years.

Cyclepath wrote:

Personally, I wouldn't touch a PCP loan. The credit union is a far better way to finance your purchase as it encourages more realistic saving and lending practices.

PCP is the best form of motor finance. Because it has cheapest interest rates and gives you choice. Ultimately it comes down to how much you're paying out over the number of years. Had there been PCP when I was buying, it would have been a lot cheaper for me to pay the lesser interest for the first three years and then refinance the GMFV.

PCP at 0% is unbeatable.

Cyrus · 12-01-2018 05:16PM

jimmycrackcorm wrote: »

PCP at 0% is unbeatable.

exactly

Cyrus · 12-01-2018 05:17PM

monkeysnapper wrote: »

Now you said it.....

I bought a 9 year old car that looked like brand new, had 80k miles , full service history .

I put a deposit of 2000 down on it and got to keep car with no repayments ....

3 years later I'm still driving that same car , just keep servicing it on time or earlier ...

My neighbor earns way less than me and has a 25k car in drive , he told me he pays 350 a month....I think I'd cry ...every month ...

this post is dripping with the smug :P

bought an old car thats like new - check
never a moments problem with it - check
neighbour earns less than me - check
the fool has a new car - check

jaysus

acronym Chilli · 12-01-2018 05:20PM

jimmycrackcorm wrote: »

I spent 36k on my car. However I have it 10 years.

PCP is the best form of motor finance. Because it has cheapest interest rates and gives you choice. Ultimately it comes down to how much you're paying out over the number of years. Had there been PCP when I was buying, it would have been a lot cheaper for me to pay the lesser interest for the first three years and then refinance the GMFV.

PCP at 0% is unbeatable.

It's bundle pricing though, and that rarely benefits the buyer
https://hbr.org/2010/02/the-pros-and-cons-of-bundled-p

Would you rather buy a particular car for 32k and 0% interest or the same car for 29k and 5% interest?

I'm not saying PCP is bad per-se, but it's naive to imagine it's a free lunch

DaveyDave · 12-01-2018 06:37PM

acronym Chilli wrote: »

It's bundle pricing though, and that rarely benefits the buyer
https://hbr.org/2010/02/the-pros-and-cons-of-bundled-p

Would you rather buy a particular car for 32k and 0% interest or the same car for 29k and 5% interest?

I'm not saying PCP is bad per-se, but it's naive to imagine it's a free lunch

What if you get a 31k car with 0% interest for 29k 0%? Are you saying people buying new cars are paying more for 0% cars because the interest is built into the price?

If someone was to buy straight up cash in full the price would suddenly be lower? Often 0% cars are cheaper monthly than say a mid spec car with 3.9%.

ForestFire · 12-01-2018 06:47PM

acronym Chilli wrote: »

It's bundle pricing though, and that rarely benefits the buyer
https://hbr.org/2010/02/the-pros-and-cons-of-bundled-p

Would you rather buy a particular car for 32k and 0% interest or the same car for 29k and 5% interest?

I'm not saying PCP is bad per-se, but it's naive to imagine it's a free lunch

I was offered 1.8K of the list price of octatia on 0% PCP.

I was offered 2K of a HRV with a cash deal

Do you think I could have got more off the octavia with cash?
They matched the other garages offers for cash deals so I don't think so.

Again the garage as a business is getting the cash up front for the car, from the finance company (VW Bank in this case), so they don't care.

They still get full payment up front. Other car companies don't have their own banks so its coming from BOI etc,

Now I did get higher discount offers from Ford, Peugeot and Hyundai, as they had 4.5K scrappage deals running almost constantly at the time. I'm pretty sure these are built into the RRP, but again it did not make a difference if I was paying cash or taking their finance offers.

Guy:Incognito · 12-01-2018 10:02PM

givyjoe wrote: »

Eh, what? Of course it is.. that's how finance is supposed to work.. on your ability to pay back the loan, i.e. afford it.

Someone earning 100k with a wife , a few kids , mortgage , bills etc , spending 95k versus someone single living at home with no outgoings , earning 30k. Big differnce in salary, but massive difference in disposable income.

Edit. Beaten to it.

MarkN · 12-01-2018 10:54PM

It’s true no doubt but there’s still a bit difference in the take home pay of 100k versus 30k. You can also cut your cloth if needed a lot more when you’re earning 100k.

12-01-2018 11:24PM

So tell me, what are Peoples objections to PCP out of interest ?

jca · 12-01-2018 11:27PM

[Deleted User] wrote: »

So tell me, what are Peoples objections to PCP out of interest ?

Lowly paye workers are stupid and aren't supposed to drive new cars.

givyjoe · 12-01-2018 11:51PM

Guy:Incognito wrote: »

Someone earning 100k with a wife , a few kids , mortgage , bills etc , spending 95k versus someone single living at home with no outgoings , earning 30k. Big differnce in salary, but massive difference in disposable income.

Edit. Beaten to it.

Pretty stupid and exaggerated example. Someone earning 100k per year and spending 95 is a complete moron. As is someone earning 30k and buying a brand new car. Have a Google there of 'how much of my salary should I spend on a car'. If someone has to live like a hermit to 'afford' their car, then they can't REALLY afford it.

Guy:Incognito · 13-01-2018 12:22AM

givyjoe wrote: »

Pretty stupid and exaggerated example. Someone earning 100k per year and spending 95 is a complete moron. As is someone earning 30k and buying a brand new car. Have a Google there of 'how much of my salary should I spend on a car'. If someone has to live like a hermit to 'afford' their car, then they can't REALLY afford it.

Why is someone earning 30k stupid for buying a new car?

There are plenty of people spending more on nights out in a month than a brand new car would cost and no one bats an eyelid.

People smoking 20 a day are spending €300 a month just on cigarettes .............

mickdw · 13-01-2018 12:41AM

givyjoe wrote: »

Pretty stupid and exaggerated example. Someone earning 100k per year and spending 95 is a complete moron. As is someone earning 30k and buying a brand new car. Have a Google there of 'how much of my salary should I spend on a car'. If someone has to live like a hermit to 'afford' their car, then they can't REALLY afford it.

There are lots of families with 2 working earning 100k and spending 100k each year with 2 cars, childcare and mortgage to be paid. Hardly morons.
The example was a good one. Income has little to do with ability to afford something. Spare income yes.

liamog · 13-01-2018 10:36AM

Googled how much should I spend on a car.

10% if they are a necessary evil.
20% if you want an average safe car.
50% if you are a car lover

100k a year is 61k after tax or 5,000 a month.
So you should be able to afford
500 a month,
1000 a month or 2500 a month.

That should more than cover a PCP plus saving for your balloon.

Dakota Dan · 13-01-2018 11:25AM

Deleted User wrote: »

So tell me, what are Peoples objections to PCP out of interest ?

Tied to a certain mileage.

jca wrote: »

Lowly paye workers are stupid and aren't supposed to drive new cars.

Pcp's are designed for people who can't afford a new car to be able to buy one.

MarkN · 13-01-2018 11:31AM

liamog wrote: »

Googled how much should I spend on a car.

10% if they are a necessary evil.
20% if you want an average safe car.
50% if you are a car lover

100k a year is 61k after tax or 5,000 a month.
So you should be able to afford
500 a month,
1000 a month or 2500 a month.

That should more than cover a PCP plus saving for your balloon.

That’s if you don’t have a mortgage, crèches, pension, saving plan, a life, bills... most people earning that kind of money aren’t still living with mammy and daddy so it’d be unusual to have €2500 a month to spend on a car repayment. Yeah, you probably literally could spend it but the grown up part of your head would talk you out of it.

liamog · 13-01-2018 12:14PM

MarkN wrote: »

That’s if you don’t have a mortgage, crèches, pension, saving plan, a life, bills... most people earning that kind of money aren’t still living with mammy and daddy so it’d be unusual to have €2500 a month to spend on a car repayment. Yeah, you probably literally could spend it but the grown up part of your head would talk you out of it.

It depends on the choices you want to make in life. Normal people would be in the 20% bracket so would be spending €1,000 a month in that scenario.

nazzy · 13-01-2018 12:34PM

PCP definitely works in some situations.

I had a 2004 car worth nothing. I priced a 2014 hyundai which would have cost â‚¬15,600, including credit. This was 260 per month over five years. My bank offered 8% or so.

Instead, I got a brand now Seat Leon worth 25k. I got 5k scrappage and PCP at 1.9%. I pay â‚¬320 per month and the balloon payment is â‚¬9k. I will likely refinance the balance over 2/3 years if needed.

Conclusion being - I DO pay an extra 60 per month and I might be paying the balance back for one year more than the loan but I gained the 5k scrappage and saved considerably on credit costs (â‚¬1500 over the three year term)... So that means I:

1. Get a car worth twice the value of the car I was going to buy â‚¬12,500 v 26,000), but it only cost me â‚¬6,000 extra.

2. Free service for three years and NO NCT worries.

In today's market, the car should be worth 15,000 in three years but I don't plan on trading in. That's the problem with PCP for sure. And the dealers are so good at convincing you.

I know a lad that got a 151 Toyota yaris, PCP for three years and recently traded it in. His TOTAL mileage over the three years was 15,000 kilometres. And he traded in. Madness to think he'll always be paying for a car instead of owning that one out right. Someone will get a peach in the second hand market!!

Lantus · 13-01-2018 12:53PM

nazzy wrote:

1. Get a car worth twice the value of the car I was going to buy Ã¢â€šÂ¬12,500 v 26,000), but it only cost me Ã¢â€šÂ¬6,000 extra.

This is exactly how you should do it. Analyse the figures applicable to your situation and compare until you are satisfied that a particular financial model or product fits.

You will also benefit from reduced tax and improved fuel efficiency so even more gains over 3 to 5 years compared to a 4 year old car. Probably cheaper insurance as well.

Returning a PCP car

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