Are there many benefits to PCP?

DaveByDavid · 07-10-2021 8:25pm #1

Looking to finance a new car soon and was thinking about putting down a decent enough deposit through hire purchase and then paying over 5 years to keep monthly payments down.

I think I understand how PCP works with the GFMV, but are there any benefits to be considered outside of lower repayments? Because you can only go over 3 years, and in most circumstances don't pay a big deposit I actually find the monthly payments are often the same or a little higher.

When it comes to the end of the 3 years, if you want to swap to a brand new car, I guess the only slight benefit is if the car is worth more than the GMFV that can go towards new deposit and essentially you can just keep paying a monthly payment and get a new car without too much additional deposit needed? (potentially).

We can afford the hire purchase payments, but if PCP is an "easier" way to get a new car every 3 years it might be the better option. But also depends on how much hassle it would be to switch to a different brand/dealer? I'm guessing in this case you'd have to just hand car back and pay a brand new deposit to new dealer.

bikedude · 07-10-2021 11:18pm

I had a PPC on a Golf, the 0% finance was a good option at the time. Used the 0% finance for 3 years. And at the end just financed the balance for another 3 at a normal rate.

if you planning to keep the car for 5 years anyway, I would look at PPC if the interest is lower in that option and keep the money invested for 3 years.

At the end of the PPC you can trade in, for a new one (that’s when the resale value and how much you need to pay comes into play), you can finance the balance, or give the car back and walk away.

PPC isn’t that bad if you can afford the car in the first place, and might offer a lower interest rate than the HP for a few years.

Lantus · 08-10-2021 12:01am

It's very easy credit and if you get the right deal and save like crazy you can pay no interest on the first 3 years and then pay off the next 3 straight away or only finance a smaller sum saving potentially thousands in interest. Break out the calculator and get the total cost worked out, not just your monthly.

DaveByDavid · 08-10-2021 11:36am

Thanks @bikedude and @Lantus - I'll speak to the dealer but from the Ioniq 5 page on Hyundai's own website the APR is 5.9% with PCP and HP which doesn't make a huge amount of sense to me as with same deposit the payments are almost identical anyway.

Only thing with HP is you could go 4-5 years instead of just 3 if you wanted.

Shedite27 · 08-10-2021 11:40am

5.9% is high. I guess the balloon payment that you're deferring for 3 years is basically interest free, you aren't accruing interest on that over the first few years.

Everyone needs to do the maths on their own circumstances. It worked for me getting a larger than normal trade in on my old car, and got to park a third of the price for 3 years

Cyrus · 08-10-2021 11:42am

https://www.boards.ie/discussion/comment/117992278#Comment_117992278

no you pay interest on the balloon as well, its part of the total amount borrowed. which is why low apr deals are great, high APR not so much.

Shedite27 · 08-10-2021 1:41pm

https://www.boards.ie/discussion/comment/117992291#Comment_117992291

Well I know what you're saying, it's baked into the overall price, but from my perspective, I agreed in 2017 what I would have to pay in 2020, and that amount stayed static for 3 years (no interest accrued)

Cyrus · 08-10-2021 2:12pm

https://www.boards.ie/discussion/comment/117992890#Comment_117992890

but a portion of your monthly payment includes interest on this amount.

Lantus · 08-10-2021 3:33pm

So a bigger deposit will get slightly less interest. I would use the lower pcp payments to put aside extra to pay off loan or as much as possible for the settlement at year 4. The car price is the same it's the interest you need to work out on the total repayment as if you are buying outright comparing HP to pcp.

Shedite27 · 08-10-2021 3:56pm

https://www.boards.ie/discussion/comment/117993138#Comment_117993138

That's like saying paying your Gas/Electricity bill a month in arrears includes interest.

Once you agree the final payment on day 1, that stays the same for 3 years. Doesn't grow.

Like I said, everyone can do theri own maths and see what works out cheapest for them

bazz26 · 08-10-2021 4:06pm

You don't get to agree the final payment on day 1. It is determined in advance by the manufacturer and while that final figure doesn't change, the interest on it is factored into the monthly payments for the first 3 years up to the date that final payment is due. Obviously if you get PCP at 0% then there is no interest.

joebloggs32 · 08-10-2021 4:23pm

https://www.boards.ie/discussion/comment/117993865#Comment_117993865

Spot on.

You pay a deposit, max is ususlly 1/3 of the purchase price. Then the pcp is worked out based on a final payment otherwise known as the GMFV (again usually about 1/3) and then the monthly payments. The GMFV will however go up or down slightly based on the annual mileage you forecast at the outset. Its all fixed in at the start. You can see exactly what you are paying and the APR is included in your contracts.

I have done it a couple of times. I always save for the final payment so when the contract is ending i can buy it for cash if i want. This can be a little bargaining chip too as when it comes to the end of the 3 years the salesman wants you to roll over on to a new contract. A lot of people are trapped somewhat as they haven't tbe cash to buy out the car and so they may get low balled. One time my equity jumped by 1k after i started talking about just buying out the car i had on pco outright for cash.

On the issue of changing brand/dealer it is zero hassle. They do it all the time. I have done it already.

Lantus · 08-10-2021 5:01pm

The gmfv shouldn't change, that's a contract value. But the real world value will like you say depending on mileage and damage. That in turn will affect your equity.

So after 3 years a mint car hardly driven and as scratched car with 200k km could have the same gmfv they need to settle. But were they to trade in one would have equity and the other would get zero.

Reality is that most new cars are quite well looked after in first 3 years.

Cyrus · 09-10-2021 7:35am

https://www.boards.ie/discussion/comment/117993836#Comment_117993836

You are viewing it the way they want you to view it.

If its 0 percent interest then its fine, if its not its costing you just in a less visible way.

But as you say everyone can review their own numbers.

lawred2 · 09-10-2021 7:42am

https://www.boards.ie/discussion/comment/117993836#Comment_117993836

It's not like saying that at all.

A PCP is a fixed rate loan where the interest is applied up front and then repayments calculated

09-10-2021 7:57am

Car manufacturers borrowing money to fund purchases of their own products, designes to get customers into a debt trap(cannot make the balloon payment, roll over the pcp). This sytem along with the "own this sofa for just 10 euro a week" finance deals, when eventually crashing will make the previous crash(based on overleveraged property deals) look like a picnic. Not only banks going bust, but also big car manufacturers

Lantus · 09-10-2021 9:28am

Not sure that will happen and there is huge flexibility in car market to sell and swap. Currently demand for cars is outstripping supply so can't see any bubble or risk for near future.

Buddy Bubs · 09-10-2021 9:43am

https://www.boards.ie/discussion/comment/117996410#Comment_117996410

Why does everything on the Internet have to be so dramatic?

bazz26 · 09-10-2021 11:12am

Sure everyone likes a good drama. Nobody reads or gets outraged by mediocre posts.

Buddy Bubs · 09-10-2021 11:27am

Motor vehicle finance won't take down the world economy. Cars are pretty easy to reposess and sell on again. I'm not on pcp myself but once understood that your monthlies are probably only covering depreciation and your ability to go again is dependent on the economy and used car values, its a pretty decent way to pay for a car.

The problem with it is there's a huge amount of financial illiteracy and people don't know what they are getting into.

After brexit and sterling dropped, used car values dropped and equity in cars wasn't as high as expected and made going again more expensive. At the moment, anyone coming out of a pcp will have a strong hand but somewhat diluted by new car prices going up.

But in any case, stretching to any car that's a struggle to afford will leave you in trouble at times.

DaveByDavid · 11-10-2021 4:16pm

Thanks for all the thoughts on this, it blew up a little bit.

One thing I hadn't factored in was that the balloon payment gives a bit of flexibility - could pay it off, hand it back or even finance it - the last point in particular I hadn't really thought about.

That's making me consider PCP now because in 3 years time I'll have a better idea of whether I'm still earning enough to afford financing a brand new car again, or whether I just want to keep it and finance it.

I will get some figures back from a couple of dealers and see. I know one was saying you don't necessarily want to go big on the deposit, but wasn't really sure why. Ideally I think I want to put down as big a deposit as possible to stop the interest being too high, while I have the money to pay it.

Lantus · 11-10-2021 11:04pm

Big deposit if your aim is to pay off. Medium deposit at 15pc. if you think you will roll over into new car. Reason is the later keeps the monthly payments stable. The former will see a big uplift in payments unless you inject more cash after 3 years.

DaveByDavid · 12-10-2021 10:36am

https://www.boards.ie/discussion/comment/118007007#Comment_118007007

Thanks, will have a think.

Honest answer is I'm not sure so should probably keep my options open.

Bit annoying that Hyundai aren't offering discounted APR on PCP deals though, will have a look around.

19-10-2021 2:14pm

Forget about APR rates, look at total payments.

Also in my own life, I'm on a PCP deal now, 200ish a month and no worries. An example of non-PCP going wrong would be my dad who got a new car at the start of 2019 on a 5 year loan. Start of last year mam was diagnosed with cancer so up and down to Dublin daily for a while for treatment. Start of this year car developed a noise, reported it to seller straightaway, didn't get in til 6 weeks ago. It's still in. Gearbox rebuild, replacement clutch (charged for that), timing chain needed replacing, wheel bearing needed replacing. Now the dealer is looking for a grand because service intervals apparently weren't stuck to, wonder if they've heard of Covid.

So yeah, once you've filled out the forms and the first payment goes through realistically they don't give flying **** about you. Now my family are lumbered with a 2 year old non-running car with over €10k left to pay on it. With PCP it would at least mean we could say "Right, **** those shower of pricks, they can have the car back in 3 months" but we don't have that choice.

bazz26 · 19-10-2021 3:31pm

How does the above scenario make PCP better than HP?

Buddy Bubs · 19-10-2021 6:46pm

https://www.boards.ie/discussion/comment/118042166#Comment_118042166

You'd lose your deposit and equity built up in the car. At 200 a month I'd suggest there was a decent deposit paid, 200 doesn't get you much without it.

19-10-2021 8:15pm

https://www.boards.ie/discussion/comment/118043951#Comment_118043951

If they'd gone PCP they'd have paid less per month so far and could walk away in a couple of months. Instead they've now to try and figure out what to do about a repair bill they have no way to afford for a car just about to go out of warranty and then has 2 more years of payments on it. Not sure how much the equity in a non-running car is worth when there's 2 years of payments left on it.

bazz26 · 19-10-2021 8:33pm

Walk away? You mean give the keys to the dealer and get the bus home? If so then they would have just made 3 years payments with nothing to show for it. They would have lost way more than a 1k repair bill.

Buddy Bubs · 19-10-2021 8:56pm

https://www.boards.ie/discussion/comment/118044406#Comment_118044406

If they'd gone pcp they'd have paid deposit plus 2 years of payments and lose it all. They'd be no better off in pcp than hp financially. Convenience to walk away, yes but they'd lose their shirt

fits · 19-10-2021 9:01pm

Rightly or wrongly I look on pcp as renting the car. Paid the lowest allowable deposit and monthly rate and I don’t expect anything out of it after three years. If I do that’s a bonus.

DaveByDavid · 22-10-2021 3:11pm

Be interested in some thoughts on this. I think it's more than I can justify on a car (as much as I'd love it) but I just had a mach-e AWD standard range quote come back.

Is it normal for the GFV price to be so low? Is that Ford's way of not trusting the price of the vehicles in 3 years?

Cost = 68,800

Deposit = 20,600

Amount financed = 48,200

Monthly payments = 847.62

GFV = 20,673.28

bazz26 · 22-10-2021 3:49pm

I must be getting old but those monthly figures are not far off mortgage repayments.

Allinall · 22-10-2021 3:53pm

https://www.boards.ie/discussion/comment/118058478#Comment_118058478

It's the €16k depreciation per year that I'd be looking at. Sounds nuts.

bazz26 · 22-10-2021 4:01pm

I'd say in reality being an EV it probably won't loose 16k a year. You just need it to retain value more than the GMFV to have some equity in it. However putting nearly 21k deposit in at the beginning to keep the monthly repayments at just under 900 means you would have to do the same again in 3 years to go again. Crazy figures all the same but people seem to be conditioned to them these days.

UID0 · 22-10-2021 4:03pm

https://www.boards.ie/discussion/comment/118044406#Comment_118044406

On HP, they can still hand it back. Once you have paid half of the total hire purchase agreement you can cancel it by returning the product. You may have to pay for the damage anyway, and in the case of PCP you have to pay for damages. The car is expected to be returned with normal wear and tear, not damaged.

If the gearbox needed to be rebuilt after 2 1/2 years, and the importer/dealer are unwilling to cover it as the service interval wasn't met (and depending on what you mean by "not met". Was the car ever serviced?), I would write to them outlining what has happened, and asking them what service item would have prevented a gearbox failure.

On the OP's question on benefits to PCP, most of the benefits are the dealer's. It keeps you buying from a dealer, and having to trade in your car, unless you have the cash to pay off the outstanding loan before selling the car privately. The same is true of HP. The benefit for the consumer is that (for a given interest rate), the repayments are usually lower for PCP than HP, especially if you want to make sure that you don't owe finance on the car once it has passed out of warranty. If you can get an interest rate lower than any other source of finance or lower than the interest/earnings from investing it makes sense to borrow the money.

The disadvantages are that you can't sell privately, but the dealers will take a car with outstanding finance from any brand, and will sort out settling the finance and rolling whatever is outstanding into the finance on your new car.

One thing to remember is that you shouldn't borrow to buy a car that you can't afford. There is a lump sum that is due at the end of the PCP term, and you need to plan for how that is going to be paid (i.e. from savings or refinancing). It is people who go into the arrangement without an exit plan that have problems at the end of it. Also make sure you have the right annual mileage in the agreement. The extra cost for going over the agreed mileage can be quite high. If you have the right mileage and have looked after the car properly (e.g. no dents/scratches), then if the GMFV was too high you can just hand the car back (but you have nothing to show for your money).

Buddy Bubs · 22-10-2021 4:17pm

https://www.boards.ie/discussion/comment/118058294#Comment_118058294

On justifying a decision, depends on what you can afford. I'm potentially going to be mortgage free next year if things work out, in that case I'd have no problem affording 850 a month on a car. My mortgage is currently 880 per month, paid in full by me.

I had 550 car payments for 3 years but it was HP and I now own it. But depreciation wasn't anything like what this will be, I was protected somewhat by current increases in value.

But even still, I've doubts if I'd sign up to 20k deposit plus 850 a month as I just don't place that kind of value in brand new cars, I know some do and that's their choice. Theres others who will pay 1500 for an iPhone every year too but I'll take whatever mid range android I can get for free through work. But I'll spend my money on other things if I feel they are worth it. Of course I'd like a mach e, but like every car, I can wait for it to be a 40k car, a 30k car, 20k car and so on..doesn't even take that long.

I've had big quotes on cars like you but have always talked myself out, I'm looking at a 30 to 35k purchase at the moment but waiting for value again.

DaveByDavid · 22-10-2021 4:28pm

https://www.boards.ie/discussion/comment/118058603#Comment_118058603

Yeah it's absolutely fair enough.

Im not too concerned about the payments, I can make them, but I'm not sure I really want to.

The GFV seems very low for me, althouvh understand car value could well be higher. It's a big depreciation though, almost like Ford aren't sure.

Its a lovely car but probably going to go back to the Ioniq 5 as no-one seems to have the RWD standard range available for the Mach-E.

carsfan2 · 22-10-2021 5:56pm

Ford Ireland have made serious miscalculations with their prices for the mustang Mach e relative to the competition. The only car that is any way comparably priced to rivals is maybe the base model that gets a grant.

as for those pcp figures, I think they either have no faith in the residuals of their own product or a mistake has been made.

have they offered any discount and what’s the apr?

DaveByDavid · 22-10-2021 6:36pm

https://www.boards.ie/discussion/comment/118059004#Comment_118059004

APR is 2.9%.

No discount.

I've gone back to them and mentioned that a 75k etron has a GFV of 35k and 610 euro payments per month. They said they'd speak to their local area rep or something.

Maybe it's a mistake. Not sure!

carsfan2 · 22-10-2021 7:22pm

I wouldn’t be surprised if the gfv they have given you is for the base model.

something is not correct.

lawred2 · 22-10-2021 7:26pm

https://www.boards.ie/discussion/comment/118058294#Comment_118058294

Lol at a 70k ford

bazz26 · 22-10-2021 7:26pm

I'd tell to go whistle Dixie. They will sell little to non of them at those prices and will be discounting them to shift them this time next year. Typical Ford Ireland. The Audi etron will have higher resale value also though probably won't have as many toys as standard.

Kia have the EV6 also which is basically the same underneath as the Ionic5:

https://www.kia.com/ie/new-cars/ev6/discover/

carsfan2 · 22-10-2021 7:52pm

My money would go on the Hyundai or more likely Kia at this price point. The seven year warranty is a huge thing too. More kit on them too.

I passed the Ford dealer in Limerick and they had a mustang on the forecourt. It is a good looking car I’ll admit.

DaveByDavid · 22-10-2021 11:14pm

https://www.boards.ie/discussion/comment/118059343#Comment_118059343

Quite possibly.

I'd expect cheaper repayments on 2.9% APR I think for that priced car.

https://www.boards.ie/discussion/comment/118059357#Comment_118059357

Yeah it's probably a little expensive. I will try and look at the EV6 tomorrow in the metal to see what I think. But ultimately unless I can get a RWD standard range Mach-E (which is looking unlikely) I may just go Ioniq 5 58kw exec-plus and maybe see if chips and cars are easier to get in a few years.

https://www.boards.ie/discussion/comment/118059465#Comment_118059465

Yeah it's a lovely looking car. Obviously all personal opinion but love the inside and outside.

Nothing wrong with the Ioniq 5 (and I'm sure EV6 as well), but did love the Mach-E. Fall back plan is Ioniq 5.

Lantus · 22-10-2021 11:31pm

It ensures the customer will have equity relative to the market value after 3 years.

DaveByDavid · 23-10-2021 12:39am

https://www.boards.ie/discussion/comment/118060691#Comment_118060691

How do you mean? Sorry - I'm a bit of a newbie when it comes to car finance!

Just been looking at 73kw Ioniq 5 again - that's 50k and has GFV of 21000.

DaveByDavid · 23-10-2021 10:37am

Starting to get my head around this now. I think...

Looks mostly like either bigger payment now, or bigger payment later. Looking at Hyundai and Kia, they both offer the same APR on HP and PCP.

Am I right in saying on PCP if GFV is 20,000 and car is worth 25,000 when it comes to the end of the term then I'd get a cheque from dealer for 5,000 if I wanted to give it back and go to another dealer, or does it work differently to that?

Ioniq 5 example - 73kw Premium at 50,520 euro.

Hire Purchase - 5.9%

Deposit - 25,000 euro
Term - 4 years
Monthly payments - 594 euro
Total cost - 3,105.54

PCP - 5.9%

Deposit - 12,500 euro
Term - 3 years
Monthly payments - 593 euro
Total cost of credit - 5,336 euro
GFV - 21,932
(2 years = 622 euro p/month, 26,917 GFV, 3,888 credit cost which is interesting)

So PCP total credit cost is higher (could reduce it with bigger deposit), but it lets me keep options open as well. I think we're okay with 15,000km a year. We have done roughly 119,000 km in 7 years but we do no commuting anymore.

I could decide to pay the balloon payment in cash, finance it or hand the car back. Given that I'm so torn over cars right now it would be nice to have the option of changing in 3 years. Understand that circumstances can change but right now I feel okay but having the cash for the balloon payment, and if financial situation is same then as it is now then I like the idea of having a new car every few years, or at least having the option.

Let me know if I have anything wrong here, or anything else I should consider!

XsApollo · 23-10-2021 10:42am

No the dealer won’t give you a cheque for 5k if you hand the car back and go to another dealer.

if you hand the car back providing all is ok with it then the GFMV will be cleared.

if you want to buy another car and trade. In that’s when you can get more for your car.

DaveByDavid · 23-10-2021 10:45am

https://www.boards.ie/discussion/comment/118061624#Comment_118061624

Okay thanks, that's interesting. I guess I'd have to pay the GFV and maybe sell privately in that case.

Just a little concerned about getting locked in with one dealer/make and then wanting to switch. For example going Ioniq 5 then going Mach-E in a few years.

db · 23-10-2021 10:47am

If you want to change brand at the end of the PCP you can just go to the new dealer and get the 5K equity from him as deposit on the new car.

Lantus · 23-10-2021 11:11am

If the gmfv is 20k and the value 26k you might get 3k equity. The dealer needs to build in his profit margin on your trade in. It will depend on the car and market and dealer etc.

Are there many benefits to PCP?

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