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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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September1

Deleted User wrote: »

You mean if someone walks away at the end ?

Let's say you buy this nice Audi or BMW with big and strong engine and in meantime there is oil crisis and people start switching to EVs and your car is suddenly worth next to nothing - you give it back, cancel your debt and walk away. Or maybe government just switched taxation system and there is deflation, exactly what happened in 2008 - resale value of many cars was lower than expected.

[Deleted User]

September1 wrote: »

Let's say you buy this nice Audi or BMW with big and strong engine and in meantime there is oil crisis and people start switching to EVs and your car is suddenly worth next to nothing - you give it back, cancel your debt and walk away. Or maybe government just switched taxation system and there is deflation, exactly what happened in 2008 - resale value of many cars was lower than expected.

Or a new model perhaps ?

September1

Deleted User wrote: »

Or a new model perhaps ?

No, that is planned and cars depreciation model include this issue. New model does not affect it so strong, unless you buy in a year when it is released - usually then you get a decent discount on old model.

[Deleted User]

marc1 wrote: »

PCP does NOT mean you pay for depreciation. They are two completely separate concepts.

If you trade your car in for a new car on PCP, the value of the car you are trading in will be estimated by the garage to determine the amount you have for the next deposit. Yes, you will get a little less back for your car if you do more miles, but this should be minimal if you do a normal amount of miles a year.

I really have to calculate the excess over the 15,000 Kms over my total 40,000 Kms to see if it's worth it.

If for example the gfv was 11 k then my excess would be deducted from the gfv at the end ? So I may end up a good bit lower and have no deposit for the new pcp after 3 years ?

marc1

Let me try to explain again. I think you are getting confused with the 3 options you have at the end and the cost associated. At the end there are 3 options:

1) Hand back your car and walk away. You do not need to pay the balloon payment (also called GFV). If you have driven over 60k km in 3 years (an average of 20k per year), you will be charged for excess milage- @ x cents per KM. Don't know the exact rate.
2) Pay the balloon payment (this is the GFV) and you own the car. You will know exactly how much this is as this is fixed in the contract. There are no other costs.
3) Go for a new PCP and get a new car. The garage does a market valuation of your car in whatever condition it is. Lets call this figure "MV". You still owe the VW bank the balloon payment (the GFV). There are NO additional costs.
MV - GFV = Deposit for next car.

That's it! Simples! :-)
Remember that GFV is fixed. It never changes. That's why it's called the GUARANTEED future value :-).

MV is influenced by many factors. It's just like selling a car you fully own! If you are selling a 3 year old car and it is in showroom condition with 20k km you will get more money then if it full of scratches and dents and has 100k km. Looking at the simple formula above, the lower MV, the lower the Deposit for your next car. If you trash the car over the 3 years, there is a possibility that you are left with very little deposit. Possible, but highly unlikely.

It is hard to guess what the future MV of a car will be. Your circumstances might change and you might find that you do much less (or much more) driving then you thought. You might have kids and they might destroy the inside of the car :-) You just have to take a best guess, and of course you will want to negotiate a deal with the garage. They will want to sell you a new car in 3 years. It's just like trading in a car that you own.

[Deleted User]

Thanks, great explanation.

I guess that no matter what I'd be hit by 60 odd k miles either hp or pcp. And in that case hp maybe just as good if the interest is as low.

I guess it all comes down to how you negotiate, I'd have to carefully calculate the excess at the start.

marc1

That's right. Just to make sure, it is 60k km. If you are planning to keep the car or getting a new one, there is no difference between HP and PCP in terms of costs other then the interest. Compare the interest rates and negotiate as much as you can!

From my experience, VW bank runs promotions from time to time that are very attractive, but afaik, the dealers have no influence over the interest rates. It's a "computer says no" situation. The rates are set somewhere centrally by VW, possibly in Germany, and that's that.

[Deleted User]

No I mean my total mileage would 60 - 75 k miles not Kms.

tramoreman77

do you need a good credit score for pcp or just a big deposit

[Deleted User]

tramoreman77 wrote: »

do you need a good credit score for pcp or just a big deposit

I'd imagine you would, as with normal finance.

Being a contractor the'd laugh me out the door. I won't get credit at all even though I've an impeccable record.

Bpmull

tramoreman77 wrote: »

do you need a good credit score for pcp or just a big deposit

It seems to be easy enough to get approved for Pcp. Certainly easier than the likes of the low interest loans given by vw wtc they can be quite strict on them. The thing about Pcp is if it's a BMW for example then on the logbook it will say owner BMW Ireland for example you never own the car. That's just going by my experience where it know a few people who got Pcp who wouldn't exactly have the best credit rating ever. And the same with people being turned down for the low interest loans with the manufacturers banks who may have a good enough credit rating but they seem to be more picky.

tramoreman77

i read audi s pcp fetailed account on some of there cars and it looks okay to me .how much of a deposit do you ask for tho is it alot .e.g what if i wanted a 20 ,000 euro car ,,how much would they ask? and do you have to get a new car

marc1

Mad lad, sorry misunderstood. That's ok.

Tramoreman - deposit limits are usually between 10% and 30%. You choose. Since the GFV is fixed, the deposit and the monthly payments will make up the rest of the value of the car. Plus interest of course. If you have it, I would put down the full 30% - but that is a personal choice.

RedorDead

Its embedded so cannot link it here but check out this video on how pcp works. Its a bit simplistic but should explain enough for people that dont know PCP.

http://www.audi.ie/ie/brand/en/finance_offers.html#source=http://www.audi.ie/ie/brand/en/finance_offers/pcpintro.html&container=page

tramoreman77

thanks for clearing that up

lomb

PCP is potentially very costly. Apart from the interest rate there is no dealer contribution ie no discount off list price. So that's a waste of around 2k right there on the average car.
The gfv is nonsense. Lease companies can calculate values exactly the PCP crowd could if they wanted also. If you ask a dealer they will say the value is an unknown which isn't really true. Its a bait and switch to get you hooked on paying monthly for the rest of your life in return for a newish car( remember the car is only new the day you get the keys, for the rest of the term it is used)

marc1

Lomb, that is not my experience...

If you understand the finance product it is a great option. It is a more complex product - but I have yet to see an an example of where it would be more costly then other finance.

Of course the lower monthly payments sound good in adverts, but from my experience the dealers are open and honest about the options and explain the advantages and disadvantages in detail. My sales rep even told me that it is a little cheaper because hopefully I will sell you a car again in 3 years! Not sure how true that argument is for VW bank, but I guess that's the way he sees it.

Also - negotiate the price of car before you settle on if and how you want to finance it. My VW dealer was happy for me to change at the very last minute the day I picked up the brand new car.

The GFV is in no way "non-sense". If you read the previous posts you see that it is designed to fulfil a specific goal and not to predict the future value of the car. So the name they have that figure might be non-sense but not the figure itself.

lomb

The purpose of PCP is to
1. Allow you to pay a deposit (money immediately lost)
2. Allow you to pay interest on the full cost of the loan which obviously declines with time but not that quickly as you never pay off the final value. Thus you pay more interest
3. To allow the dealer not to discount the car therefore you pay too much for the car
4. To give you a low final value and tie you in (for most people who are lazy which is virtually everyone) to buying a new car in 3 years(as the GFV is a little lower than market and most people haven't got the balloon and want a new car). Therefore you will always be paying for cars monthly for ever. This doesn't make very good financial sense especially as new cars are massively overpriced in Ireland.
In more mature countries like the UK something like a new Audi TT TDI or E class diesel merc or recently M135i would be around 350 euros a month including the deposit handing the keys back in 3 years as its a pure lease. After 3 years you could buy a cheap used car, lease a new car or do something else. On running a few figures yesterday a Corolla when you account for the deposit is nearly 500 euros a month here tieing you into paying monthly for ever . There isn't any value in it. Anyone in the trade will tell you the same thing.

mickdw

Ive known a few people who used to take out bank loans for new cars over 5 years then trade the car at 3 years, taking our a new loan to clear the remaining etc while the car was still worth more than was owed. When you look at it, it ended up quite similar to a pcp deal in that they got lower payments and still managed to change every 3 years.

marc1

1. Same for normal loans
2. Therefore the interest rate is lower and the total cost of interest (which is clearly outlined on the VW bank quotes) is nearly always lower in PCP then on HP.
3. Don't agree. Negotiate the price before you tell them you want PCP
4. Lazy people take stupid decisions, agree with that! But again, read the previous posts. The GFV being low is in your own best interest!!!

lomb

marc1 wrote: »

1. Same for normal loans
2. Therefore the interest rate is lower and the total cost of interest (which is clearly outlined on the VW bank quotes) is nearly always lower in PCP then on HP.
3. Don't agree. Negotiate the price before you tell them you want PCP
4. Lazy people take stupid decisions, agree with that! But again, read the previous posts. The GFV being low is in your own best interest!!!

1. True
2.The interest rate is usually but not always lower however when I asked an Audi dealer what discount he was giving me on the car, he said sure your getting the pcp interest for nothing(2%). I told him there is nothing for nothing and he just looked at me. So no discount. Toyota on their website say the rate is 7.9% which isnt lower I dont think. Has anyone negotiated a discount on something like an A4 or Golf while getting pcp at 2% or whatever? If so what discount was given?
3.See 2
4. Is it though ?A proper market value final value(as set by leasing companies-some win/some loose) sets in stone that you can walk away with no commitment to being roped into buying another one. This way they have you and you are probably twice as likely to buy another car from the same dealer and get a poorer deal going forward than not. Anyone who cant budget 10% of a new car as a downpayment going forward shouldnt be buying a new car.

valdigre

Hello gentlemen.

I have read the whole thread with huge interest and now I am hoping for your advice, as you look knowledgeable lads. Here are some facts:

1) I want to buy a new Renault Clio 1.5 dci, not really as a city car, because I have a walking distance to my work, shopping etc, but as a weekend, trip car.

2) It will most likely be doing more than 20k kilometers a year. I do not drive during week because my work is 30 minutes walking distance, the same shopping and anything I need to do during the week. On the weekends thouhg, I love driving, sightseeing and just visiting other places, so during weekend I may end up doing 200-800 kilometers.

3) I want to buy this car as my small car that is very economical and I intend to keep it for more than 3 years, if it does not fall apart.

Having said that, what would be the best option to finance the car - PCP, Hire purchase or Personal Loan. Would it always be the one that has lower APR/cost of credit? Logically speaking probably yes, unless I am missing something?

If I took PCP, I would not fear excess mileage and overall condition of the car, as I would intend to buy the car with the balloon amount at the end. Every month, I would put out to my savings account additional amount, so that in 3 years time I would easily buy out the car (or earlier even, if needed).

In case of Hire purchase and Personal loan the situation would be similar, only that with personal loan I would be the owner from the beginning of owning the car but still, I would have to hand out a higher amount monthly that over 3 years time would pay for the whole car.

Renault PCP Apr is 6.9% so it seems quite high.
I have no idea about hire purchase.

With personal loan, Apr seems to be around 9% (lowest I could find) among the banks.

My gut tells me that it will be cheaper to take PCP, even if I account into the sum servicing costs, some GAP insurance and other things.
Personal loan however gives additional security in the case, for example, of loosing job, going sick etc, but will turn out to be a lot more expensive in the end.

I would appreciate any input from you guys and thanks for your time!

noelf

For the best deals on finance you would need to buy either a Volkswagen seat or skoda through Volkswagen finance check out their web sites

marc1

The lowest interest rate is not always the cheapest in terms of the total amount of interest you are going to paying. This is because interest is normally charged on the outstanding loan amount. With PCP you will always have a larger amount outstanding since there is a balloon payment at he end. So the PCP interest rate might be lower but it will be calculated of a larger amount, especially near the end of the term.

The best way to compare loans is the "total cost of credit" figure. I believe this has to be clearly displayed every time you get a quote for a loan.

Another advantage with hire purchase and personal loans is that you usually choose the term - often between 12 and 60 months, so you have more flexibility. PCP on the other hand is often fixed at 3 years.

A personal loan will nearly always be more expensive than hire purchase since there is no underlying asset that the bank can seize should you default on the loan.

Many things to take into account and it really depends on your personal circumstances...

Personally I find 6.9% for PCP quite high. If they offer the same rate for hie purchase then hire purchase would most likely be a much better deal and more flexible.

Main thing to remember is to compare the total cost of credit.

valdigre

noelf wrote: »

For the best deals on finance you would need to buy either a Volkswagen seat or skoda through Volkswagen finance check out their web sites

I am interested in Renault only, I have a very well equiped Clio for 17k and not interested in Volkswagen group cars, those are pricier, worse equipped and boring. At this process range, there is no competition, really.

Thanks Marc, I will have a look at the total cost of credit.

Personal loan for 17k is with cost of credit hovering around 3k on average in all banks.

PCP on the other hand I don't remember, will check out when I show up in Renault dealer but I can bet it will be much lower than that in total.

jameshayes

valdigre wrote: »

I am interested in Renault only, I have a very well equiped Clio for 17k and not interested in Volkswagen group cars, those are pricier, worse equipped and boring. At this process range, there is no competition, really.

Any advice?

what about a kia cee'd or a rio? nice looking cars with a 7 year warranty, along with the cheaper finance of 4.9%

valdigre

jameshayes wrote: »

what about a kia cee'd or a rio? nice looking cars with a 7 year warranty, along with the cheaper finance of 4.9%

I was considering those as well but diesel is what I am looking for. Rio's diesel is underpowered, lacks torque and fuel consumption is no where near the claimed consumption.

Anyway, it is not a matter of choosing a car, I made up my mind, just asking about those finance options.

Thanks.

Scottie99

lomb wrote: »

PCP is potentially very costly. Apart from the interest rate there is no dealer contribution ie no discount off list price. So that's a waste of around 2k right there on the average car.
The gfv is nonsense. Lease companies can calculate values exactly the PCP crowd could if they wanted also. If you ask a dealer they will say the value is an unknown which isn't really true. Its a bait and switch to get you hooked on paying monthly for the rest of your life in return for a newish car( remember the car is only new the day you get the keys, for the rest of the term it is used)

No discount of list price? You can get it off your trade in. I haggled my trade in with two Nissan garages and received an extra 2.4k - there's many ways!

noelf

Scottie99 wrote: »

No discount of list price? You can get it off your trade in. I haggled my trade in with two Nissan garages and received an extra 2.4k - there's many ways!

I got a E1800 discount along with my trade in on a pcp of 1.9 apr interest is E758 over 3 years on a golf highline metallic paint adaptive cruise control parking sensors front and back for E300 per month plus free servicing up to and including 45000 km

valdigre

noelf wrote: »

I got a E1800 discount along with my trade in on a pcp of 1.9 apr interest is E758 over 3 years on a golf highline metallic paint adaptive cruise control parking sensors front and back for E300 per month plus free servicing up to and including 45000 km

Volkswagen offers 1.9 PCP Apr? Any tricks you used for getting the discount?