PCP finance.

08-01-2014 4:59pm #1

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.

Bpmull · 08-01-2014 5:15pm

I personally think Pcp is for people who can't afford a new car. The low monthly repayments and low deposit in some cases suit them down the ground. Anytime you work out the actual costs it seems a lot more expensive unless your paying some rediculous interest rate on the traditional loan like 8-10%. But in the case of vag new cars where you can get a loan for around 2-4% Pcp makes no sense.

The only thing is a lot of people I know who when for a normal 3,4,5 year loan with vw bank weren't approved. As they are more interested in people who want 50% of them money rather than 70-80% of the money. I assume this is to do with the fact that the loan interest is low and they want to insure the value of the car always is more than the value of the loan.

September1 · 08-01-2014 5:26pm

It limits your risk and as in any case where risk is limited there is cost to it.

08-01-2014 5:50pm

I used to think that blowing savings on a car was mad, which maybe it is but if you're buying a car I think it's better to use money that you got than to borrow and pay interest however on VW low interest it would probably make more sense to just borrow the money and pay as you drive.

I think I agree with bpmull though that pcp is made to look attractive for people that don't have the money. I'm not sure if garages are making ultra clear that after the 3 years you got to come up with the same deposit again.

I think a lot of the advertised pcp deals deliberately try to make people think that they will have much more than the gfv to use as a deposit but they will need to come up with much more even if you do get more than the gfv.

In other words your cheap 300 a month turns into 500-550 because you got to add up what you'll need to pay to be able to come up with the deposit in 3 years.

Bpmull · 08-01-2014 6:27pm

As you said mad_lad a major point of Pcp is the fact that after 3 years you have no car and ultimately have to come up with a deposit for a new car or pay a big final payment on the one you have. Dealers are too quick to tell everyone about the benefits but never mention the risks but I suppose thats the same with ally of things. The problem with Pcp is at least if you take out a 3 year loan you pay it back after 3 years and that's it after three years the car is yours so I'd in 3 years time you financially can't afford to change the car maybe you just don't have to money at least you can drive your perfectly good 3 year old car for as long as you want. With Pcp after 3 years you suddenly have no car if you can't afford to stump up the substantial deposit for a new one or pay for the old one.

The only real way you could work it is to save the deposit over the 3 years but a lot people don't have enough discipline to do this. And if you do then realistically what was the benefit to talking out a loan over Pcp. Realistically the only possible use I can see for Pcp is if you can't get approved for a low interest loan like vw or/and you end up paying a high interest rate which may make Pcp cheaper but it mighten even.

As for you being against using savings to buy a car. That really depends if you have a huge amount of savings and buying the car won't cause them to take a huge hit then it makes sense to use savings. But with low interest loans from vw etc it really wouldn't make sense to use your savings as the benefit is too small.But then I would be of the opinion that one should really only take out a 3 year loan on a car. This taking out a 5 year loan on a car is stupid unless you are the type of person who keeps car for 5 plus years which most people don't.

ofcork · 08-01-2014 7:58pm

Who in their right mind would hand a car back after 3 years after paying a deposit and 36 payments,i assume dealers know most will either go for a new one or pay the balloon.

08-01-2014 8:41pm

ofcork wrote: »

Who in their right mind would hand a car back after 3 years after paying a deposit and 36 payments,i assume dealers know most will either go for a new one or pay the balloon.

Of course, the idea is to get you hooked. But people a lot of the time wrongly assume you are tied to the one dealer or manufacturer which is not correct.

At the end of the PCP you can go to any dealer you want and buy any car you want.

36 payments of 350 pm = € 12,600. That's a heck of a chunk of doe to walk away from indeed.

Buying a new car every 3 years is a mental amount of money if you add it up.

Take a bog standard Golf that costs 14,141 K new, average boring Irish poverty spec. (tendline)

I see one on carzone trendline 2011 70K miles for 14,995 OUCH !!!

10 K depreciation in 3 years, that's going by 70 K miles, I would have similar mileage after 3 years.

Though the seller would hardly have got the 15K trade in, more like 13,500 ?

650Ginge · 08-01-2014 9:01pm

[Deleted User] wrote: »

Of course, the idea is to get you hooked. But people a lot of the time wrongly assume you are tied to the one dealer or manufacturer which is not correct.

At the end of the PCP you can go to any dealer you want and buy any car you want.

36 payments of 350 pm = € 12,600. That's a heck of a chunk of doe to walk away from indeed.

Buying a new car every 3 years is a mental amount of money if you add it up.

Take a bog standard Golf that costs 14,141 K new, average boring Irish poverty spec. (tendline)

I see one on carzone trendline 2011 70K miles for 14,995 OUCH !!!

10 K depreciation in 3 years, that's going by 70 K miles, I would have similar mileage after 3 years.

Though the seller would hardly have got the 15K trade in, more like 13,500 ?

Ah give me the figures on the golf again.

08-01-2014 10:16pm

650Ginge wrote: »

Ah give me the figures on the golf again.

Why ?

That's what I saw on carzone ?

Bpmull · 08-01-2014 10:20pm

Deleted User wrote: »

Why ?

That's what I saw on carzone ?

I think he means you can't buy a new golf for 14,141 euro

I'm sure you meant 24,141k.

08-01-2014 10:23pm

HAHa yeah see my cock up now, yeah I meant 25 k new.

10K depreciation is a lot though that's the reality of high mileage driving in new cars.

mickdw · 08-01-2014 10:48pm

Deleted User wrote: »

Only thing is VW bank has much lower interest than any other bank or finance.
.

You can also use vw bank for a traditional finance agreement where you pay off the whole car over a number of years. In my opinion, that is just about the best way to buy a new car at the minute as the interest rates are very good.

In relation to the pcp deals, the way I see it, you must look down the road to your next car if considering a pcp. If you can work out roughly how much equity you will have at 3 year stage (value over gfv) and see if you can then afford another new car with that equity amount as a deposit, well then you can afford the car. If on the other hand, you are relying on a large upfront deposit now in order to have a small monthly payment, you cannot really afford the car unless you will have access to similar deposit in 3 years time.
My audi dealer tells me 70% of new audi sales are PCP

08-01-2014 10:54pm

mickdw wrote: »

You can also use vw bank for a traditional finance agreement where you pay off the whole car over a number of years. In my opinion, that is just about the best way to buy a new car at the minute as the interest rates are very good.

In relation to the pcp deals, the way I see it, you must look down the road to your next car if considering a pcp. If you can work out roughly how much equity you will have a 3 year stage (value over gfv) and see if you can then afford another new car with equity amount as a deposit, well then you can afford the car. If on the other hand, you are relying on a large upfront deposit now in order to have a small monthly payment, you cannot really afford the car unless you will have access to similar deposit in 3 years time.

Yeah I agree the traditional finance is the way to go because even though the monthly payments are a lot higher it's the true amount you'll have to pay over the three years.

PCP also means you got to park in a empty part of the car park half a mile away where as normal finance means if you get a scratch you don't have to worry about it so much.

I would find hoping for a larger value than the gfv far too much of a risk tbh.

mickdw · 08-01-2014 11:03pm

The car will be worth more than the gfv. Thats a given really unless you go seriously over mileage or make a mess of the car. If someone was the type of driver that tends to knock lumps off their car, well i dont think they should be going with one of these deals or indeed buying a new car full stop.

650Ginge · 08-01-2014 11:04pm

650Ginge wrote: »

Ah give me the figures on the golf again.

Didn't you mean the golf is 24k not 14, otherwise it would make money being 2/3 years old.

Thats all just pointing out a typo, sorry.

650Ginge · 08-01-2014 11:08pm

Mad Lad, think we are out of the same mould.

I am glad people want new cars but I can't see me ever having new. The 125mil on the euromillions, I still would think it a waste.

RedorDead · 08-01-2014 11:27pm

Deleted User wrote: »

I'm not sure if garages are making ultra clear that after the 3 years you got to come up with the same deposit again.

Incorrect. You can just swap your old car for a newer version. You dont need to lay down the same deposit again!

Gumbo · 08-01-2014 11:51pm

RedorDead wrote: »

Incorrect. You can just swap your old car for a newer version. You dont need to lay down the same deposit again!

Dennis Mahoney also do a key for key swap after 3 years.

marc1 · 09-01-2014 12:29am

I think some of you are looking ay at this the wrong way. Yes - the dealers are advertising the rates on PCP and are being a little snaky doing this. But I doubt that anyone is not aware of the large final baloon payment.

I think the idea of the PCP is that the interest rate is very low. When the interest rates are the same for the PCP and the HP, it usually makes more sense going with the HP. But I know that in December some many VAG models were sold under PCP with interest rates of 0.9%, some for 1.9%, while a VW Bank HP agreement was charged at 3.9% or even 5.9%. And AIB, BOI, etc. are still talking about 8%+...

Take a 20,000 EUR car. 5k deposit or trade in. 7k baloon payment at the end.

PCP 1.9% over 3 years:
Monthly repayments roughtly 240 EUR. Cost of credit: 635 EUR.

Same car & deposit. 3 year HP at 3.9%. Monlty repayemnts 425 EUR. Total cost of credit: 920 EUR.

Instead of of paying 425 a months, pay 240, put the difference in a savings account and pay the baloon payment in the end. You saved 280 in interest paid to VW bank and got interest paid by your bank.

Same scenario, but take 0.9% and 5.9% and you are taking about 1700 EUR saved on interest paid, plus whatever interst you get from your bank.

As far as I can see the only additional risk is that your bank defaults :-)

Of course this only works if there is a difference between the interest rates... But there is offer out there all the time and the interest rates on PCP deal are usually better.

09-01-2014 12:48am

650Ginge wrote: »

Mad Lad, think we are out of the same mould.

I am glad people want new cars but I can't see me ever having new. The 125mil on the euromillions, I still would think it a waste.

A new car would be nice, though I wonder do people actually think of the interest + depreciation ?

For me a new car at my mileage would cripple me in depreciation.

09-01-2014 12:54am

RedorDead wrote: »

Incorrect. You can just swap your old car for a newer version. You dont need to lay down the same deposit again!

Are you sure about that ? How do you not need a deposit ? The gfv only pays the balance no ?

I must admit that this PCP is driving me mad. I thought I had it figured out, and I'm not even buying a new car !

mickdw · 09-01-2014 1:06am

RedorDead wrote: »

Incorrect. You can just swap your old car for a newer version. You dont need to lay down the same deposit again!

You can if:
There is suitable equity in the car after three years above the gfv. This is likely if you signed up to a realistically priced PCP where deposit was correctly balanced against gfv / overall price. This is what I call a sustainable PCP. Many of the deals on offer today are not like this. Audi have deals on A6 with maybe 14k deposit and gfv in the high teens. There will never be 14k equity over the gfv in that car after 3 years so additional deposit will have to be brought to the table by the purchaser or else take the hit in the monthly payment
or
There is a manufacturer promotion where they agree to replace the car with a new one after a certain period (Nissan have been known to do this but usually after 1 year).

09-01-2014 1:31am

Yes you do have to come up with a new deposit after the 3 years ? or the monthly payments would be much higher ?

isn't it risky to assume you'd have more than the gfv after the years ?

mickdw · 09-01-2014 1:42am

Deleted User wrote: »

isn't it risky to assume you'd have more than the gfv after the years ?

You will have more than the gfv but how much more is the issue. I think on most of the current headline deals, the figures need to be adjusted to reduce deposit slightly and increase monthly payment. There is a sweet spot but of course that is dictated by the value after year 3.

09-01-2014 1:57am

mickdw wrote: »

You will have more than the gfv but how much more is the issue. I think on most of the current headline deals, the figures need to be adjusted to reduce deposit slightly and increase monthly payment. There is a sweet spot but of course that is dictated by the value after year 3.

But it's highly likely you'd have to come up a lot more then a bit extra over the gfv.

The danger as I see it is that the PCP advertisements make it look like that you don't need to come up with a deposit for the new pcp in 3 years.

Do dealers make this clear ?

September1 · 09-01-2014 10:02am

I think final balloon payment is calculate in such way that there is equity for deposit left. They want you to buy new cars every 3 years is strongest reason, but also it prevents them from loss. Additionally trade-in values would be overinflated as they have margins when selling new cars to accommodate that, again for reason to hook you up.

mickdw · 09-01-2014 10:53am

September1 wrote: »

I think final balloon payment is calculate in such way that there is equity for deposit left. They want you to buy new cars every 3 years is strongest reason, but also it prevents them from loss. Additionally trade-in values would be overinflated as they have margins when selling new cars to accommodate that, again for reason to hook you up.

You are correct to a point but I feel alot of the deals are now pushing it too far in order to come up with a very low monthly payment.
The audi a6 deal is advertised as 13k deposit, 17k gfv. So to have a similar deposit at year 3 the car would need to be worth circa 30k. Give that the car is around 45k new, I can't see that happening.

September1 · 09-01-2014 11:22am

mickdw wrote: »

You are correct to a point but I feel alot of the deals are now pushing it too far in order to come up with a very low monthly payment.
The audi a6 deal is advertised as 13k deposit, 17k gfv. So to have a similar deposit at year 3 the car would need to be worth circa 30k. Give that the car is around 45k new, I can't see that happening.

Car is 45k new and in standard PCP you can do 45kkm or 27k miles - quick look on carzone shows that cheapest A6 from 2011 with that mileage is E28k on carzone and E27k on donedeal and here is suprise, cheapest one on Autotrader is E20k excluding VRT of E6827 (which if you sold car in UK would mean about 6k given to you by revenue) what this means for you future deposit would range from 8 if sold yourself to propably 11k if traded to dealer. That is not so bad outcome and you would need to add between 60 to 140 euro to your repayments to collect missing deposit.

Just to note IMHO if you cannot afford to buy car, do not use loan or PCP - use them if you have better uses for your cash than having it tied to a car.

09-01-2014 12:01pm

IMHO most people can't afford to buy new cars, or they buy the most basic poverty spec that can buy, I just couldn't do it. I'd rather a older much higher spec car.

Pcp for me doing the guts of 25,000 miles a year would mean I suffer huge depreciation, as I showed above that a poverty spec golf 1.6 tdi depreciates by 10 k over 3 years, so you got to add that to whatever you pay off the loan including interest.

Having said that any new car no matter how I'd pay for it would cripple me in depreciation.

Buying a nearly 50 k Audi for instance would loose close to 20 k depreciation in the same time and mileage, that's really insanity.

All this before you even pay for a drop of fuel or maintenance, I wonder do people actually sit down and do the sums ?

At least with a leaf I save about 2600 in petrol 290 in motor tax and about 150 a year in service, that's 9,120 I get back that I won't in a normal car.

September1 · 09-01-2014 12:06pm

Deleted User wrote: »

Pcp for me doing the guts of 25,000 miles a year would mean I suffer huge depreciation, as I showed above that a poverty spec golf 1.6 tdi depreciates by 10 k over 3 years, so you got to add that to whatever you pay off the loan including interest.

In PCP deals you actually would do rather smaller mileage.

Deleted User wrote: »

Having said that any new car no matter how I'd pay for it would cripple me in depreciation.

New car value loss is totally separate thing from PCP.

Deleted User wrote: »

Buying a nearly 50 k Audi for instance would loose close to 20 k depreciation in the same time and mileage, that's really insanity.

All this before you even pay for a drop of fuel or maintenance, I wonder do people actually sit down and do the sums ?

Yes, different people value different things. Again, depreciation is separate process from PCP - all new cars suffer it. If people thought like you there would be no new cars sold.

Deleted User wrote: »

At least with a leaf I save about 2600 in petrol 290 in motor tax and about 150 a year in service, that's 9,120 I get back that I won't in a normal car.

Thanks for bringing LEAF, I wanted to ask, how come your brother is look to get Audi and not EV or at least LPG hybrid?

09-01-2014 2:52pm

September1 wrote: »

In PCP deals you actually would do rather smaller mileage.

New car value loss is totally separate thing from PCP.

Yes, different people value different things. Again, depreciation is separate process from PCP - all new cars suffer it. If people thought like you there would be no new cars sold.

Thanks for bringing LEAF, I wanted to ask, how come your brother is look to get Audi and not EV or at least LPG hybrid?

Pcp means you pay the depreciation.

As for my brother, he loved the leaf, he really did but nissans are not his thing.

He keeps saying he has nowhere to plug in in the apartment but I'm sure the management company wouldn't object and I'm sure power can easily be got to the car. But he's not interested in finding out.

He's just not interested because he doesn't have to worry about fuel costs.

One thing that annoys me is he keeps buying diesel to drive all of 10.5 miles a day because he won't pay more for motor tax, yep some people are mad !

There are also no qc points in north dublin near him or his work, mad thing is just one qc would do him a week.

He was interested in the I3 but the Rex version until I told him there is Vrt on it and you can't get the grant either because it's got a generator.

Yeah he really needs a range extender for 10 miles a day. Mad.

PCP finance.

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