PCP Questions
Hi All,
Asking for a friend, so some of the details are a bit sketchy.
She bought a brand new Mini car in 2014. It was PCP and she paid a very small deposit (something like £500).
She's now looking to upgrade the vehicle. However, it looks like the balance on finance exceeds the resale value of the car by about £1-2k. Minis clearly depreciate hard.
What are the options?
Continue with the PCP until equity is achieved (if ever)?
Look at Voluntary Termination and start again with a new marque?
I have never had car finance myself but my understanding is that the whole point of the PCP was to allow there to be some equity left at the 3 year mark in order to allow customers to keep purchasing cars. Where has she gone wrong?
Asking for a friend, so some of the details are a bit sketchy.
She bought a brand new Mini car in 2014. It was PCP and she paid a very small deposit (something like £500).
She's now looking to upgrade the vehicle. However, it looks like the balance on finance exceeds the resale value of the car by about £1-2k. Minis clearly depreciate hard.
What are the options?
Continue with the PCP until equity is achieved (if ever)?
Look at Voluntary Termination and start again with a new marque?
I have never had car finance myself but my understanding is that the whole point of the PCP was to allow there to be some equity left at the 3 year mark in order to allow customers to keep purchasing cars. Where has she gone wrong?
0
Comments
-
It's not clear from your post but is your friend coming to the end of the finance deal or has she still got time to run?
If the deals coming to an end then she can simply hand back the car and walk away, if it's still got time to run then by design you're rarely going to be in the position when "upgrading" mid-term makes financial sense.
If she is mid-term on the finance then yes consider VTing, if she meets the conditions to do so or possibly see if the dealer of the proposed upgrade will do with settling the finance for her.0 -
It was PCP and she paid a very small deposit (something like £500).
it looks like the balance on finance exceeds the resale value of the car by about £1-2k.
my understanding is that the whole point of the PCP was to allow there to be some equity left ... Where has she gone wrong?
You've almost answered your own question!
The whole point really of PCP is to be able drive around in a new expensive car but only have to pay a small deposit and relatively small monthly payments; while many car showroom salesmen may make out that you'll always have some equity at the end of 3 years, as your friend is finding out that is not always the case.
If your friend has paid at least 50% of the total due and the car is in reasonable condition then VT is definitely something to consider; the advantage of VT is that the agreement ends and there is nothing more to pay. The disadvantage of continuing with the PCP is that all the terms of the agreement need to be abided by so when/if equity is achieved there may be extra charges to pay for extra mileage, minor damage, admin fees etc.Every generation blames the one before...
Mike + The Mechanics - The Living Years0 -
MobileSaver wrote: »You've almost answered your own question!
The whole point really of PCP is to be able drive around in a new expensive car but only have to pay a small deposit and relatively small monthly payments; while many car showroom salesmen may make out that you'll always have some equity at the end of 3 years, as your friend is finding out that is not always the case.
If your friend has paid at least 50% of the total due and the car is in reasonable condition then VT is definitely something to consider; the advantage of VT is that the agreement ends and there is nothing more to pay. The disadvantage of continuing with the PCP is that all the terms of the agreement need to be abided by so when/if equity is achieved there may be extra charges to pay for extra mileage, minor damage, admin fees etc.
Only downside to paying a low deposit and low monthly payments is that you will never be in a position to VT the car so your friend will need to find a loan to bring the total payments to 50% of the total value of the car or wait till the end of the 3 years and hand it back and start again.0 -
Thanks all.
She still has time left to run. I understand it was a 4 year deal and she is about 2.5 years in.
As an outsider I don't think it is that great a deal. She's paying something like £250/mth. I've always paid cash for my cars and this confirms why.0 -
PCP works for some people who like a brand new car every 3 years for a fixed monthly payment. You are only renting a car for 3 years normally with the option to maybe buy it for the balloon payment at the end.
She would of spent £13,000 on renting a new car - works for some, not for me.0 -
Thanks all.
She still has time left to run. I understand it was a 4 year deal and she is about 2.5 years in.
As an outsider I don't think it is that great a deal. She's paying something like £250/mth. I've always paid cash for my cars and this confirms why.
If shes only 2.5 years in to a four year agreement, it explains why shes in negative equity at this stage.
If you take out a four year PCP deal you need to have done so on the basis you can commit to the four years (or close to it). By trying to jump ship now shes going to have a lot of cash to put in just to get out of the deal.
It would need to have been a fairly high end Mini to be £250 a month over 4 years + a residual. With £500 down the list price must have been maybe £16,000 - £17,000 (assuming £5K ish residual).0 -
foxy-stoat wrote: »PCP works for some people who like a brand new car every 3 years for a fixed monthly payment. You are only renting a car for 3 years normally with the option to maybe buy it for the balloon payment at the end.
She would of spent £13,000 on renting a new car - works for some, not for me.
In theory its little different than buying a brand new car every three years and suffering the high depreciation that would entail - particularly if you can get an "incentivised" finance deal with a manufacturers contribution or low rate / 0% finance.
I'd be looking something a bit more impressive (to me) at my front door than a Mini for £250 a month though....0 -
I've always paid cash for my cars and this confirms why.
I'm assuming you pay cash for a used car, not a brand new one?
Its not necessarily the deal thats the problem its the fact its on a new car.
If you buy a new car with cash, after 4 years you're going to have suffered probably 60+% depreciation on your capital anyway.
So the issue isnt how you pay for it, its what you buy with your money.0 -
Thanks all.
She still has time left to run. I understand it was a 4 year deal and she is about 2.5 years in.
As an outsider I don't think it is that great a deal. She's paying something like £250/mth. I've always paid cash for my cars and this confirms why.
New car on 0% finance, earn money on interest in the bank, if you are intending to buy at the end PCP is very good as depreciation is irrelevant. If you are looking to trade in it's not necessarily, you pay say 2/3 of the value of the car, trade it in and then pay another 3 years of payments, repeat for as long as you want - good if you have money to burn of course0 -
This discussion has been closed.
Categories
- All Categories
- 343.2K Banking & Borrowing
- 250.1K Reduce Debt & Boost Income
- 449.7K Spending & Discounts
- 235.2K Work, Benefits & Business
- 608K Mortgages, Homes & Bills
- 173K Life & Family
- 247.9K Travel & Transport
- 1.5M Hobbies & Leisure
- 15.9K Discuss & Feedback
- 15.1K Coronavirus Support Boards