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  • FIRST POST
    • Dr Crypto
    • By Dr Crypto 16th Mar 17, 11:47 AM
    • 80Posts
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    Dr Crypto
    PCP Questions
    • #1
    • 16th Mar 17, 11:47 AM
    PCP Questions 16th Mar 17 at 11:47 AM
    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?
Page 1
    • neilmcl
    • By neilmcl 16th Mar 17, 12:15 PM
    • 9,727 Posts
    • 6,751 Thanks
    neilmcl
    • #2
    • 16th Mar 17, 12:15 PM
    • #2
    • 16th Mar 17, 12:15 PM
    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.
    • MobileSaver
    • By MobileSaver 16th Mar 17, 12:19 PM
    • 1,161 Posts
    • 1,586 Thanks
    MobileSaver
    • #3
    • 16th Mar 17, 12:19 PM
    • #3
    • 16th Mar 17, 12:19 PM
    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?
    Originally posted by Dr Crypto
    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.
    Respect to 3 of the greatest actors of all time; amazing people who are totally believable as the characters they play & almost single-handedly make the shows they starred in:

    Peter Dinklage as Tyrion Lannister in Game of Thrones
    Daniel J. Travanti as Frank Furillo in Hill Street Blues
    Claire Danes as Carrie Mathison in Homeland
    • foxy-stoat
    • By foxy-stoat 16th Mar 17, 12:28 PM
    • 1,561 Posts
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    foxy-stoat
    • #4
    • 16th Mar 17, 12:28 PM
    • #4
    • 16th Mar 17, 12:28 PM
    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.
    Originally posted by MobileSaver

    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.
    • Dr Crypto
    • By Dr Crypto 16th Mar 17, 2:18 PM
    • 80 Posts
    • 15 Thanks
    Dr Crypto
    • #5
    • 16th Mar 17, 2:18 PM
    • #5
    • 16th Mar 17, 2:18 PM
    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.
    • foxy-stoat
    • By foxy-stoat 16th Mar 17, 2:57 PM
    • 1,561 Posts
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    foxy-stoat
    • #6
    • 16th Mar 17, 2:57 PM
    • #6
    • 16th Mar 17, 2:57 PM
    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.
    • motorguy
    • By motorguy 16th Mar 17, 3:04 PM
    • 15,101 Posts
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    motorguy
    • #7
    • 16th Mar 17, 3:04 PM
    • #7
    • 16th Mar 17, 3:04 PM
    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.
    Originally posted by Dr Crypto
    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).
    You are not special. You are not a beautiful and unique snowflake.
    • motorguy
    • By motorguy 16th Mar 17, 3:07 PM
    • 15,101 Posts
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    motorguy
    • #8
    • 16th Mar 17, 3:07 PM
    • #8
    • 16th Mar 17, 3:07 PM
    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.
    Originally posted by foxy-stoat
    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....
    You are not special. You are not a beautiful and unique snowflake.
    • motorguy
    • By motorguy 16th Mar 17, 3:09 PM
    • 15,101 Posts
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    motorguy
    • #9
    • 16th Mar 17, 3:09 PM
    • #9
    • 16th Mar 17, 3:09 PM

    I've always paid cash for my cars and this confirms why.
    Originally posted by Dr Crypto
    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.
    You are not special. You are not a beautiful and unique snowflake.
    • Nasqueron
    • By Nasqueron 16th Mar 17, 3:27 PM
    • 4,179 Posts
    • 2,322 Thanks
    Nasqueron
    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.
    Originally posted by Dr Crypto
    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 course
    • motorguy
    • By motorguy 16th Mar 17, 4:35 PM
    • 15,101 Posts
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    motorguy
    good if you have money to burn of course
    Originally posted by Nasqueron
    Its not a matter of money to burn though. If thats how someone choses to spend their hard earned, thats their prerogative.

    You could spend £250 on a night out if you put your mind to it, and that too would be someones prerogative
    You are not special. You are not a beautiful and unique snowflake.
    • Nasqueron
    • By Nasqueron 17th Mar 17, 10:02 AM
    • 4,179 Posts
    • 2,322 Thanks
    Nasqueron
    Its not a matter of money to burn though. If thats how someone choses to spend their hard earned, thats their prerogative.

    You could spend £250 on a night out if you put your mind to it, and that too would be someones prerogative
    Originally posted by motorguy
    It's a money Saving site, buying a car on PCP, paying for 3 years, losing 2/3 of the value, getting another one and paying for another 3 years etc and ultimately not having anything for it is not money saving
    • motorguy
    • By motorguy 17th Mar 17, 10:17 AM
    • 15,101 Posts
    • 8,528 Thanks
    motorguy
    It's a money Saving site, buying a car on PCP, paying for 3 years, losing 2/3 of the value, getting another one and paying for another 3 years etc and ultimately not having anything for it is not money saving
    Originally posted by Nasqueron
    The MSE forum is about getting the best value for your £, hence why here are loads of deals mentioned for expensive holidays, big TVs, how to get the best deals on loans, deals on going out, etc.

    If someone wants to PCP a new car, then the role of this site (and thus us as contributors) is to help ensure the person gets the best deal they can for their particular circumstance.

    Whilst it is prudent to suggest other alternatives, it is not up to us to carte blanche judge that PCPing a new car is a stupid or bad idea or is "not moneysaving".

    Perhaps when theres a deal comes up for a big new Sony LCD TV on the "Quick grabbit" board, you'll jump in there extolling the merits of buying an old CRT TV off gumtree as that is "moneysaving"?
    You are not special. You are not a beautiful and unique snowflake.
    • Tiddlywinks
    • By Tiddlywinks 17th Mar 17, 8:08 PM
    • 5,323 Posts
    • 18,436 Thanks
    Tiddlywinks
    Minis clearly depreciate hard.
    Originally posted by Dr Crypto
    Actually Mini is one of the best performing brands where depreciation is concerned.

    Link

    Your friend's issue is that she paid only a small deposit and chose a four year plan - why did she do that when she appears to be fickle over her car choices?


    It's a money Saving site, buying a car on PCP, paying for 3 years, losing 2/3 of the value, getting another one and paying for another 3 years etc and ultimately not having anything for it is not money saving
    Originally posted by Nasqueron
    So many people are judgemental about PCP contracts or buying new cars... as long as the buyer is aware of the costs / rules and is happy with them then what is the problem?

    I have a Mini Cooper S - I bought it new in 2012. I used a PCP contract which offered an APR which was lower than a loan and equal to bank saving rates.

    The deal also included a dealer incentive and a manufacturer contribution.

    In 2015, when the three year period was up, I chose to buy the car and paid the balloon payment.

    I fully intended to keep the car for the long haul.

    Now, 2017, I have to change my car because of changing health... I need a higher seating position.

    I am buying the next car on a PCP with 0% apr - so I am choosing a four year period with a minimal deposit to get the most out of the deal.

    At the end of the four years I will probably just pay off the balloon payment.

    Not everyone that uses a PCP does so because they cannot afford to buy otherwise... nor does using a PCP mean that the buyer is financially inept.
    • MobileSaver
    • By MobileSaver 17th Mar 17, 9:45 PM
    • 1,161 Posts
    • 1,586 Thanks
    MobileSaver
    not having anything for it
    Originally posted by Nasqueron
    Hmm, driving a brand new car every three years is hardly "not having anything for it!"
    Respect to 3 of the greatest actors of all time; amazing people who are totally believable as the characters they play & almost single-handedly make the shows they starred in:

    Peter Dinklage as Tyrion Lannister in Game of Thrones
    Daniel J. Travanti as Frank Furillo in Hill Street Blues
    Claire Danes as Carrie Mathison in Homeland
    • F1F93
    • By F1F93 17th Mar 17, 10:46 PM
    • 313 Posts
    • 160 Thanks
    F1F93
    It's a money Saving site, buying a car on PCP, paying for 3 years, losing 2/3 of the value, getting another one and paying for another 3 years etc and ultimately not having anything for it is not money saving
    Originally posted by Nasqueron
    Alternatively assume you start with 12k and have £250 disposable income.

    You could spend all 12k on a used car, then be able to save £250 a month for 4 years and you'd be left with a very used car that's not worth much, and 12k in cash.

    You could instead take out a PCP for 250 a month. You can no longer save but you have the 12k preserved. After 4 years you will be left with 12k in cash and a car with (possibly) a small amount of equity. Yes, not as much equity as in the above scenario but you have been driving around in a brand new car.

    Then consider that a new model will have a warranty, no MOT for 3 years, and will often be slightly cheaper to run that an older model and the gap falls even more - definitely not "nothing to show for it!"

    Obviously new cars aren't for everyone, but at the same time, if no one bought new cars then where will the second hand cars of the future come from? The important thing is that the deal works for the person.
    • Dr Crypto
    • By Dr Crypto 20th Mar 17, 11:35 AM
    • 80 Posts
    • 15 Thanks
    Dr Crypto
    Thanks all. I think I (and my friend) now have a better understanding of how PCP works. I think she will have to keep the Mini for a bit longer in order to build some equity for an upgraded vehicle.

    I guess a brand new car with extras etc for £500 and £250/mth isn't so bad a deal in many ways. Cars are always going to cost money and I know she wouldn't want the (perceived) hassle of used cars. May not be the cheapest way of driving but I guess we all spend our money differently.
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