guaranteed future value car buying schemes, help!

Joyful

My deal with Renault is to pay X amount for 3 years then to either pay a lump sum or to the same deal with another car. My paperwork says they will give me X towards a new deal. I did though trade in my car originally so don't know if this makes a difference.

motorguy

Premier wrote: »

At the end of the contract, you can either give the car back and pay nothing i.e. you spent almost £10k, (plus servicing costs, tax, insurance etc.) for effectively 3 years car hire, or pay the £6081 and keep the car.

... or as I mentioned try and flog it back to the dealer for more than £6081.

It depends on how you look at it. You've spent £9K (not £10K) for three years depreciation and interest payments. Everyone suffers depreciation even if they buy for cash.

And thats only if its worth no more than the residual price, and that set at the worst case scenario price so that the finance company arent taking any risk.

motorguy

emmell wrote: »

My son's friend bought a renault clio (his first car) on this type of scheme with £4000 balloon payment at the end, when he went back to the dealer they offered him £4000 so no deposit for his next car. Because he had no deposit he couldn't do another deal on a new car as he had no cash left once the finance was paid off. It's alright saying "guaranteed future value" but there was no equity left in the car.
He has now learnt his lesson.
ML.

Sounds like he handled the situation very badly and was misadvised by the car salesman (to the car salesmans advantage)

If the car was only worth on a trade in what the residual payment was then he'd have been far safer handing the car back and negotiating a hefty discount on his new car.

Also, car values have dropped significantly over the last few years, so whilst the deal originally might well have left him some equity, unfortunately this didnt work out. Of interest, and in the customers favour, BMW were caught out very very badly with this - ie, they set the residual value too high and when the cars dropped so much, people just handed them back. I think, from memory it cost them something like $1.2 Billion dollars worldwide and is now the biggest crisis in BMW's entire history.

Also, there are a lot of new car deals that require very little or no deposit, so with a bit of shopping around, he could comfortably have got himself a new car. This would particularly have held water if he'd negotatiated a hefty discount on the new car.

motorguy

ianbar0 wrote: »

i am struggling to describe this properly so i appologise in advance! i am looking to buy a new car next year. i look at these ways of buying a car with the guaranteed future value(they all have different names, think ford is options for example)

an emple would be.... mini one £13k
deposit 2900
credit 10140
first payment 329
34 monthly payments 179
optional final payment 6081

my main question is when you get to the end, i understand i pay the final payment and keep the car, however if i want to give the car back and get another, where is my deposit? is it the value of the car? im very confused. i hear this really is the best way to buy but guess im old fashioned and dont understand these things!

I would question the flat rate being used for your finance - it sounds like you are paying around 7.9% FLAT, not APR. This means your APR rate is most likely around the 15% mark which is very high for a new car purchase.

I borrow £12K off Volkswagen finance for 4% FLAT (roughly 7.9% APR) but that was only after some heavy negotation. Interest rates on PCP deals do tend to be a bit higher than regular finance deals, but it sounds like the dealer is taking his full commission cut out of the deal.

Check out https://www.carfinance.net and plug your figures in there (i would but its blocked in work here!!) and see what their equivalent PCP deal comes out at.

Also consider taking out a straight loan on the car over a longer period. Plug in 'cheap loans' into google and get one of the money comparison sites. You should see a deal with your figures of something like 7.9% APR and probably £200 a month over 5 years. Now thats a little higher than your proposed monthly payments but after three years you'll owe around £4500 if you were to change the car at that point, not £6000, plus the total cost will be less as the interest rate is less.

Show your car salesman that you can get better deals elsewhere on the finance and tell him you'll finance it elsewhere unless he gives you a better rate. They will usually crack (VW came down from 8% flat to 4% flat using this technique).

Hintza

In the old days were these deals not priced so as to leave a decent deposit for the next one. Whilst today they are priced to minimise monthly payments, which of course is a very short term way of selling new cars.

Before you buy check how much a 3 year old version of car is worth will give you a better (not guaranteed) idea on how to proceed.

I think second hand prices will remain relatively strong in the next few years (expensive price rises, scrappage and high interest rates all having an effect) so residuals will possibly hold up better. But who knows.

chieffy72

There's some right old tosh being written here!
I think the best way to describe the advantages of a PCP is as follows:

New Car £10000
Balloon £4000

Your monthly payments would be the difference ie £6000 typically over 3 years plus interest but even though you don't pay the £4000 you still pay the interest on it. The finance companies should set the balloon payment relatively low,if the car only ends up being worth £3000 at the end of the term you just give it back meaning they're £1000 out of pocket,it's more likely that the car will be worth £5000 at the end of the term giving you a £1000 deposit towards your next one.Sometimes the finance companies do set the balloon payments too high and get their fingers burnt,but better them than you!

If you buy on HP the difference in your monthly payments would add up over the term to roughly the same as the balloon payment,so you could end up paying £4000 more for a car that has a risk of only being worth £3000 at the end of the term,in other words you're letting the finance company take the depreciation risk and you're getting the benefit if the car holds it's value.

My mate spent £9000 over three years on a Golf a few years ago that ended up having a trade in value of £1500! He was gutted,said he'd never do that again,got a Fiesta on a PCP,got married had a kid so traded up to a Focus using the equity in his Fiesta,now got two kids and another on the way so has traded up to an S-Max using the equity in his Focus,three brand new cars in 5 and a half years,no long term finance agreements and hardly any maintenance costs. PCP is not for everyone but I'd certainly recommend it to most people.