PCP Question (am I going mad?)

JohnGWalker

Hi,

Can someone who understands how PCP works please confirm my sanity.

Here's the scenario. I am looking at an ex demo Audi A1 S-line from an Audi main dealer. The retail price is £16,900. I have been told that with an annual mileage of 20k that the guaranteed minimum value after 48 months will be £7101.25.

Now the way I understand the PCP formula to work it is something like -

(((Price-GMV)/term)+interest)

Putting in the figures given and working to a 5% APR I work that out to be c£220 per month. However the dealer has quoted £333.47. This I think works out to be approximately a 60% APR.

Am I missing something? Because I am really confused by their figures now.

Please help

molerat

Work it out as ((price+interest)-gmv)/term

AdrianC

JohnGWalker wrote: »

Hi,

Can someone who understands how PCP works please confirm my sanity.

Here's the scenario. I am looking at an ex demo Audi A1 S-line from an Audi main dealer. The retail price is £16,900. I have been told that with an annual mileage of 20k that the guaranteed minimum value after 48 months will be £7101.25.

Now the way I understand the PCP formula to work it is something like -

(((Price-GMV)/term)+interest)

Putting in the figures given and working to a 5% APR I work that out to be c£220 per month. However the dealer has quoted £333.47. This I think works out to be approximately a 60% APR.

Am I missing something? Because I am really confused by their figures now.

Please help

You pay interest on the balloon, too. Remember, that's money you're borrowing over the term - but which isn't amortised into the payments over the term.

WaywardDriver

The Excel formula =PMT(5%/12,48,-16900,7101.25,1) gives £254.19. The quoted £333.47 equates to 13%.

Cornucopia

Assuming that your purchase and GMV figures are correct, then the dealer quote is high.

My PCP has similar purchase price, GMV and term to yours, and I pay £156 pm (albeit on a manufacturer subsidised 0% APR). They may well be quoting 5% flat, which is about 10% APR.

The easiest way to understand a PCP is to consider it as two loans:-

1. The repayment loan, which is £Net Price - GMV over term, with repayments.

2. The GMV loan, which is £GMV with no repayments, only interest.

I calculate the Dealer's repayment figure to equate to roughly 11.5% APR.

At 5% APR, the repayments should be around £260.

Bear in mind what a PCP actually means in practice: with the Dealer's figures you will be paying £16198 over 4 years, and then potentially walking away with no car.