PCP from BMW. Is this right?

pablopistachio

I've always bought cars with PCP.

As I understood it, you finance the difference between the purchase price of the car and the future GMV. So if the car is £20k and the GMV after 4 years is £8k, I am effectively borrowing £12k. That's what I repay over 4 years, along with the interest on that £12k.

I've just been to a BMW dealership. Their finance guy told me with PCP I am financing the full purchase price of the car, not the difference. That's what the interest is calculated on and that's how my repayments are calculated.

I didn't question him because, well he's a professional. But it's not what the PCP article on MSE says or any other article on PCP.

What flagged this up to me was the following numbers BMW were offering:

Purchase price: £24,900
Deposit: £1250
Balance on car: £23,650
GMV after 4 years: £9910
Difference: £13,740
APR 9.2%
Monthly repayments: £414 x 48
Total repayable: £29,782

I put the part I thought I was financing (£13,740) into a loan calculator at 9.2% APR over 4 years and the monthly repayments are £341, not £414.

The haven't added GAP or paint protection or any of the other usual upsells, that took the payments to £430 odd.

Am I missing something here or should I challenge the guy at BMW?

AnotherJoe

[STRIKE]As it's their PCP I guess they can calculate any way they want.[/STRIKE]
That's a very high APR. I'd wait until they had some sort of deal going.

motorguy

pablopistachio wrote: »

I've always bought cars with PCP.

As I understood it, you finance the difference between the purchase price of the car and the future GMV. So if the car is £20k and the GMV after 4 years is £8k, I am effectively borrowing £12k. That's what I repay over 4 years, along with the interest on that £12k.

I've just been to a BMW dealership. Their finance guy told me with PCP I am financing the full purchase price of the car, not the difference. That's what the interest is calculated on and that's how my repayments are calculated.

I didn't question him because, well he's a professional. But it's not what the PCP article on MSE says or any other article on PCP.

What flagged this up to me was the following numbers BMW were offering:

Purchase price: £24,900
Deposit: £1250
Balance on car: £23,650
GMV after 4 years: £9910
Difference: £13,740
APR 9.2%
Monthly repayments: £414 x 48
Total repayable: £29,782

I put the part I thought I was financing (£13,740) into a loan calculator at 9.2% APR over 4 years and the monthly repayments are £341, not £414.

The haven't added GAP or paint protection or any of the other usual upsells, that took the payments to £430 odd.

Am I missing something here or should I challenge the guy at BMW?

You're paying interest on the £13,750 AND the GMV of £9910 - you're financing £23,660.

motorguy

AnotherJoe wrote: »

As it's their PCP I guess they can calculate any way they want.

No, they cant.

There are strict rules governing deals such as this, so the dealer cant just make it up as they go along.

The issue here is, the OP hasnt included the GMV as part of the sum borrowed.

daveyjp

All PCPs are the same.

Its a loan of the whole amount borrowed with a part of the capital repayment deferred until the end of the term.

OP is not alone in not understanding how they work.

Mobeer

As others have said, the dealer is correct - you pay interest on the full amount in excess of your deposit.

I guess this is a used BMW, because 9.2% is high for a new BMW. I think the "normal" BMW used car PCP rate is 10.9%, which means you are getting a slight reduction, but you can still shop around for a cheaper loan or 3rd party PCP.

motorguy

Mobeer wrote: »

As others have said, the dealer is correct - you pay interest on the full amount in excess of your deposit.

I guess this is a used BMW, because 9.2% is high for a new BMW. I think the "normal" BMW used car PCP rate is 10.9%, which means you are getting a slight reduction, but you can still shop around for a cheaper loan or 3rd party PCP.

I also suspect the £1250 is a "manufacturer contribution".

Cornucopia

pablopistachio wrote: »

I've always bought cars with PCP.

As I understood it, you finance the difference between the purchase price of the car and the future GMV. So if the car is £20k and the GMV after 4 years is £8k, I am effectively borrowing £12k. That's what I repay over 4 years, along with the interest on that £12k.

I've just been to a BMW dealership. Their finance guy told me with PCP I am financing the full purchase price of the car, not the difference. That's what the interest is calculated on and that's how my repayments are calculated.

The BMW explanation is more accurate than yours, though the devil is in the detail.

The car's purchase cost is split into 3 elements:-

- The deposit (which could include incentives from the Manufacturer or Dealer).

- The balloon payment, which attracts interest charges but where the capital is not repaid.

- The remainder, which attracts interest charges and is repaid through the instalments.

The instalments consist of: capital repayments from the "remainder", and interest payments based on the remainder + balloon payment.

But it's not what the PCP article on MSE says or any other article on PCP.

The MSE article is not great. This is a better explanation:-

http://www.thecarexpert.co.uk/car-finance-pcp-explained/

What flagged this up to me was the following numbers BMW were offering:

Purchase price: £24,900
Deposit: £1250
Balance on car: £23,650
GMV after 4 years: £9910
Difference: £13,740
APR 9.2%
Monthly repayments: £414 x 48
Total repayable: £29,782

I put the part I thought I was financing (£13,740) into a loan calculator at 9.2% APR over 4 years and the monthly repayments are £341, not £414.

The haven't added GAP or paint protection or any of the other usual upsells, that took the payments to £430 odd.

Am I missing something here or should I challenge the guy at BMW?

It's your money, but do you really want to spend £20k on a car and then give it back after 4 years? Have you checked a comparable Lease?

pablopistachio

Really helpful guys, thank you. All makes perfect sense and obvious when you think about it (why would they not charge interest on an asset they still own?).

The deposit is directly from me as cash.

I did think the APR was high but then read used cars always attract higher rates as there's no money in the purchase. Yes, 9.2% was a 'preferential' rate compared to their 10.9% standard.

I always assumed leasing would be much more expensive with a big deposit required so never looked into it. Ill check that out. Thanks

Cornucopia

An example BMW official Lease with that kind of budget would be:-

BMW 520D M SPORT SALOON AUTO

£245 per month, £1,470 deposit and 10,000 miles pa over 4 years.

or

BMW 218I M SPORT CONVERTIBLE

£335 per month, £1817 deposit and 10,000 miles pa over 4 years.

These are business rates, and you'd need to add VAT at 20% to both repayments and deposit to get an idea of equivalent personal rates.

pablopistachio

Thanks that's a bit of an eye opener! I'm self employed so could look at a business lease.

Can I ask where you went to find those rates?