PCP deposit

Lpghostage

Hi
I'm looking at a PCP deal for the first time having previously paid cash. I can't get my head around the amount of deposit to put into the deal. There is conflicting online advice with some saying put in the minimum amount and others saying the opposite to reduce the amount of interest paid.
Is there an "ideal" amount to put into a PCP as deposit or is it just down to personal choice/ circumstances?

bengalknights

Its down to personal choice however you would want to pay the least amount of interest possible

bazzyb

Are you planning on paying the balloon payment at the end of the agreement and keeping the car? If not then keep in mind that the deposit will essentially be 'lost' into the deal and when you hand the car back you will need to start from scratch and find another deposit from somewhere.

If you intend on keeping the car and paying the balloon then putting a higher deposit in means you should pay interest overall.

verityboo

A work colleague purchased a car on PCP using savings to put in the max deposit (30% I think) which resulted in low monthly payments

When they changed after 3 years the car only had £700 equity and without using a big chunk of savings again the monthly cost would have doubled - something that they had not considered

Cornucopia

Lpghostage wrote: »

Hi
I'm looking at a PCP deal for the first time having previously paid cash. I can't get my head around the amount of deposit to put into the deal. There is conflicting online advice with some saying put in the minimum amount and others saying the opposite to reduce the amount of interest paid.
Is there an "ideal" amount to put into a PCP as deposit or is it just down to personal choice/ circumstances?

It's a catch-22 situation. The Balloon payment figure should be the same or very similar irrespective of the size of the initial payment. What varies is the size of the monthly payments and the amount of interest paid over the term.

I agree with the other comments about putting in a large chunk of money at the start and finding only a small amount of equity at the end.

nomoneytoday

It's up to your personal preference IMHO.
Using an example of £10,000 for the car and a final value of £4000, means that your deposit and payments have to cover the £6000 difference, plus any interest on the entire balance outstanding. The balloon won't change.


Say the interest rate is 10% over the 3 years for ease of maths.


With a £500 deposit, you have
1 x £500
£950 interest
36 payments of £126.39
1 x £4000 balloon




With a £3000 deposit, you have
1 x £3000
£700 interest
36 payments of £56.94
1 x £4000 balloon

System

Lpghostage wrote: »

Hi
I'm looking at a PCP deal for the first time having previously paid cash.

Why would anyone want to do that? Car finance is what puts a lot of people in serious money difficulties as it is a significant amount of money you're tied into paying out every month for the next 3-5 years and you'll have nothing to show for it at the end unless you shell out another lump of money.

Rear rjwr's posts in this thread.
£9,000 shelled out, nothing to show for it at the end and he's far better off now he is free of PCP deals.

https://forums.moneysavingexpert.com/discussion/5669449

Mobeer

Tarambor wrote: »

Why would anyone want to do that?

I'm doing the same - the incentives available for taking out a PCP deal exceed the interest charges even with only a small deposit. I'm going with a large deposit to minimise the interest too.

anto164

I made the mistake of buying into pcp 3 years ago thinking it was a great idea. I got a new car for not much money. Fast forward to today, my pcp ran out and i had no equity in the car as i was well over my mileage. Getting a new car would be more expensive than i was paying as i had no additional deposit, hence getting a loan and paying the balloon payment as it worked out cheaper than paying for another 3 years pcp and beung in the same position as now, 3 years down the line.

In heindsight, i should have stayed well clear of pcp and bought a 2nd hand vehicle.

Lpghostage

Many thanks for the replies.
As I suspected there is no definitive answer to the best size of deposit and looks to be down to personal preference in the end.
The more I look at it the more I'm thinking cash could be king after all!

Clive_Woody

Lpghostage wrote: »

Many thanks for the replies.
As I suspected there is no definitive answer to the best size of deposit and looks to be down to personal preference in the end.
The more I look at it the more I'm thinking cash could be king after all!

As mentioned though, many PCP deals offer a deposit contribution or some sort of discount which means you pay less overall than paying cash up front (assuming you are planning on making the final balloon payment and keeping the car long term).

It's also worth checking out the variou online brokers (carwow, Broadspeed, Drivethedeal, etc) as they offer some very good discounts.