PCP Question

KevBristol

Hi,
Just been to look at a lovely little Fiat 500 for the missus.
The dealer said that if the PCP was taken over 4 years to reduce the payments then it would be no problem to trade in the car after two years with no financial penalty.
It sounds a bit too good to be true, Is it legit or am I missing something.

motorguy

KevBristol wrote: »

Hi,
Just been to look at a lovely little Fiat 500 for the missus.
The dealer said that if the PCP was taken over 4 years to reduce the payments then it would be no problem to trade in the car after two years with no financial penalty.
It sounds a bit too good to be true, Is it legit or am I missing something.

There would be no financial penalty per se but expect the car to be worth a lot less than you owe.

System

KevBristol wrote: »

Hi,
Just been to look at a lovely little Fiat 500 for the missus.
The dealer said that if the PCP was taken over 4 years to reduce the payments then it would be no problem to trade in the car after two years with no financial penalty.
It sounds a bit too good to be true, Is it legit or am I missing something.

You wouldn't be asked for a large lump of money on the spot but what the difference is between the value at the time of the trade in and the amount you owed would be added onto the finance of your next car. At 2 years old the difference will be quite significant as most cars lose around half to 2/3 of their new value in the first 2 years especially when trading in and you'll be nowhere near having covered that in PCP payments and deposit. If you don't believe me about the depreciation look at the cost of a new one then go on Ebay and look at the cost of a used 2017 one. One Skoda someone on here was wanting to get that was around £15k new was going for £10k on Ebay at less than a year old with less than 5000 miles on.

Say for example the new price was £15000, you paid £200 a month on PCP for 4 years with a £5400 balloon payment at the end. We'll make it 0% interest to make the maths simpler.

By the end of year 2 the car could be easily only worth around £8000. You've only repaid £4,800 so with the car being worth £8k you're £2200 in negative equity. You can either repay that as a lump sum or, as in the case above, the £2200 gets put on the next car's finance. You ultimately end up paying interest on interest unless the first deal is 0%.

Merlin139

PCP is priced in such a way that after 50% of the payments have been made you can hand back the car provided that the mileage is not over what it should be and owe nothing.

Read the following:

https://www.moneysavingexpert.com/car-finance/personal-contract-purchase

System

Merlin139 wrote: »

PCP is priced in such a way that after 50% of the payments have been made you can hand back the car provided that the mileage is not over what it should be and owe nothing.

Read the following:

https://www.moneysavingexpert.com/car-finance/personal-contract-purchase

No, it is 50% of the total original value of the car, not 50% of the payments. If the car was £20k new with a £5k balloon payment on a 4 year PCP deal you could only hand it back once you'd repaid £10k including your deposit, not when you'd made 2 years of payments. The way they're set up that usually means you reach that 50% within 6 months of the 3/4 years the deal is over.

motorguy

Merlin139 wrote: »

PCP is priced in such a way that after 50% of the payments have been made you can hand back the car provided that the mileage is not over what it should be and owe nothing.

Read the following:

https://www.moneysavingexpert.com/car-finance/personal-contract-purchase

No.

Absolutely not. You are muddying the waters by misquoting facts.

Its 50% of the total agreement cost, including deposit, payments, fees, interest due and residual payment due.

This normally happens (assuming a low or zero deposit) around month 32 of a 36 month agreement or month 44 if a 48 month agreement

KevBristol

KevBristol wrote: »

Hi,
Just been to look at a lovely little Fiat 500 for the missus.
The dealer said that if the PCP was taken over 4 years to reduce the payments then it would be no problem to trade in the car after two years with no financial penalty.
It sounds a bit too good to be true, Is it legit or am I missing something.

Thanks for the replies thus far.
Just to make it slightly clearer. The car (after dealers 'special' discount) is approx 18 months old, the price Im being asked to pay is £7500 on a PCP of £130 per month over 4 years at 9.5 percent APR.
Cheers - Kev

AdrianC

Playing with a PCP calculator suggests a balloon of about £3,400 - so your total finance is (£130 x 48) + £3,400 = £9,640. The 50% threshold for VT will be crossed at £4,820 repaid, 37 months. But that's all a bit of a red herring.

The salesman is suggesting that they can change the car for you after 24 months - at that time, you'll have paid £3,120, and still owe about £5,650. So will the car be worth more or less than that at that time...? If the PX value is £4,650, then you'll be adding that £1,000 difference to your next finance package. And, of course, paying interest on it.

If you were rolling £1k extra into this deal, with the same balloon and other terms, then your monthly payments would go up to £155/mo, and the total you'd be repaying would go up £1,200. Then if you changed cars before the end of THAT package...

You see how this game can quickly become silly for you... but lucrative for the people providing the finance...?

daveyjp

Salesman stretches the truth to make a sale. Quelle surprise.

PCP on a used car is a mugs game. Avoid.

AdrianC

daveyjp wrote: »

Salesman stretches the truth to make a sale. Quelle surprise.

Nothing he's reported to have said is wrong, though. The car can be traded, and there is no "financial penalty". It's just that you'll be borrowing some of the money for longer, so will obviously pay more interest on it.

PCP on a used car is a mugs game. Avoid.

While I don't necessarily disagree, the half-term-trade is not as likely to end up rolling negative equity into the replacement deal as if it was the same story on a new car - the first two years from registration see much steeper depreciation than 1.5-3.5yo, which is where the OP's looking.

System

KevBristol wrote: »

Thanks for the replies thus far.
Just to make it slightly clearer. The car (after dealers 'special' discount) is approx 18 months old, the price Im being asked to pay is £7500 on a PCP of £130 per month over 4 years at 9.5 percent APR.
Cheers - Kev

Too much. On those figures the amount you're paying is £5200 so there's going to be a balloon payment of roughly £2300 at the end.

My bank does an unsecured £7500 loan over 4 years for £167 a month. For paying an extra £37 a month over 4 years you would have a car you owned outright from the very start so if you ever ended up in the situation where you lost your job or you couldn't afford the repayments then unlike a PCP deal you'd have a car you could sell to repay the loan. Also at the end of the 4 year loan you'd still have a car instead of having to go get another one on PCP because you couldn't afford the balloon repayment.