PCP - Vehicle value at end of term...

dagaffman

Hi,

I’m thinking of going down the PCP route for the first time on my next car purchase.

My current circumstances mean that I’ll be putting approx £7-8k down as a deposit on a £27k new car (trade in current car), keeping the monthly payments to about £270 a month for 24 months. This suits me.

My question is in relation to the value of the car at the end of the 24 months when it comes to deciding equity (whether positive or negative) upon handing the car back to start a new PCP deal. If the equity for instance was £1000 to put towards a new car of similar value to the first one, I’d be left with much higher monthly payments if I didn’t add to the the deposit.

Is the return “Value” of the car typically a Trade in, Forecourt or private sale value??? And who decides the value???

Thanks.

foxy-stoat

The value is decided by their best guess the vehicle is worth in 2 years time - somewhere more than trade in and less than forecourt. Depending on your mileage.

wgl2014

The final payment (Or guaranteed minimum future value) is set when you take out the finance agreement and is set by the finance company.

I would do your sums based on there being no equity left in the car at the end of the agreement, if you bank on having a few grand extra you are likely to be disappointed.

Bear in mind that PCP deals look attractive if you just look at the monthly payments, when you consider the initial and final payment they don't always look as good!

If you are set on a brand new car and are also looking at changing at the end of the term consider a lease as these may be cheaper overall.

almillar

My question is in relation to the value of the car at the end of the 24 months when it comes to deciding equity (whether positive or negative) upon handing the car back to start a new PCP deal. If the equity for instance was £1000 to put towards a new car of similar value to the first one, I!!!8217;d be left with much higher monthly payments if I didn!!!8217;t add to the the deposit.

Is the return !!!8220;Value!!!8221; of the car typically a Trade in, Forecourt or private sale value??? And who decides the value???

How much is 'your' car worth to you at the end of your PCP? Precisely £0. If anyone tries to tell you it's in negative equity, just hand it back and walk away, and start again. The value is guaranteed and you've nothing more to pay allowing for fair wear and tear and mileage limits.

If you go into this hoping for, or planning for, positive equity in your car, you'll either be disappointed that you don't get any, or you've simply being paying too much for your car all these years!

They should decide the GFV at the end to be a best guess at how much your car is actually worth at that age, and that mileage. If they get it wrong, there could be positive/negative equity, but that's also often a sales tactic to get them more money, or to make another sale.

And before you fall into the trap and only find out 2nd time round. where's the £7-8k deposit coming from next time?

foxy-stoat

Your better off taking the deal, £8000 down, £270 a month then saving £520 a month for the final payment. If its worth more that £12,500 then happy days buy it and you have made some positive equity, if its worth less just hand it back and use the money that you would of saved for the next new car.

Mercdriver

Or reduce the deposit do the PCP over three years with the same monthly payments and put the difference in deposit in an interest earning account and not touch it until the end of the term. Why the need to do it over 2 years?

dagaffman

Thanks everyone.

I!!!8217;m basing it on a promotion. 0% finance for 2 years on PCP.

I!!!8217;ve looked at Nearly New for same spec/trim etc and the interest rate on the finance takes the cost higher than the New prices I have received at 0% on Carwow.

I just want to have an idea of what to expect if after 2 years IF i choose the new car option before I sign my life away.

Do the dealers try to keep your business and soften the blow on the deposit etc? Any examples of your experiences would be appreciated, particularly if you paid a big deposit.

Thanks.

Mercdriver

It will depend on the deals they have at the time. Your car going in as a large deposit is a one off thing. I have thought about PCP for my wife as she does far fewer miles than I do, and I wouldn't use the full value of trade in as a deposit to make the 'cost' superficially low. I would bank some of the trade in value in a similar deal. But am not generally convinced on the desirability of PCP. I do 24 - 25k miles a year so it would be expensive for me.

almillar

Or reduce the deposit do the PCP over three years with the same monthly payments and put the difference in deposit in an interest earning account and not touch it until the end of the term. Why the need to do it over 2 years?

Whilst the deposit is sometime considered 'dead money' it reduces the amount of interest charged.
£10k car, £5K deposit = interest charged on £5k
£10k car, £0 deposit = interest charged on £10k = more expensive.

Unless you can EARN more interest than the garage is CHARGING.

0% finance for 2 years on PCP.

Bingo. 0% Finance could be hiding a not so good deal, but if you've done your research and the price is good, you should put in as small a deposit as possible.

I just want to have an idea of what to expect if after 2 years IF i choose the new car option before I sign my life away.

You will simply start again. There will be no equity, positive or negative in your car. Do not count on any, either way, is the only way to go into it.