PCP optimisation

motorguy

geeovana wrote: »

I understand. I hope people appreciate I was not attempting to be hostile. I was merely attempting to show the OP 'in my opinion' is spending a lot of unnecessary money.

If he wants a new Q5, then you're going to be in to the realms of that sort of outlay, no matter how you fund it.

Not buying a new Q5 would - rather unsurprisingly - result in money not being spent, so you're doing nothing other than stating the obvious.

geeovana wrote: »

However, on the flip side perhaps I should be pushing the OP to buy the new car and waste his money. After all, if we convinced everybody that they shouldn't 'rent' new cars from manufacturers and buy houses that they cant afford etc. we would go into another recession and my investments wouldn't grow.


Do as you please.

You're telling us you werent attempting to be hostile yet you're using antagonistic language and drawing a particular set of conclusions?

No one is pushing the O/P to do anything. He asked advice on the most effective way to perform a particular action and he is being helped accordingly.

You've no idea what he earns, what percentage of his household income this is, what investments he has, if he rents or owns his house yet you've very clearly made some very negative assumptions about him, brought on i would suggest by the fact its an Audi on a PCP deal, and your own skewed views.

If you think that PCPing / leasing is a bad idea for everyone and want to start a thread to convince everyone of this, then go right ahead - rather than attempting to derail this one.

mp80

To put this nonsense to bed it's about 6% of my own net income or about 4% joint net income, we own everything else (sans house which I bought in a top 10 growth area, was middle ground of "what I could have borrowed"), have other fund investments through HL, and I have 2 years bills saved up in easy access cash in case of disaster, and whack £ks pcm into a pension to save 40% at source. So I feel after working 14 hours a day for the last 10 years, often away from my family in various parts of the world, I can justify something nice

facade

£10,000 a month net income



I knew I was in the Wrong Job :silenced:

DrEskimo

mp80 wrote: »

Yeah that's right, the VT point comes right at the end usually after about 85% of the term has run

Bear with me and sorry about this, but another mad idea I had was to pay the 13k cash in, refinance the balance straight away on to a personal loan over 60 months, I allegedly can get 2.8pc APR on this from my lender meaning repayments of about 440 a month which is almost parity to the PCP. Part of the deal is £1k dealer contribution as well, so I'd make a gain there.

I've not done a TCO calculation comparison as I'm on mobile so I'm guessing at this point, even though the term runs for 12 months longer, the net cost should? be lower, the ownership/GFV problem is gone and it should always be in positive equity throughout it's lifetime (obviously considering the risk profile you already mentioned re: diesel, economics etc)??

Yes, this will absolutely be a more cost effective way to buy the car. People often make the mistake of comparing APR between a PCP and personal loan, and using that decide to whether the PCP loan or the personal loan is cheaper. Because the PCP loan is set up with a large amount offset as a final payment, the capital reduction over the same term is much smaller. As a result, you pay more interest than a personal loan of the same amount, with the same APR over the same term.

To give you more concrete numbers, I got a S5 on PCP few years back that was £47k RRP, discounted to £38,500. I put £6k upfront and therefore financed £32,500 over 24months at 5.8%. This was a monthly cost of £381.

By month 21 I stopped using the car as much and since I was nearing the end of the contract, decided to sell early. I had a settlement of ~£28k and sold it to a indie dealer for £28,500. So I made 21 payments at £381 (=£8,000) + £6,000 upfront deposit (=£14,000), and I got £500 from selling it with positive equity. Net cost over 21months = £13,500. It only actually depreciated £10,000 (bought for £38,500, sold for £28,500), so I paid £3,500 in interest.

Had I done what you are proposing, put down £13,000 in cash, and financed the remaining £25,500 at 2.8% on a traditional loan where you pay down the entire loan amount over the term, it would cost me just £1,800 in interest.

If i wanted to settle the finance early, the settlement on my personal loan after 21months would be £17,000, so I could just have easily sold the car for £28,500, settled the £17,000 outstanding loan and only paid £1,100 in interest.

As you can see, there is a massive difference in the cost of the finance, although admittedly I need to look at the cost of the PCP with £13k deposit for a fair comparison. It would be about £500 cheaper, so still pretty stark.

Now, you have very effectively reduced the cost of the finance you need for the car, the next big cost you can reduce is depreciation. Because you are not using PCP and being tied to a new car, you can start looking at getting even bigger discounts by buying 12/24m old versions of the same car for even less. Personally, I see absolutely no value in new cars. The S5 was my first ever new car, and it was no less or no amazing than a 12m old version of the same S5 sitting in the forecourt. Put them side by side and cover the plate, and I wouldn't be able to tell the difference. New cars intrinsically are poor value for money. They cost many thousands more, with little to no added advantages. It's just a function of the typical depreciation curve of cars, where it is exponentially steeper at the beginning...

So if we look at my S5 example, and say I found a 18m old one for £33,000. Based on market values I saw at the time, would probably be worth about £27,000 in 21months time. Would still be under warranty (although the cost of extended warranties often are far less than the savings you make anyway...). So now my depreciation costs have gone from £10k to £6k.

So I've reduced interest from £3,500 to £1,100, and I've reduced depreciation from £10,000 to £6,000, making a combined saving of £6,400. The only difference is the number on the number plate, and the number on the odometer. A small price to pay, for such a large saving IMHO....

That's my take on the whole thing having gone through it anyway...!

System

mp80 wrote: »

Thanks

The deal is 6 pc

Sod that. Cheapest loans are 1.9%.

Buy on PCP to get the discount, get a loan for the full value and pay PCP off in full within 2 weeks of taking it out.

DrEskimo

Oh and I would think long and hard about the economics of a diesel on just 12,000 miles a year. It's unlikely that any fuel savings will offset the expected increased depreciation.

If we assume the diesel is more fuel efficient to the tune of 10MPG, and that the cost difference between petrol and diesel is 2p/lt, then the cost saving for the diesel over 48,000 miles is just £2,200.

In contrast, the diesel is expected to depreciate by over £2,700 more than the petrol Q5 going by Audi's GFV figures on their calculator. Discounts are the same as well from looking at online brokers. So despite the petrol being about £750 more in RRP, it might save you ~£500 over the long run to go for a petrol...(not to mention much quieter and faster!).

mp80

The problem is the spec of the car is much higher on the diesel / the MSRP for the spec I am procuring is about 47k and I!!!8217;m buying for 38k with dealer contribution and the discount - the petrol Q5 is about 42k. I have searched far and wide for the best deal using brokers and the like and nothing comes close.

motorguy

mp80 wrote: »

The problem is the spec of the car is much higher on the diesel / the MSRP for the spec I am procuring is about 47k and I!!!8217;m buying for 38k with dealer contribution and the discount - the petrol Q5 is about 42k. I have searched far and wide for the best deal using brokers and the like and nothing comes close.

And from memory petrol Q5s are fairly severe on fuel, which impacts resale value, which impacts GFVs...

I think a diesel 4x4 is a fairly "safe" bet at the moment, and likewise, if you're not planning on keeping it / have the option to return it, then its not a big risk.

DrEskimo

Here's a 9month old Petrol for £37,700. Sure a offer of £37k would be considered.

https://usedcars.audi.co.uk/usedcar/audi/q5/q5/petrol/automatic/252bhp-all-wheel-drive-grey-1_GBR00121419516.htm#/i/s|10,AAAR|24,S%20line,S%20line%20Navigation,S%20line%20Plus,S%20line%20Special%20Edition,S%20line%20Sport%20Edition,S%20line%20Style%20Edition|94,A|1024,51.76052,-0.55653,800,Q3VycmVudCBsb2NhdGlvbg|1050,35000|1051,40000|1121,20|1205,Zo1|1209,Zi7/l|12,1,PRICE_SALE,U

or a 7month old diesel for £35,800. Again, imagine an offer for £35k would be considered.

https://usedcars.audi.co.uk/usedcar/audi/q5/q5/diesel/automatic/190bhp-all-wheel-drive-blue-1_GBR65286423594.htm#/i/s|10,AAAR|24,S%20line,S%20line%20Navigation,S%20line%20Plus,S%20line%20Special%20Edition,S%20line%20Sport%20Edition,S%20line%20Style%20Edition|94,A|1024,51.76052,-0.55653,800,Q3VycmVudCBsb2NhdGlvbg|1050,35000|1051,40000|1121,20|1205,Zo1|1209,Zi7/l|12,1,PRICE_SALE,U

Both offer substantial savings even on your discounted new price, with more than likely slower depreciation over the same period.

That's sort of where I was going with my long rambling, and gives you the idea of what other options you have to get in effectively the same car, but at a cheaper cost.

Best of luck with the car hunting!

DrEskimo

motorguy wrote: »

And from memory petrol Q5s are fairly severe on fuel, which impacts resale value, which impacts GFVs...

I think a diesel 4x4 is a fairly "safe" bet at the moment, and likewise, if you're not planning on keeping it / have the option to return it, then its not a big risk.

On the Audi calculator, over 36m.30k miles, the GFV of the petrol is £1k higher than the diesel.

I tend to think that the 'advantage' of PCP with respect to GFV/VT is greatly overstated. To benefit from the GFV, you have to get the car on PCP and pay the higher interest charges it has. As I have demonstrated, you pay extraordinarily high amounts of interest relative to a standard loan. In my particular case, upwards of £2,000 more. Therefore the car would have to depreciate by >£2,000 more than the predicted GFV for it to be of economical advantage over the personal loan.

I have rarely seen such massive overestimation of the GFV, particularly on Audi's. Of course, there are also many ways to achieve values higher than the GFV, which is typically based on rock bottom market valuations. Private sale, sale or return, or even websites like Tootle can all offer greater values than the dealership. Case in point, I was going to trade my S5 for an S3 before I decided that PCP and buying new cars just didn't make sense to me economically, and they offered me £27k. Supposedly I was £1k in negative equity....tried tootle and got an offer of £28,500 as detailed. Suddenly £500 positive equity. The deal was also more convenient as the dealer picked up the car from my house, and it wasn't contingent on me buying another car.

Put it this way, if there was an insurance product that guaranteed your cars value at only the 36month mark at predicted market value (assuming you stay within an agreed mileage), for a £2,000 premium, would you purchase it....?

I wouldn't, as the risk of my car being undervalued by as much as £2,000 is remote, and it's far more likely I will be able it get above that market value.

Playing devils' advocate. let's say I get the car on personal loan and I save the £2,000 in interest by not getting the PCP, and therefore I cannot benefit from the GFV. At month 36, the car ends up being worth £2,500 less than the GFV. In this extreme scenario, it still has only cost me £2,500, just £500 more than if I had bought the car with a PCP. So hasn't even protected me from large scale costs in even the most exceptional circumstances that are pretty unlikely to ever happen...