How PCP works when it finishes

King_Nothing

You will never walk away with £7k cash, you'll walk away with no car and no debt left. Or you'll walk away with the car after you've paid them the £7k. You're then free to use that as a £7k deposit (or whatever it is worth at trade in) on a new car, sell it, or trade it in for a car that costs less plus some money back to you.

Stu6781

Awesome. So I would get the same result by throwing £200 down a drain each month? This is an absolute joke. I genuinely thought I was building equity and way of saving. Why would anyone in their right mind do this.

Cornucopia

Buying a car under PCP is half way between Finance (HP) and Renting (Leasing).

You DO have access to any equity in the car. However, you ALWAYS owe the Balloon payment to the Finance Company until such time as it is paid back or the car is given back. The MGFV represents both the guaranteed value AND the amount owing to the Finance Company at the end of the term. That is how it is designed to operate.


There are five-ish options overall:-

At the end of the term:-

- Buy the car, paying the MGFV to the Finance Company. There will be no additional charges for damage or excess mileage.

- If the car is worth less than the MGFV, trade it in on the basis of a £0 settlement with the Finance Company (probably most easily accomplished by dealing with a dealer from the same manufacturer). There may be excess charges for mileage and damage depending on how the Dealer structures the deal.

- Give the car back at the end of the term and walk away. There may be excess charges for damage and/or mileage in this option.

At any time (when the figures make sense):-

- Trade in the car for its present value, using the payment to pay off the MGFV and accounting for any negative equity, or benefiting from any positive equity. It's unlikely that positive equity will ever be significant.

- If more than half the overall cost has been paid, then Voluntary Termination might be an option.

TadleyBaggie

Stu6781 wrote: »

Awesome. So I would get the same result by throwing £200 down a drain each month?

No, you had the use of a car to drive around in for all that time.

neilmcl

Stu6781 wrote: »

I’m so confused. If I’ve built 7k worth of equity in a car (the GMFV) SURELY I can then trade that car in for 7k for a car worth 7k and walk away. Why on earth would I have to pay another 7k?? What’s the point of me paying my monthly payments for 3 years? Lol.

No you're just not getting it. Your equity (if any) is the amount above what the car is worth at the end of the agreement, eg, if your car is actually worth £8K then you have £1K in equity.

If you choose to trade the car in the dealership will settle the finance on your behalf and use any equity left over toward your new car.

Having said all that I would very much doubt you'll have any equity left anyway, PCPs are designed so that the market value of the car pretty much matches the GMV. Remember they've been doing this for decades so they're very good at getting their valuations correct so they're not the ones out of pocket.

Scrapit

Stu6781 wrote: »

I’m so confused. If I’ve built 7k worth of equity in a car (the GMFV) SURELY I can then trade that car in for 7k for a car worth 7k and walk away. Why on earth would I have to pay another 7k?? What’s the point of me paying my monthly payments for 3 years? Lol.

What's the point of trading a 7k car for another 7k car(which the dealer will make profit on)?
If you want a 7k car to do what you want with just pay the balloon. Simple.

neilmcl

Stu6781 wrote: »

Awesome. So I would get the same result by throwing £200 down a drain each month? This is an absolute joke. I genuinely thought I was building equity and way of saving. Why would anyone in their right mind do this.

How can you be building equity, have you never heard of depreciation!

Cornucopia

TadleyBaggie wrote: »

No, you had the use of a car to drive around in for all that time.

Presumably the OP had a new car with a list price of £10k-14k to drive around in for all that time.


Each of the purchase methods have their own advantages and disadvantages. The HP figures give a good overall impression of the complete commitment (maybe £275pm for 5 years), whilst the lease figures give an optimum price for (effectively) renting the car (maybe £175pm for 3 years).

Underlying that is the fact that new cars (most cars) depreciate in value, and will never be an effective method of accumulating savings funds - that's true irrespective of the purchase method, although PCPs and Leases make the situation plainer (and for some people less palatable) than other methods.

bigisi

Stu6781 wrote: »

Awesome. So I would get the same result by throwing £200 down a drain each month? This is an absolute joke. I genuinely thought I was building equity and way of saving. Why would anyone in their right mind do this.

Wow.

Just shows it pays to read and understand[/] what you are signing up to. Not just for PCP but anything which involves paying money.

Stu6781

Obviously I understand depreciation. The value of the car was £13k. And after 3 years they give the guaranteed value -7k-

That’s the depreciation?