PCP - Fixed depreciation value peace of mind?

Elika0215

I know -another PCP thread!

I've looked at so many options and creating a spreadsheet to compare various finance deals vs cash purchase.

Firstly, is this PCP example accurate (values are all made up, I'm referring to my understanding of how it works)?

- Car cash value = £20k
- Deposit = £4k
- Monthly payments of £540 x 24 months = £13k
- Balloon Payment = £5k
Total to own the car over 2 years = £22k

The calculation from the dealer includes an estimated market value after 2 years to create this PCP.

Now, when I do the calculation based on purchasing the car outright (cash/credit card), I need to also estimate the market value over 2 years to do a like-for-like comparison - correct?

So, my question; Is there a greater risk in purchasing the car outright in case depreciation reduces the market value way below the estimation provided by the dealer?

One more example; So, the same car is petrol and maybe oil prices skyrocket due to some political sanctions for instance. Less people want petrol and are going for electric/hybrids and consequently petrol cars plummet in value. Essentially, I've lessened the risk by going PCP as they have a fixed depreciation value.

I know it may go the other way but at least I won't have any nasty unexpected depreciation concerns if going PCP route.

I really hope that makes sense.

k6chris

Elika0215 wrote: »

I know -another PCP thread!

I've looked at so many options and creating a spreadsheet to compare various finance deals vs cash purchase.

Firstly, is this PCP example accurate (values are all made up, I'm referring to my understanding of how it works)?

- Car cash value = £20k
- Deposit = £4k
- Monthly payments of £540 x 24 months = £13k
- Balloon Payment = £5k
Total to own the car over 2 years = £22k

The calculation from the dealer includes an estimated market value after 2 years to create this PCP.

Now, when I do the calculation based on purchasing the car outright (cash/credit card), I need to also estimate the market value over 2 years to do a like-for-like comparison - correct?

So, my question; Is there a greater risk in purchasing the car outright in case depreciation reduces the market value way below the estimation provided by the dealer?

One more example; So, the same car is petrol and maybe oil prices skyrocket due to some political sanctions for instance. Less people want petrol and are going for electric/hybrids and consequently petrol cars plummet in value. Essentially, I've lessened the risk by going PCP as they have a fixed depreciation value.

I know it may go the other way but at least I won't have any nasty unexpected depreciation concerns if going PCP route.

I really hope that makes sense.

What car is it? A £20k car which is deemed to be worth £5k after 2 years?? I'm not sure the PCP profile makes any sense as a buyer???

Elika0215

k6chris wrote: »

What car is it? A £20k car which is deemed to be worth £5k after 2 years?? I'm not sure the PCP profile makes any sense as a buyer???

My figures were for example purposes only. But I'm not sure I'm getting this right anyway. Ultimately, in the example, I've paid £22k for a car that I own in 2 years time under a PCP contract rather than £20k if I bought it outright. Is the depreciation even a consideration therefore?

Do you want me to post some actual offers out there or is it as simplistic as above?

k6chris

Elika0215 wrote: »

My figures were for example purposes only. But I'm not sure I'm getting this right anyway. Ultimately, in the example, I've paid £22k for a car that I own in 2 years time under a PCP contract rather than £20k if I bought it outright. Is the depreciation even a consideration therefore?

Do you want me to post some actual offers out there or is it as simplistic as above?

Yes post please. The additional £2k is the cost of finance (interest / charges etc). The advantage of a PCP deal is it gives you a decision point after (in your case) the 24 month period. You can pay the balloon payment (and keep the car), walk away (give the car back) or (if the value of the car is > than the balloon payment) - used the equity you now have in the car (what it is worth minu the ballon payment) to use as a deposit on another PCP deal on another car. If you plan simply to buy the car , then PCP might not be for you??

Elika0215

k6chris wrote: »

Yes post please. The additional £2k is the cost of finance (interest / charges etc). The advantage of a PCP deal is it gives you a decision point after (in your case) the 24 month period. You can pay the balloon payment (and keep the car), walk away (give the car back) or (if the value of the car is > than the balloon payment) - used the equity you now have in the car (what it is worth minu the ballon payment) to use as a deposit on another PCP deal on another car. If you plan simply to buy the car , then PCP might not be for you??

Thank you.

So, it's a VW T-Roc SE 1.5 TSI
Deposit Contribution = £1000
Customer Deposit = £5000
Monthly payment = £258 x 35 months
Optional Final Payment = £11,181
Total Amount Payable = £26,231
(we're well within the max mileage)

Cash price = £23,895

Not sure if I'd want to buy or return for another PCP at the end of the term. I suppose if prices dropped significantly, then it would work the other way round i.e. return the car and pay say £9000 for a used model with similar mileage and age.

k6chris

Elika0215 wrote: »

Thank you.

So, it's a VW T-Roc SE 1.5 TSI
Deposit Contribution = £1000
Customer Deposit = £5000
Monthly payment = £258 x 35 months
Optional Final Payment = £11,181
Total Amount Payable = £26,231
(we're well within the max mileage)

Cash price = £23,895

Not sure if I'd want to buy or return for another PCP at the end of the term. I suppose if prices dropped significantly, then it would work the other way round i.e. return the car and pay say £9000 for a used model with similar mileage and age.

So really you are paying £14,030 over 3 years to drive this car (plus servicing / tax / insurance / repair). If that works for you, then excellent. If you want your £14k to fund a car for more than 3 years then look at buying a lower cost / second hand car. Only you can make that decision. Good luck.

DrEskimo

Yes you are correct, but you need to factor in the cost of the PCP to get this 'insurance'.

In your example above, you are getting a guaranteed value £11,181, but it's cost you £2,336 in interest to have this guaranteed value.

In order for you to see any economic advantage over the cash buyer, it needs to depreciate to below £8,845. How realistic is this, given it assumes a depreciation 67% in 3years....? Probably very unlikely!

That's my biggest problem with this argument in favour of PCP. It's too damned expensive. If you did pay cash, and someone offered you an insurance product to guarantee the values of the car (but only exactly 36m later to the day, and assuming you do no more than 30k miles) for £2,336, would you even consider it?

No...you just think...well if it's trade value falls below £8,845 I'll just sell privately...

onomatopoeia99

Any particular reason why you need a brand new car, rather than buying an older one with your deposit and saving the monthly payments and the balloon?


I always end up wondering this with PCP topics.

motorguy

Elika0215 wrote: »

Thank you.

So, it's a VW T-Roc SE 1.5 TSI
Deposit Contribution = £1000
Customer Deposit = £5000
Monthly payment = £258 x 35 months
Optional Final Payment = £11,181
Total Amount Payable = £26,231
(we're well within the max mileage)

Cash price = £23,895

Not sure if I'd want to buy or return for another PCP at the end of the term. I suppose if prices dropped significantly, then it would work the other way round i.e. return the car and pay say £9000 for a used model with similar mileage and age.

For kick off, how much discount is the dealer giving you?

According to Broadspeed, theres £3,580 to be had (including that £1,000 deposit contribution)

https://www.drivethedeal.com/buy-a-new-car/VOLKSWAGEN/T-ROC_HATCHBACK/1.5_TSI_EVO_SE_5dr_81798.html?Capid=81798&type=discounted

So you'd need to be seeing £2,000+ discount or simply ring drivethedeal and get the car through the dealer who'll do that price.

If you plan on keeping the car and have the cash, you'd be better buying it outright now and thus saving the interest charges.

motorguy

onomatopoeia99 wrote: »

Any particular reason why you need a brand new car, rather than buying an older one with your deposit and saving the monthly payments and the balloon?


I always end up wondering this with PCP topics.

£5K buys you a relatively old SUV / Soft roader. Some people dont want the perceived hassle / risk of unexpected big bills / etc of an older car.

Elika0215

Thank you so much for the replies.

A 2nd hand car is an option. A quick search on Autotrader, sorted by cheapest, has a T-Roc with £9k miles 18 reg for £18,750.

Compared to the cash price of £23,895 for a brand new model. £26,231 PCP

Now to me (it's not my sole decision!) the 2nd hand car seems like a no-brainer but please let me know if I'm missing anything!

It will still have two years remaining on the warranty, the first service will hopefully have been done as it's close to 10k miles (and 1 year) and any new car glitches (apparently these are not uncommon) would have been resolved.

So, I guess the benefit of the PCP on the new car would be; to have a new car with a low monthly payment and straightforward, flexible options after 3 years.

Again, thanks to all.