PCP & Guaranteed Future Value

almillar

Unless there is equity left in the car. You must assume there isn't but can use a depreciation calculator to work out the likelihood...

Most deals try to leave a small amount in to ensure the customer just "rolls into a new deal".

I purposely left out equity because I feel it's used as a sales tactic at the start, and can often vanish at the end (or, again, used as a sales tactic to get you into another car).

If you're left with equity at the end, and think that's a positive thing, it just means you've overpaid during the hire period. If you're in negative equity, it means you've underpaid, it's not your problem, and you just walk away.

If you do treat it like a hire, you shouldn't worry one bit about equity, in fact, you should be against it, and go for as little outlay as possible over the period, and as big a GVF as possible.

AdrianC

almillar wrote: »

I purposely left out equity because I feel it's used as a sales tactic at the start, and can often vanish at the end (or, again, used as a sales tactic to get you into another car).

If you're left with equity at the end, and think that's a positive thing, it just means you've overpaid during the hire period. If you're in negative equity, it means you've underpaid, it's not your problem, and you just walk away.

If you do treat it like a hire, you shouldn't worry one bit about equity, in fact, you should be against it, and go for as little outlay as possible over the period, and as big a GVF as possible.

Kinda, but also not that simple...

Remember, you're paying interest on the balloon for the entire period. If you have a smaller balloon, you're paying more off earlier, so are paying less interest.

Let's try some examples...
So using https://www.carwow.co.uk/pcp-calculator
£20k price, £10k balloon, £10k to pay off, everything else default.
£367/mo x 36 = £13,212 + £10k balloon = £23,212 total

Same but £5k balloon, £15k to pay off.
£492/mo x 36 = £17,612 + £5k balloon = £22,612 total

So as long as the car's market value is above £9,200, you're better off with the smaller balloon. If the car has equity in even at the £10k balloon, then you're £800 better off with the smaller balloon.

facade

AdrianC wrote: »

Kinda, but also not that simple...

Remember, you're paying interest on the balloon for the entire period. If you have a smaller balloon, you're paying more off earlier, so are paying less interest.

Let's try some examples...
So using https://www.carwow.co.uk/pcp-calculator
£20k price, £10k balloon, £10k to pay off, everything else default.
£367/mo x 36 = £13,212 + £10k balloon = £23,212 total

Same but £5k balloon, £15k to pay off.
£492/mo x 36 = £17,612 + £5k balloon = £22,612 total

So as long as the car's market value is above £9,200, you're better off with the smaller balloon. If the car has equity in even at the £10k balloon, then you're £800 better off with the smaller balloon.

You've lost me now...


If you are ignoring the balloon, and treating it as a hire, as almillar says, then even though you pay less interest on the smaller balloon, you pay less money to rent the car surely with the bigger balloon, as you only pay the monthly x 36, so the £10k balloon saves you £4200.

AdrianC

facade wrote: »

You've lost me now...

If you are ignoring the balloon, and treating it as a hire, as almillar says, then even though you pay less interest on the smaller balloon, you pay less money to rent the car surely with the bigger balloon, as you only pay the monthly x 36, so the £10k balloon saves you £4200.

Except that the car at the end of the term is worth - say - £9,750.

On the £5k balloon, you've paid £4,200 more on the monthlies - but you've got a nice easy way to get £4,750 of it back.

facade

AdrianC wrote: »

Except that the car at the end of the term is worth - say - £9,750.

On the £5k balloon, you've paid £4,200 more on the monthlies - but you've got a nice easy way to get £4,750 of it back.

Ah, now I get it, you are investing in the future value of the car, and hoping WBAC will give you enough to leave you up a few quid over the 3 years.

I suppose this is why I'm not a millionaire, I would never lay out £4200 over 3 years on the outside chance of maybe getting £4750 back....

Of course, with Proper Inflation, like in The Olden Days, you could have banked the difference in the monthlies and got "interest" on it, which might have worked the other way.

iwb100

almillar wrote: »

I purposely left out equity because I feel it's used as a sales tactic at the start, and can often vanish at the end (or, again, used as a sales tactic to get you into another car).

If you're left with equity at the end, and think that's a positive thing, it just means you've overpaid during the hire period. If you're in negative equity, it means you've underpaid, it's not your problem, and you just walk away.

If you do treat it like a hire, you shouldn't worry one bit about equity, in fact, you should be against it, and go for as little outlay as possible over the period, and as big a GVF as possible.

You're making it too complicated. What matters (if you want a new car) is the cheapest way of doing it be it PCP or PCH assuming you are "hiring" rather than buying outright or via a bank loan.

You assume 0 equity for the cost calculation.

BUT if PCP is cheaper and you have equity then that's a bonus and something you want. Doesn't matter how much you've "overpaid" because you got the best deal to get the car at the time and now you've got equity as the bonus.

almillar

£20k price, £10k balloon, £10k to pay off, everything else default.
£367/mo x 36 = £13,212 + £10k balloon = £23,212 total

Same but £5k balloon, £15k to pay off.
£492/mo x 36 = £17,612 + £5k balloon = £22,612 total

If you are ignoring the balloon, and treating it as a hire, as almillar says

Indeed.

We were talking about PCP and PCH, and doing purely rental, NO purchase at the end.

So in your examples, that's £13,212 to run the car for 3 years with a big balloon, versus £17,612 with the small balloon.

On the £5k balloon, you've paid £4,200 more on the monthlies - but you've got a nice easy way to get £4,750 of it back.

Which you've already paid for during the term, to the tune of (£17,612-£13,212=) £4,400!

You're making it too complicated. What matters (if you want a new car) is the cheapest way of doing it be it PCP or PCH assuming you are "hiring" rather than buying outright or via a bank loan.

You assume 0 equity for the cost calculation.

I tried to keep it simple by not mentioning equity!! But I agree with the above.

dolphin85

Thanks so much for everyone's comments and assistance!
I'm off to a sales event this weekend to potentially look at getting a new car on a trade in and new agreement. Failing that, I think I've decided to finance the balloon payment in October over 2/3 years and own the car at the end that way.
Thanks again!

neilmcl

dolphin85 wrote: »

Thanks so much for everyone's comments and assistance!
I'm off to a sales event this weekend to potentially look at getting a new car on a trade in and new agreement. Failing that, I think I've decided to finance the balloon payment in October over 2/3 years and own the car at the end that way.
Thanks again!

The good old "trade/VIP event". A way of getting customers to start new agreements earlier than they need to. Trust me the only people benefit these are the dealers themselves, or perhaps potential new customers with no existing finance arrangements.

DrEskimo

neilmcl wrote: »

The good old "trade/VIP event". A way of getting customers to start new agreements earlier than they need to. Trust me the only people benefit these are the dealers themselves, or perhaps potential new customers with no existing finance arrangements.

Bet prices are still way more than you would pay compared to using online brokers to drive the price down, which can be done anytime of the year...!