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Understanding PCP?
Comments
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It depends on the specific PCP deal. If you are simply considering running the car for a set period then the monthly payments + deposit could be equal to or less than the depreciation you were going to incur anyway.
Even if it is more, it may still be a reasonable enough deal to make it worth not looking at other funding options.
If the car can be bought for the same amount, and then traded in for the same amount, then the only difference is the cost incurred through interest. Why donate a chunk of your income to the finance company? I don't understand people's willingness to hand their money over to a company for no tangible gain??I wouldnt recommend it purely as an effective form of insurance of asset value protection, its merely a side effect. I've had it strongly work once in my favour when the car was worth approx £4,000 less than the GFV.
Yet it's constantly touted as one of the great benefits....
I'm sure it can happen, but you will never know before you take on the deal. So for every one it does work, there will be several where it would have saved you thousands just to buy the car and not pay the interest. As a method of running a car, it's a very expensive one.
Of course now and again, when the deal is good, then sure.
As an aside, what was the £4k negative equity based on? Could you have negated most of that negative equity by selling privately? How much did it cost you interest?That seems at odds with what other people are saying that residuals now are set in a way that meant there was unlikely to be any equity left?
Based on the dealers trade in valuation, yes. Valuations can vary wildly, and I find it difficult to take anyone's anecdotes on their equity position, as it's also usually muddied by being tied to another car...!
As an example, a Renault dealer offered me £11k for my Zoe as a straight purchase, yet another indie EV dealer offered me £15,250....Same when I was trying to sell my last Audi that I stupidly got on PCP...GFV was £27k and I got valuations ranging from £24k, all the way to the eventual price I sold it to of £28,500.
But i'm finding that GFVs on current deals are being set lower and lower. I believe it has something to do with VAT and setting it apart from PCH, but I could be mistaken?Like any regulated HP product, you can VT once you have made 50% of the total payments due under the agreement, so you can effectively return the car between that point and the end point with nothing further to pay (subject to fair wear and tear), so quite a bit of flexibility (often spanning months).
Yes true, VT is a way to take advantage of the 'protection' from having a car financed. I still maintain that it doesn't provide much of an advantage in most cases though...!
As ever, it depends on the car. I find these debates are generally pretty open ended unless you are looking at specific examples, where you can clearly outline the figures and objectively prove whether it's economically advantageous or not.0 -
seatbeltnoob wrote: »
I have a few friends who are on PCP, you don't get the freedom to drive the car as you would your own car.
Yes you do. I can assure you i have driven any car i've ever had on PCP totally as if i owned it.seatbeltnoob wrote: »
The GFV is nonsense. The car will almost never deprecate less than they forecast. Over 4 years of ownership they will have scuffs and dents on the car, I live in London and I have scrapes all over my 17 year old banger caused by other people. Binman take heavy bins out of flats and bashing onto my car, people parking too close to my car in supermarket and scraping the corners.
Yes, i totally agree. In your circumstance a brand new car on PCP in an inner city wouldnt make any sense. If i were living inner city i'd (a) aim for no car at all or (b) have something i didnt give a monkeys about.
In fact, for many people a new car on PCP would be a bad idea. It is not a one size fits all solution.seatbeltnoob wrote: »
Can honestly say I have never caused a single on of those dents or scrapes on the car. You will always end up paying some money on damage to the car. The tyres have a minimum thread on them and you have to put on stuff they specify. You have to service the car to a standard they determine. Might mean you take it back to dealers to do the servicing, or an independent specialist to your make who will do it properly (stamp the books, log the data in the electronic service record, check with maker for recalls etc)
Any new car should be returned to the main dealer for servicing, however there is no absolute obligation to under the finance agreement. As long as you use genuine manufacturer parts and a VAT registered garage you would be fine (and maintain the warranty).
Noone specifies what tyres you put on and whats the issue with ensuring the car is returned with road legal tyres?seatbeltnoob wrote: »
Going back to the point about not driving the car like you own it. We did a family trip from my London to Lake district, we stayed in hotels 40 miles away from the lakes (couldn't find decent accom near by). That's 280 miles to the lakes from London each way, plus 100 miles of driving a day to and from the hotel. One of the party on PCP decided to hire a car to do the trap with full damage waiver because they thought the car could get damaged parking up on country roads.
Seems ridiculous overkill. Not required by any means. I've never done it nor do i know any sane person who has done that.seatbeltnoob wrote: »
You can buy a decent car for £5000 that you can drive for 7/8 years, as I have with my 17 year old banger. it will save you a lot of money and if it's a desirable car and has been looked after you could sell it in 7/8 years for £1000-£2000, costing you very little in the long term.
You could yes. And for many that might be a perfectly practical solution. That doesnt make those who chose not to, wrong though. There are many reasons why it can work for others, even if it doesnt work for you.seatbeltnoob wrote: »
Also the "deposit", isn't actually a deposit in the true sense of the word. You wont see you deposit back. Unless in an extremely unusual scenario where the car deprecates less than the GFV, it's gone forever.
That old chestnut? Of course you dont get it back. Its not like hiring a set of golf clubs and leaving a deposit you get back later in the day.
If you put a deposit on a new house you dont get the money back when you pay off the mortgage.
If you put a deposit on a holiday do you get that back when you've been on the holiday?seatbeltnoob wrote: »
The whole instrument is designed to trick people into taking out PCP and to downplay the monthly cost of the car. People just think it's only £250 a month, they forget the VAT, they forget the deposit, they forget that they'd probable owe a grand or two in light damages on return. If you factor that all in, it's probably more like £400 a month.
There is no VAT to be added to a PCP payment.
Some people may not amortise the value but most do. Its not difficult. This is costing deposit + (monthly payment * term). Is that a good deal for me? Not difficult.
As has been said, few cars are ever returned to the finance company. Most are traded in, paid off or sold to a third party by the end of the term.seatbeltnoob wrote: »
Was watching a used car sales documentry, buyer didn't want to pay some £250 a month for it, and wanted the price reduced. The salesman just reworded the deal for them, "it's only £57 a week" [same amount as 250 a month], suddenly the deal sounded so much better and the buyers signed up.
It's just moving things around getting buyers to look at the numbers differently and make it seem cheaper than it is.
Was that a 20 year old clip on YouTube you were watching? :rotfl:
People get paid monthly these days, telling them what it will cost weekly will hold very little water for them.
I remember being told about that "technique" when i was doing sales training 30 years ago. Literally 30 years ago.0 -
So much wrong with this I don;t know where to start. In fact Mototguy has summarised most of it in the post above.seatbeltnoob wrote: »I have a few friends who are on PCP, you don't get the freedom to drive the car as you would your own car.
The GFV is nonsense. The car will almost never deprecate less than they forecast. Over 4 years of ownership they will have scuffs and dents on the car, I live in London and I have scrapes all over my 17 year old banger caused by other people. Binman take heavy bins out of flats and bashing onto my car, people parking too close to my car in supermarket and scraping the corners.
Can honestly say I have never caused a single on of those dents or scrapes on the car. You will always end up paying some money on damage to the car. The tyres have a minimum thread on them and you have to put on stuff they specify. You have to service the car to a standard they determine. Might mean you take it back to dealers to do the servicing, or an independent specialist to your make who will do it properly (stamp the books, log the data in the electronic service record, check with maker for recalls etc)
Going back to the point about not driving the car like you own it. We did a family trip from my London to Lake district, we stayed in hotels 40 miles away from the lakes (couldn't find decent accom near by). That's 280 miles to the lakes from London each way, plus 100 miles of driving a day to and from the hotel. One of the party on PCP decided to hire a car to do the trap with full damage waiver because they thought the car could get damaged parking up on country roads.
You can buy a decent car for £5000 that you can drive for 7/8 years, as I have with my 17 year old banger. it will save you a lot of money and if it's a desirable car and has been looked after you could sell it in 7/8 years for £1000-£2000, costing you very little in the long term.
Don't be suckered into getting a PCP.
Also the "deposit", isn't actually a deposit in the true sense of the word. You wont see you deposit back. Unless in an extremely unusual scenario where the car deprecates less than the GFV, it's gone forever. The whole instrument is designed to trick people into taking out PCP and to downplay the monthly cost of the car. People just think it's only £250 a month, they forget the VAT, they forget the deposit, they forget that they'd probable owe a grand or two in light damages on return. If you factor that all in, it's probably more like £400 a month.
Was watching a used car sales documentry, buyer didn't want to pay some £250 a month for it, and wanted the price reduced. The salesman just reworded the deal for them, "it's only £57 a week" [same amount as 250 a month], suddenly the deal sounded so much better and the buyers signed up.
It's just moving things around getting buyers to look at the numbers differently and make it seem cheaper than it is.0 -
If the car can be bought for the same amount, and then traded in for the same amount, then the only difference is the cost incurred through interest. Why donate a chunk of your income to the finance company? I don't understand people's willingness to hand their money over to a company for no tangible gain??
The tangible gains are on the basis that you're getting a brand new car, warranty and possibly servicing package for a set manageable monthly payment rather than be out the entire cost yourself to do so AND its covering the depreciation you'd otherwise suffer too.
That holds a lot of appeal to a lot of people.
Yet it's constantly touted as one of the great benefits....
Again - this seems to clash with the usual view "its all about the monthlies"?
I've never seen it touted as one of the great benefits. A side effect maybe. Its not the main reason i, or anyone i know, has taken out a PCP deal.
I'm sure it can happen, but you will never know before you take on the deal. So for every one it does work, there will be several where it would have saved you thousands just to buy the car and not pay the interest. As a method of running a car, it's a very expensive one.
That works on the basis that there are many people sitting with £20K, £30K, £40K in cash sitting to buy a car. There isnt. They'll maybe have £5-10K tops to put in to a car in cash which is going to depreciate anyway, and maybe incur greater costs and / or big bills along the way. OR they'll take a loan out, which incurs interest anyway.
As an aside, what was the £4k negative equity based on? Could you have negated most of that negative equity by selling privately? How much did it cost you interest?
It was based on trade in value, versus GFV. Maybe we'd have gotten £16K on a private sale but it was a relatively niche market sale, and the odds of someone rocking up with £16,000 in cash and handing it to a private seller for a car they could buy out of a dealers seemed remote. Either way it was a loss we didnt have to suffer.
Cant recall what the interest rate was at the time. Certainly not negligable, but we'd factored it in to our budget and affordability.
Based on the dealers trade in valuation, yes. Valuations can vary wildly, and I find it difficult to take anyone's anecdotes on their equity position, as it's also usually muddied by being tied to another car...!
I personally seperate out
* discount on the new car
* value of my car
* funding of said vehicle
In to three separate activities. I am more than happy to use two or three separate entities to make the deal work for me. There is no need to just "trade the car in" these days. Many other selling options.
Likewise many cheap loan options if needs be.
As an example, a Renault dealer offered me £11k for my Zoe as a straight purchase, yet another indie EV dealer offered me £15,250....Same when I was trying to sell my last Audi that I stupidly got on PCP...GFV was £27k and I got valuations ranging from £24k, all the way to the eventual price I sold it to of £28,500.
Yup - which is in line with what i was saying there - i never assume any one source (the GFV or a particular dealer) is the best way to sell my car.
But i'm finding that GFVs on current deals are being set lower and lower. I believe it has something to do with VAT and setting it apart from PCH, but I could be mistaken?
They are set lower because its less risk for the finance company. They have got burnt badly in the past and i think they fear the level of exposure they have to market changes - such as brexit, recessions, etc.
Yes true, VT is a way to take advantage of the 'protection' from having a car financed. I still maintain that it doesn't provide much of an advantage in most cases though...!
Yup, though more people are doing it as they see it as an "easy" option to get out of a finance deal early.
As ever, it depends on the car. I find these debates are generally pretty open ended unless you are looking at specific examples, where you can clearly outline the figures and objectively prove whether it's economically advantageous or not.
And even then one specific deal may work out best on PCP and another may not. Its not a one size fits all solution nor does it fit everyones circumstances. For a lot of people it wont / doesnt work best.0 -
The tangible gains are on the basis that you're getting a brand new car, warranty and possibly servicing package for a set manageable monthly payment rather than be out the entire cost yourself to do so AND its covering the depreciation you'd otherwise suffer too.
That holds a lot of appeal to a lot of people.
I'm comparing it to buying the brand new car with PCP and settling the next day. Same car, same warranty, same servicing package. It's just cheaper, as you have no interest to pay. You are saving thousands of pounds don't forget. The interest costs are generally not small!
Mathematically that is just a fact, unless of course the car is worth less than the GFV + the cost of interest. So now it becomes a question of risk. Do you take the PCP on the extremely small, almost zero chance that the car will be worth less than the GFV + interest costs, or do you pay cash on the basis that there is a much much higher probability that you will save the entire cost of the interest as the car will be worth the same, or more than the GFV?
I know which I would choose....
It's usually at this point that someone suggests it's better to keep the cash rather than putting it into a heavily depreciating asset. Well if someone can tell me where I can stick tens of thousands of pounds and get a guaranteed return of around 5% with zero risk, I am all ears. Otherwise I don't think many accountants would suggest high risk investment strategies over typically short investment windows, leveraged using money borrowed against a new car that's costing you thousands in interest!Again - this seems to clash with the usual view "its all about the monthlies"?
That works on the basis that there are many people sitting with £20K, £30K, £40K in cash sitting to buy a car. There isnt. They'll maybe have £5-10K tops to put in to a car in cash which is going to depreciate anyway, and maybe incur greater costs and / or big bills along the way. OR they'll take a loan out, which incurs interest anyway.
Agreed. The one and only reason you would use PCP in my view. To buy a car you can't otherwise purchase using the most expensive form of finance (again, mathematically a PCP will cost more than the exact same HP with the same amount, term and APR).
Of course this completely ignores financial risk. Exactly why I personally don't recommend that people generally use finance to purchase a car. The financial risk they expose themselves too is too high.It was based on trade in value, versus GFV. Maybe we'd have gotten £16K on a private sale but it was a relatively niche market sale, and the odds of someone rocking up with £16,000 in cash and handing it to a private seller for a car they could buy out of a dealers seemed remote. Either way it was a loss we didnt have to suffer.
Cant recall what the interest rate was at the time. Certainly not negligable, but we'd factored it in to our budget and affordability.
The point I was making is that you need to factor in the cost of interest on the savings you had from being able to use the GFV, otherwise it's not actually what you have saved vs. cash. The 'protection' you gained for having a GFV came at a cost in the form of interest. It wasn't free.
I agree, private sale is more hassle. But I obtained the greater trade in price on my Audi using a dealer I haggled with on Tootle. Bit more work, but I went from £3k negative equity, to £500 positive equity, so more than worth it!
When you factor in the cost of the interest as well as the fact that negative equity can viable be mitigated by shopping around, I maintain that the vast majority of the time, a car is worth more than the GFV, and almost always worth more than the GFV + interest costs incurred. Even if on the odd occasion you do get lucky; A) you have no way of predicting this before hand, and
More times than not, the car will be worth more, meaning over many cars, you will undoubtedly save lots of money by going with cash, than going with PCP. As a strategy for buying and selling cars over the decades people typically need to have a car (irrelevant of whether you only keep them 2/3yrs), PCP is the most expensive way.They are set lower because its less risk for the finance company. They have got burnt badly in the past and i think they fear the level of exposure they have to market changes - such as brexit, recessions, etc.
So any real benefit of having a GFV in terms of deprecation risk is basically nil now...agreed...?
My personal opinion is that, with the exception of 0% or extremely low APR, PCP is a poor product for those that have the funds to not be exposed financially, and a high risk product for those that need it to be able to afford the car.
My advice is simple. If you really want the car pay cash. If you can't afford it in cash, finance using finance at the lowest possible interest cost over the shortest possible period (i.e. low interest rate personal loan of no more than 50% of the cars value). If you can't afford those monthlies, then keep saving so you borrow less (or indeed, buy a cheaper car...).
I have never thought...Paying it using PCP over the next 3yrs is the best (both in terms of cost and risk) method for you....0 -
It depends on the specific PCP deal. If you are simply considering running the car for a set period then the monthly payments + deposit could be equal to or less than the depreciation you were going to incur anyway.
Even if it is more, it may still be a reasonable enough deal to make it worth not looking at other funding options.
I wouldnt recommend it purely as an effective form of insurance of asset value protection, its merely a side effect. I've had it strongly work once in my favour when the car was worth approx £4,000 less than the GFV.
That seems at odds with what other people are saying that residuals now are set in a way that meant there was unlikely to be any equity left?
Like any regulated HP product, you can VT once you have made 50% of the total payments due under the agreement, so you can effectively return the car between that point and the end point with nothing further to pay (subject to fair wear and tear), so quite a bit of flexibility (often spanning months).
Personally I think this aspect has been abused too often against what the VT aspect was designed for. There is a risk with a more big business government less consumer based government that this might be tightened up in a way we wouldn't want. How would people feel if it was decided that those who VT have a mark made on their credit report that would block - effectively or actively - them from taking out any finance for a set period of time.
You can see how financial companies have dealt with consumer protection with credit card debt. Government made banks do something about persistent debt - to assist those that are in persistent debt. Credit card companies way of dealing with this is to give the customer a set period of time to pay much more per month or have their whole agreement cancelled and the whole debt payable in full. If that person cannot pay that full amount, they end up in default, then CCJ's follow. That isn't assisting the consumer, that shifting the goalposts.0 -
Hmm, cheaper to buy outright or finance on 0% is it?
I found these figures on the Fiat website for their very popular 500 Pop.
i-Deal PCP
DURATION
48 Months
FIRST PAYMENT
£131.73
46 MONTHLY PAYMENTS
£131.73
OPTIONAL FINAL PAYMENT
£3,460.00
CASH PRICE
£12,165.00
CUSTOMER DEPOSIT
£1,824.84
FIAT FINANCE DEPOSIT CONTRIBUTION
£1,550.00
TOTAL DEPOSIT
£3,374.84
AMOUNT OF CREDIT
£8,790.16
TOTAL CHARGE FOR CREDIT
£2,319.54
TOTAL AMOUNT PAYABLE BY CUSTOMER
£11,476.15
OPTION TO PURCHASE FEE
£10.00
APR REPRESENTATIVE
3.5% APR
RATE OF INTEREST (FIXED)
3.50%
0% HP
DURATION
48 Months
FIRST PAYMENT
£215.42
FINAL PAYMENT
£215.42
46 MONTHLY PAYMENTS
£215.42
CASH PRICE
£12,165.00
CUSTOMER DEPOSIT
£1,824.84
TOTAL DEPOSIT
£1,824.84
AMOUNT OF CREDIT
£10,340.16
TOTAL CHARGE FOR CREDIT
£0.00
TOTAL AMOUNT PAYABLE BY CUSTOMER
£12,165.00
APR REPRESENTATIVE
0% APR
RATE OF INTEREST (FIXED)
0%
The PCP works out £688 cheaper even against 0% HP.0 -
It is always about the total cost. A discounted interest rate means the cost of that discount has been absorbed elsewhere. £250 a month PCP including a 10% APR interest rate is cheaper than £260 a month at 0%, for the same thing. You might get a warm tingly feeling with 0% APR, you might get the illusion of getting one over on the dealer / manufacturer, but it ALWAYS comes down to the payments. Upfront + monthlies, + end of deal costs = total cost of deal = all that mattersHmm, cheaper to buy outright or finance on 0% is it?
I found these figures on the Fiat website for their very popular 500 Pop.
i-Deal PCP
DURATION
48 Months
FIRST PAYMENT
£131.73
46 MONTHLY PAYMENTS
£131.73
OPTIONAL FINAL PAYMENT
£3,460.00
CASH PRICE
£12,165.00
CUSTOMER DEPOSIT
£1,824.84
FIAT FINANCE DEPOSIT CONTRIBUTION
£1,550.00
TOTAL DEPOSIT
£3,374.84
AMOUNT OF CREDIT
£8,790.16
TOTAL CHARGE FOR CREDIT
£2,319.54
TOTAL AMOUNT PAYABLE BY CUSTOMER
£11,476.15
OPTION TO PURCHASE FEE
£10.00
APR REPRESENTATIVE
3.5% APR
RATE OF INTEREST (FIXED)
3.50%
0% HP
DURATION
48 Months
FIRST PAYMENT
£215.42
FINAL PAYMENT
£215.42
46 MONTHLY PAYMENTS
£215.42
CASH PRICE
£12,165.00
CUSTOMER DEPOSIT
£1,824.84
TOTAL DEPOSIT
£1,824.84
AMOUNT OF CREDIT
£10,340.16
TOTAL CHARGE FOR CREDIT
£0.00
TOTAL AMOUNT PAYABLE BY CUSTOMER
£12,165.00
APR REPRESENTATIVE
0% APR
RATE OF INTEREST (FIXED)
0%
The PCP works out £688 cheaper even against 0% HP.
"For every complicated problem, there is always a simple, wrong answer"0 -
Mercdriver wrote: »Personally I think this aspect has been abused too often against what the VT aspect was designed for. There is a risk with a more big business government less consumer based government that this might be tightened up in a way we wouldn't want. How would people feel if it was decided that those who VT have a mark made on their credit report that would block - effectively or actively - them from taking out any finance for a set period of time.
You can see how financial companies have dealt with consumer protection with credit card debt. Government made banks do something about persistent debt - to assist those that are in persistent debt. Credit card companies way of dealing with this is to give the customer a set period of time to pay much more per month or have their whole agreement cancelled and the whole debt payable in full. If that person cannot pay that full amount, they end up in default, then CCJ's follow. That isn't assisting the consumer, that shifting the goalposts.
I totally agree. The VT function is not being used for what it was intended for - to stop finance companies pursuing individuals for disproportionate amounts if they could no longer afford to pay.0 -
It is always about the total cost. A discounted interest rate means the cost of that discount has been absorbed elsewhere. £250 a month PCP including a 10% APR interest rate is cheaper than £260 a month at 0%, for the same thing. You might get a warm tingly feeling with 0% APR, you might get the illusion of getting one over on the dealer / manufacturer, but it ALWAYS comes down to the payments. Upfront + monthlies, + end of deal costs = total cost of deal = all that matters
Agreed. There was a guy on one of these threads scoffed at people using PCP deals and said he always only ever bought with cash and / or 0% finance.
It then emerged he'd given FULL LIST PRICE of £24,000 for a 308 convertible diesel. :eek: He'd been that focused on getting 0% that he didnt try to negotiate on the price of the car. Using a broker he could have got an easy £4,000 off at the time.
Though back to your Fiat 500 deal, the manufacturer usually only lists list price in these deals but discounts are also available.
I dont think there is any reason why you couldnt combine a good discount with that offer.0
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