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Understanding PCP?
Comments
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This is because Fiat are offering a finance contribution to take out the PCP product.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 -
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.
No, the cheapest option would be outright. You would buy the £12,165 car on PCP, get the £1,550 deposit contribution, then settle the finance the next day, so pay no interest.
Total cost would be £10,615, so £861 cheaper than PCP.
I was very careful to say 0% PCP, as I have yet to see a 0% HP that doesn't work out more expensive as it doesn't have the deposit contributions. As said, the interest is just paid through another method. However there was once a BMW PCP offer that had the same level of discounts and did offer 0%. Generally though, paying for it outright, that may require taking it on PCP initially, is the cheapest option.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 think people are using it when they probably would be better off just finding a dealer that will buy the car for same, or even more than the settlement figure...!
People have it in their head that VT is the only option for some reason, and don't actually check what a dealer will offer them. Saves them dealing with the hassle of having it picked up by the auction company, then getting a bill for unfair wear and tear that they have to dispute, etc etc.
The dealer that bought mine drove to my house one evening, looked it over, agreed that the car was in condition that we agreed the price on, sent over the money and drove it away the same evening....0 -
£688 cheaper because of £1,550 "contribution", offset against £2,319.54 "charge for credit".
Something's not making sense there.
Both £12,165 cash price.
Both £1,824.24 customer deposit.
To drive away at the end of the term in a 500 you own...
PCP: (47 x £131.73) + (£3,460 + £10) = £9,661.31 (+ £1,550 = £11,211.31)
HP: (48 x £215.42) = £10,340.160 -
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!
Agreed - however you have to balance that by how you're funding the "cash" to buy it? With a cheap loan from elsewhere theres interest to pay, with an offset mortgage theres interest to be paid, even with just removing the money from savings theres interest lost.
And if you remove the interest from savings you're tying up that full amount for the duration. Use a cheap PCP deal and you will still have all / the bulk of that money in savings to offset the interest charges and still have access to the money.
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....
Its only a fact if you're using all the factors involved. You're not. You didnt include the cost of using the cash from another source. Even if thats just savings theres interest lost.
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!
Any good financial advisor will tell you how to invest and get a minimum of 5% with minimal risk. You might be up a little on that one year and down a little another but 5% isnt difficult to achieve with a little planning.
Also, putting the money in to a pension will save considerably on tax and thus easily offset the interest charges.
And this is all very much a moot point anyway - the odds of someone plashing £40,000 on some new Audi A4 in cash is practically nil. So its down to "what do i want to get for my £300 a month? A 5 year old car on a loan and need to change it in three years or so anyway, or a new car on a PCP? "
OR "do i want to run an old car for £5,000 cash from my savings and risk ad hoc bills, hassle with MOTs and repairs and maybe the odd breakdown?"
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.
Not all PCP deals are expensive. Some are 0% APR, some a very low APR. Some, the car price is low enough that the interest charges arent massive anyway. THEN you're in to the realms of "is paying that bit of interest per month worth the benefits i believe i will be getting from a new car?" For a lot of people it is.
For a lot of people there is a lot to be said for a fixed monthly amount to cover warranty, depreciation, breakdown cover and often servicing. They're paid monthly, they pay pretty much all their other bills monthly, so why not their car.
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!
Yes, sometimes it works out, sometimes it doesnt. With the BMW example i gave of £4,000 negative equity, we were NEVER recovering that to a positive position. Conversely more recently i sold our year old Cooper S for £16,000 (on facebook above all places), when the dealer was only offering me £12,500.
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.
It may be. There are times when it isnt, there are times when it costs no more, but even IF we run with your it IS the most expensive way premise, there are benefits to doing so. As i've said, you're otherwise getting a brand new car, manufacturers warranty, breakdown cover, often a service pack, etc, etc. There is a monetary value to that and those benefits are worth paying extra for to a lot of people.
So any real benefit of having a GFV in terms of deprecation risk is basically nil now...agreed...?
I have repeatedly said it is not the main reason people PCP cars, however it is an added side effect. They are protected if the value is less than the GFV. If you're including the cost of the interest in the monthly payments and the perceived benefits above, you cant then count it again in the negative equity scenario. Thats double counting.
"PCP gives you a new car for a set monthly payment" - ah but you're paying interest in that.
"You get the added benefit of being protected against price fluctuation at the end of the term" - ah but you're paying interest in that.
Its an either / or. You cant include it in both arguments.
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.
And you're putting massive caveats in there to make that statement fly. You're negating the point that if you're otherwise buying the car with cash, its costing you somewhere else to do so.
And if someone doesnt have access to the £40,000 or so to buy say a new A4, then you're down to "is it worth £300 / £350 a month to me to get this car and the perceived benefits"?
OR do i take out a £15,000 cheap loan, pay the same monthly payment, still suffer depreciation, still pay interest and run the risk of an older car and probably have to change it at the end of the term anyway?
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....
My advice is simpler still.- Work out what you can afford.
- Consider how long you want to keep it.
- Find the cheapest way to fund it.
That may not be PCP. In fact for most people it isnt. PCP is not a one size fits all solution.0 -
£688 cheaper because of £1,550 "contribution", offset against £2,319.54 "charge for credit".
Something's not making sense there.
Both £12,165 cash price.
Both £1,824.24 customer deposit.
To drive away at the end of the term in a 500 you own...
PCP: (47 x £131.73) + (£3,460 + £10) = £9,661.31 (+ £1,550 = £11,211.31)
HP: (48 x £215.42) = £10,340.16
The customer isnt paying the £1,550. Its a finance contribution.0 -
Yes, I know. That's why it's broken out from the customer's payments.
PCP: Monthlies + Balloon = Customer contrib (+ Fiat contrib = Total)
The numbers still don't make sense.0 -
I think people are using it when they probably would be better off just finding a dealer that will buy the car for same, or even more than the settlement figure...!
People have it in their head that VT is the only option for some reason, and don't actually check what a dealer will offer them. Saves them dealing with the hassle of having it picked up by the auction company, then getting a bill for unfair wear and tear that they have to dispute, etc etc.
The dealer that bought mine drove to my house one evening, looked it over, agreed that the car was in condition that we agreed the price on, sent over the money and drove it away the same evening....
Agreed, i would be checking all possible purchase sources - main dealer buy back, other local dealers, we buy your car type sites, private sale...0 -
Agreed - however you have to balance that by how you're funding the "cash" to buy it? With a cheap loan from elsewhere theres interest to pay, with an offset mortgage theres interest to be paid, even with just removing the money from savings theres interest lost.
And if you remove the interest from savings you're tying up that full amount for the duration. Use a cheap PCP deal and you will still have all / the bulk of that money in savings to offset the interest charges and still have access to the money.
Its only a fact if you're using all the factors involved. You're not. You didnt include the cost of using the cash from another source. Even if thats just savings theres interest lost.
OK, so remove 1.5% interest from a savings account. If the PCP is around the typical APR of 5%, why would I pay 5% in interest, to save 1.5% in savings? The net cost is 3.5%, so I am better off just paying off the debt on the car. If you have a PCP deal that is <1.5%, then yes, this is the 'low or 0% PCP deal' that I mentioned I may consider. The vast majority are not this though....Any good financial advisor will tell you how to invest and get a minimum of 5% with minimal risk. You might be up a little on that one year and down a little another but 5% isnt difficult to achieve with a little planning.
Also, putting the money in to a pension will save considerably on tax and thus easily offset the interest charges.
If you don't pay the interest on the PCP finance you are guaranteed to save that money. No independent financial advisor is going to even recommend investing over a 3/4yr period, let alone suggest that you can get a 5% net return that are low risk. Why risk it at all? Why not just not use PCP and have zero risk and save 5%?? For some reason there is this view that I am dead worried about the almost zero risk of the car becoming worthless, so I want the 'protection' from the GFV of a PCP, then in the next breath are advocating extremely high risk investment strategies to try and mitigate the costs of going with a PCP!
Discussing pensions is not a fair comparison. You can't invest in a pension for the duration of a PCP! Anyway, people should be ensuring they have good pension provisions before they set out their budget for a car. Not choosing between the two! Again, borrowing money as leverage to invest is generally not advisable. Doing it with high cost interest borrowed against a high depreciation asset is just plain daft IMO...And this is all very much a moot point anyway - the odds of someone plashing £40,000 on some new Audi A4 in cash is practically nil. So its down to "what do i want to get for my £300 a month? A 5 year old car on a loan and need to change it in three years or so anyway, or a new car on a PCP? "
OR "do i want to run an old car for £5,000 cash from my savings and risk ad hoc bills, hassle with MOTs and repairs and maybe the odd breakdown?"
Not all PCP deals are expensive. Some are 0% APR, some a very low APR. Some, the car price is low enough that the interest charges arent massive anyway. THEN you're in to the realms of "is paying that bit of interest per month worth the benefits i believe i will be getting from a new car?" For a lot of people it is.
For a lot of people there is a lot to be said for a fixed monthly amount to cover warranty, depreciation, breakdown cover and often servicing. They're paid monthly, they pay pretty much all their other bills monthly, so why not their car.
Ah I think this is the heart of where we disagree...!
I don't think getting a car for a high monthly payment is a benefit.
I don't think people should be buying things they otherwise couldn't afford, as there is financial risk involved. No one can guarantee their income will stay the same, or their outgoing will stay the same. Paying month to month for things is precisely how people get into financial trouble, as they are not looking at the bigger picture and planning for the unexpected.
If someone has the finance to mitigate these financial risks, then they are better off with other financial productsYes, sometimes it works out, sometimes it doesnt. With the BMW example i gave of £4,000 negative equity, we were NEVER recovering that to a positive position. Conversely more recently i sold our year old Cooper S for £16,000 (on facebook above all places), when the dealer was only offering me £12,500.
Right, but you see that it didn't save you £4,000. It saved you £4,000 - the interest you paid, which may have been around the £2/3k mark (at a guess)?
Sorry I am getting a bit fatigued with answering each part of the post, and I think I've realised the fundamental part of where we disagree....!
I mean, do you have an example of a PCP deal on a car today where you would advise someone took it and paid the full term? Every car I have ever looked at, it makes more sense to pay for it outright, or borrow using a personal loan.0 -
Yes, I know. That's why it's broken out from the customer's payments.
PCP: Monthlies + Balloon = Customer contrib (+ Fiat contrib = Total)
The numbers still don't make sense.
Cost to own the car via PCP =
£1824.24 + (47 * £131.73) + £3,460 + £10 = £11,485.
Cost to own the car via HP @ 0%
£1824.24 + (48 x 215.42) = £12,164.40
Difference = £679.40
Interest charges = £2319.54
Finance contribution = £1550.
Difference = £769.54
They're £90 or so askew in their figures somewhere, and their total amount payable by customer is wrong for the PCP.0
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