Can someone explain these PCP figures to newb?

MayhemMoney

Hi all,

I've never PCP or financed a car before so can someone explain these figures to me as I don't seem to understand them.

These are just figures I came across on autotrader.

The car value is £15,995.00 (2015 m135i)

1,000 deposit + £159.13 monthly payments for 36 months. that totals £6,728.68 so £2,242.00 P/A which i'd be happy with.

Whats confuses me is is the 'total charges payable £4,041.30' where the hell does that figure come from and what does it mean?

Also the APR is 9.9% which seems steep for credit ? Are there better finance PCP companies I can find out there? 

Should I just concern myself with the £6,728.68 total over 3 years and forget the other figures or can someone explain what im missing here?

do garages still tend to take px when getting a pcp? my current car px value is just over 11k so would they give me the 10k difference after taking off deposit or will I have to sell privately.

Thanks

DrEskimo

The bit you are missing is the £13,466.75 that you still have outstanding at the end of the deal. Essentially the finance company are estimating that the car after an extra 36months and 30,000 miles on the clock will depreciate from £15,995 to £13,466 (this seems awfully high, I suspect this is simply a representative example and not what will be offered...!). So essentially all of your upfront payment and monthly payments have gone purely on depreciation and interest. You have paid nothing towards owning the car at the end. You either have to pay the £13,466 to own the car at the end of the 36m, or you trade the car in and if you are offered ≥£13,466 then you clear the finance and start again from scratch, or you hand the car back to the finance company (and again, start from scratch).

The £4,041.30 charges relates to the interest you will pay through your monthly payments. If the car is £15,995 and expected to be worth £13,466 (again, I doubt this is what will be offered and this is just a representation), then you can anticipate that if you bought the car for cash, it would only cost you £2,529 (£15,995-£13,466), or £70.25 (£42.47 after the £1,000 deposit). However, by taking the finance you are paying an additional £4,041.30 to the finance company to borrow the money and pay monthly. We can illustrate this by adding the deposit £1,000 + 35 payments at £159.13, which is £6,569.55, and compare this to the expected depreciation of £2,259. As you can see, paying with the finance amounts to £4,041.30 more than if you had not paid with finance.

I strongly assume that this does not reflect an actual PCP quote though. I think its fair to say that a finance company will be predicting a much lower final payment than £13,466 after driving a £15,995 BMW for a further 36months and 30,000 miles!

But to simplify things, just think of it as you would using finance to buy anything else. Using finance to pay for, say car insurance, means you pay more overall, but it allows you to pay monthly. Same with a TV, or a sofa, or anything. So the question is, are you happing paying an extra £4,041.55 (on top of all the other costs associated with the car) to pay monthly?

daveyjp

If you don't understand it, don't go near it.

MayhemMoney

DrEskimo said:

The bit you are missing is the £13,466.75 that you still have outstanding at the end of the deal. Essentially the finance company are estimating that the car after an extra 36months and 30,000 miles on the clock will depreciate from £15,995 to £13,466 (this seems awfully high, I suspect this is simply a representative example and not what will be offered...!). So essentially all of your upfront payment and monthly payments have gone purely on depreciation and interest. You have paid nothing towards owning the car at the end. You either have to pay the £13,466 to own the car at the end of the 36m, or you trade the car in and if you are offered ≥£13,466 then you clear the finance and start again from scratch, or you hand the car back to the finance company (and again, start from scratch).

The £4,041.30 charges relates to the interest you will pay through your monthly payments. If the car is £15,995 and expected to be worth £13,466 (again, I doubt this is what will be offered and this is just a representation), then you can anticipate that if you bought the car for cash, it would only cost you £2,529 (£15,995-£13,466), or £70.25 (£42.47 after the £1,000 deposit). However, by taking the finance you are paying an additional £4,041.30 to the finance company to borrow the money and pay monthly. We can illustrate this by adding the deposit £1,000 + 35 payments at £159.13, which is £6,569.55, and compare this to the expected depreciation of £2,259. As you can see, paying with the finance amounts to £4,041.30 more than if you had not paid with finance.

I strongly assume that this does not reflect an actual PCP quote though. I think its fair to say that a finance company will be predicting a much lower final payment than £13,466 after driving a £15,995 BMW for a further 36months and 30,000 miles!

But to simplify things, just think of it as you would using finance to buy anything else. Using finance to pay for, say car insurance, means you pay more overall, but it allows you to pay monthly. Same with a TV, or a sofa, or anything. So the question is, are you happing paying an extra £4,041.55 (on top of all the other costs associated with the car) to pay monthly?

Ok so what’s happened here is the quote is estimating the value at the end of the 3 years much higher than what it probably will be when getting a real quote.
i understand the part about balloon payment at the end and I don’t intend to do that, just a car to use for 3 years then give back. 

If the figures they quoted are real in my opinion it would be a good deal to me 

MayhemMoney

daveyjp said:

If you don't understand it, don't go near it.

I understand the principle in general, just not how it’s such an appealing deal - i think it’s because they’ve estimated the cars value after the 3 years much higher than it will really be when get an actual quote 

DrEskimo

MayhemMoney said:

DrEskimo said:

The bit you are missing is the £13,466.75 that you still have outstanding at the end of the deal. Essentially the finance company are estimating that the car after an extra 36months and 30,000 miles on the clock will depreciate from £15,995 to £13,466 (this seems awfully high, I suspect this is simply a representative example and not what will be offered...!). So essentially all of your upfront payment and monthly payments have gone purely on depreciation and interest. You have paid nothing towards owning the car at the end. You either have to pay the £13,466 to own the car at the end of the 36m, or you trade the car in and if you are offered ≥£13,466 then you clear the finance and start again from scratch, or you hand the car back to the finance company (and again, start from scratch).

The £4,041.30 charges relates to the interest you will pay through your monthly payments. If the car is £15,995 and expected to be worth £13,466 (again, I doubt this is what will be offered and this is just a representation), then you can anticipate that if you bought the car for cash, it would only cost you £2,529 (£15,995-£13,466), or £70.25 (£42.47 after the £1,000 deposit). However, by taking the finance you are paying an additional £4,041.30 to the finance company to borrow the money and pay monthly. We can illustrate this by adding the deposit £1,000 + 35 payments at £159.13, which is £6,569.55, and compare this to the expected depreciation of £2,259. As you can see, paying with the finance amounts to £4,041.30 more than if you had not paid with finance.

I strongly assume that this does not reflect an actual PCP quote though. I think its fair to say that a finance company will be predicting a much lower final payment than £13,466 after driving a £15,995 BMW for a further 36months and 30,000 miles!

But to simplify things, just think of it as you would using finance to buy anything else. Using finance to pay for, say car insurance, means you pay more overall, but it allows you to pay monthly. Same with a TV, or a sofa, or anything. So the question is, are you happing paying an extra £4,041.55 (on top of all the other costs associated with the car) to pay monthly?

Ok so what’s happened here is the quote is estimating the value at the end of the 3 years much higher than what it probably will be when getting a real quote.
i understand the part about balloon payment at the end and I don’t intend to do that, just a car to use for 3 years then give back. 

If the figures they quoted are real in my opinion it would be a good deal to me 

If you want to just use a car for 3 years, then I still advocate buying without finance and then selling private. It will be much cheaper with respect to total ownership costs. Anything you save in extra depreciation is more than lost with the interest you pay.

I mean you could trade it in to have exactly the same experience as a PCP, but given that selling privately can net you an extra £1-2k, then the extra effort is more than compensated for IMO.

What I do tend to do is buy a used car on PCP if it has deposit contributions or free services from a dealer. I then settle soon after. Just be sure the car is a good price relative to the market.

MayhemMoney

DrEskimo said:

MayhemMoney said:

DrEskimo said:

The bit you are missing is the £13,466.75 that you still have outstanding at the end of the deal. Essentially the finance company are estimating that the car after an extra 36months and 30,000 miles on the clock will depreciate from £15,995 to £13,466 (this seems awfully high, I suspect this is simply a representative example and not what will be offered...!). So essentially all of your upfront payment and monthly payments have gone purely on depreciation and interest. You have paid nothing towards owning the car at the end. You either have to pay the £13,466 to own the car at the end of the 36m, or you trade the car in and if you are offered ≥£13,466 then you clear the finance and start again from scratch, or you hand the car back to the finance company (and again, start from scratch).

The £4,041.30 charges relates to the interest you will pay through your monthly payments. If the car is £15,995 and expected to be worth £13,466 (again, I doubt this is what will be offered and this is just a representation), then you can anticipate that if you bought the car for cash, it would only cost you £2,529 (£15,995-£13,466), or £70.25 (£42.47 after the £1,000 deposit). However, by taking the finance you are paying an additional £4,041.30 to the finance company to borrow the money and pay monthly. We can illustrate this by adding the deposit £1,000 + 35 payments at £159.13, which is £6,569.55, and compare this to the expected depreciation of £2,259. As you can see, paying with the finance amounts to £4,041.30 more than if you had not paid with finance.

I strongly assume that this does not reflect an actual PCP quote though. I think its fair to say that a finance company will be predicting a much lower final payment than £13,466 after driving a £15,995 BMW for a further 36months and 30,000 miles!

But to simplify things, just think of it as you would using finance to buy anything else. Using finance to pay for, say car insurance, means you pay more overall, but it allows you to pay monthly. Same with a TV, or a sofa, or anything. So the question is, are you happing paying an extra £4,041.55 (on top of all the other costs associated with the car) to pay monthly?

Ok so what’s happened here is the quote is estimating the value at the end of the 3 years much higher than what it probably will be when getting a real quote.
i understand the part about balloon payment at the end and I don’t intend to do that, just a car to use for 3 years then give back. 

If the figures they quoted are real in my opinion it would be a good deal to me 

If you want to just use a car for 3 years, then I still advocate buying without finance and then selling private. It will be much cheaper with respect to total ownership costs. Anything you save in extra depreciation is more than lost with the interest you pay.

I mean you could trade it in to have exactly the same experience as a PCP, but given that selling privately can net you an extra £1-2k, then the extra effort is more than compensated for IMO.

What I do tend to do is buy a used car on PCP if it has deposit contributions or free services from a dealer. I then settle soon after. Just be sure the car is a good price relative to the market.

Hm ok I might just stick with buying out right then. I done the same thing on my car before last I agreed to the finance deal then settled it immediately to get the free services lol. 

If I do go the pcp route though I do plan on using the capital raised to go into my s&s isa so that should help offset some of the interest im paying 

DrEskimo

MayhemMoney said:

DrEskimo said:

MayhemMoney said:

DrEskimo said:

The bit you are missing is the £13,466.75 that you still have outstanding at the end of the deal. Essentially the finance company are estimating that the car after an extra 36months and 30,000 miles on the clock will depreciate from £15,995 to £13,466 (this seems awfully high, I suspect this is simply a representative example and not what will be offered...!). So essentially all of your upfront payment and monthly payments have gone purely on depreciation and interest. You have paid nothing towards owning the car at the end. You either have to pay the £13,466 to own the car at the end of the 36m, or you trade the car in and if you are offered ≥£13,466 then you clear the finance and start again from scratch, or you hand the car back to the finance company (and again, start from scratch).

The £4,041.30 charges relates to the interest you will pay through your monthly payments. If the car is £15,995 and expected to be worth £13,466 (again, I doubt this is what will be offered and this is just a representation), then you can anticipate that if you bought the car for cash, it would only cost you £2,529 (£15,995-£13,466), or £70.25 (£42.47 after the £1,000 deposit). However, by taking the finance you are paying an additional £4,041.30 to the finance company to borrow the money and pay monthly. We can illustrate this by adding the deposit £1,000 + 35 payments at £159.13, which is £6,569.55, and compare this to the expected depreciation of £2,259. As you can see, paying with the finance amounts to £4,041.30 more than if you had not paid with finance.

I strongly assume that this does not reflect an actual PCP quote though. I think its fair to say that a finance company will be predicting a much lower final payment than £13,466 after driving a £15,995 BMW for a further 36months and 30,000 miles!

But to simplify things, just think of it as you would using finance to buy anything else. Using finance to pay for, say car insurance, means you pay more overall, but it allows you to pay monthly. Same with a TV, or a sofa, or anything. So the question is, are you happing paying an extra £4,041.55 (on top of all the other costs associated with the car) to pay monthly?

Ok so what’s happened here is the quote is estimating the value at the end of the 3 years much higher than what it probably will be when getting a real quote.
i understand the part about balloon payment at the end and I don’t intend to do that, just a car to use for 3 years then give back. 

If the figures they quoted are real in my opinion it would be a good deal to me 

If you want to just use a car for 3 years, then I still advocate buying without finance and then selling private. It will be much cheaper with respect to total ownership costs. Anything you save in extra depreciation is more than lost with the interest you pay.

I mean you could trade it in to have exactly the same experience as a PCP, but given that selling privately can net you an extra £1-2k, then the extra effort is more than compensated for IMO.

What I do tend to do is buy a used car on PCP if it has deposit contributions or free services from a dealer. I then settle soon after. Just be sure the car is a good price relative to the market.

Hm ok I might just stick with buying out right then. I done the same thing on my car before last I agreed to the finance deal then settled it immediately to get the free services lol. 

If I do go the pcp route though I do plan on using the capital raised to go into my s&s isa so that should help offset some of the interest im paying 

I wouldn't personally recommend leveraging your investments with high interest finance secured on a heavily depreciating asset...

Should you find your self in difficulty with making the payments at any point over the next few years, you may need to access the funds when the markets are down considerably, thereby consolidating any paper loses. You may find yourself in a situation where you don't have enough to repay the finance. With borrowing comes risk, compounded by investment risk in this case.

In any case, if you are set on leveraging, there are far cheaper ways to borrow money, e.g. 0% balance transfer cards, low rate bank loans, etc.

WaywardDriver

As others have said the £13466 final payment seems high. This may not seem important if you don't intend to buy the car after the 36 months but it does impact on the monthly payment. Using a more realistic value of £8466 say, I calculate the monthly payment increases from £159 to £278. 

Jonesya

I'd forget those numbers, it's a BMW 1 series, already 5 years old and would be 8 years old at the end of the PCP. BMW 1 series are everywhere, there's no scarcity, an 8 year old used one won't be worth £13,466 in 3 years time.

I expect if you progress this to a detailed quite, the correct residual value will be applied which will be a fair bit lower, pushing up the monthly payments.

[Deleted User]

The 1 series is pretty ugly too, looks a lot like an old shape Megane.