Finance Value Over Time

rafhelp

You buy a new car for 10K

Every year the value seems to go down by about 1K

By year 5 the car is worth about 5K

If you finance a 10K car

over 5 years

every year the cars value goes down by say 1K

but would this be taken into account for the remaining payment calculations?

so for example after 1 year the value of that car is 9K so now the monthly payment should decrease accordingly

Or is this not the case

poppy12345

rafhelp said:

so for example after 1 year the value of that car is 9K so now the monthly payment should decrease accordingly

No because you bought a car that was 10k not 9k.

Petriix

The finance is based on the total cost of the vehicle over the term. You essentially borrow the entire cost up front (less any deposit) and then pay the interest plus a portion of the capital each month. The amount you pay is averaged out so that your payments are the same each month.

Depending on the type of finance you will either have paid off the entire cost (HP) or just the depreciation with an option to then buy the car for a fixed price (PCP). Either way, the depreciation is your loss to swallow.

neilmcl

Petriix said:

The finance is based on the total cost of the vehicle over the term. You essentially borrow the entire cost up front (less any deposit) and then pay the interest plus a portion of the capital each month. The amount you pay is averaged out so that your payments are the same each month.

Depending on the type of finance you will either have paid off the entire cost (HP) or just the depreciation with an option to then buy the car for a fixed price (PCP). Either way, the depreciation is your loss to swallow.

If the car is handed back at the end of the term then the depreciation is the finance co. loss to swallow.

angrycrow

Depreciation does not work as you describe with the car loosing £1000 a year. There is a big drop in the first year with the depreciation amount reducing each year. Expect to drop around 20% to 30% of the value of a new car in the first year. This is why finance deals result in negative equity until you reach the end of the finance period. 

AdrianC

rafhelp said:

You buy a new car for 10K

Every year the value seems to go down by about 1K

By year 5 the car is worth about 5K

If you finance a 10K car

over 5 years

every year the cars value goes down by say 1K

but would this be taken into account for the remaining payment calculations?

so for example after 1 year the value of that car is 9K so now the monthly payment should decrease accordingly

Or is this not the case

You are borrowing £10k.
You are repaying that £10k on a schedule decided when you take the finance on. That schedule sees the depreciation flattened and averaged over the term.
If it's a PCP, you're repaying £5k (plus interest) over five years, and still owe the other £5k at the end of year 5. You can repay it and keep the car, or hand the car back.
If it's HP, you're repaying £10k (plus interest) over five years, and at the end of year 5, you owe nothing to anybody for the car you get to keep.
If it's lease, you're just hiring the car for five years.

Nearlyold

Decreasing payments on the loan to buy a depreciating asset sounds a great idea but bit worried how it would work the other way on my mortgage where the house has doubled in value?