Cash purchase of car, or PCP. Help needed

WaywardDriver

I read the PCP quote as the trade-in value is £10,750 of which £6,750 is put towards the deposit which when added to the allowance of £3,000 gives a total deposit of £9,750. So the OP will be paid the remaining £4,000 probably by bank transfer.
Unless the quote document had been truncated, it's probably illegal not to give the APR which I calculate as 5.7% from the figures shown.

Hungerdunger

Thanks everyone for your input.  I have to say that I'm still confused.  It wasn't the easiest of meetings with the salesman, what with all of us wearing masks and social distancing, and him reeling off figures to try to explain how it worked without me having the printout of the figures in front of me.  I think the best thing is to go back to him on Monday and get him to go through it all again.

From what a couple of you have said, it looks as if someone is going to pay £4,000 into my bank account, which alters things somewhat, but if I'm correct that the settlement figure would be the total of contributions owing plus GMFV, then even with that payment I'd still be £476 down on just buying it with cash.  And if I kept the cash in the bank for the three years, the interest I'd earn would be roughly equal to that shortfall.  So it seems to me that it's a lot of faffing around just to end up where I started.

By the way, there's no mention on the quotation about the APR.

If I get any further useful info, I'll post it here next week.

Grumpy_chap

The £4k cash-back (if that is correct) is entirely illogical to the normal person on the street.

I can see how it would be sensible for a dealer as it maximises the finance amount, hence the anticipated interest and the commission paid to the dealer.  So, £33k car and to qualify for the £3k finance incentive requires the customer to put a minimum deposit of 20% (£6.6k), but the customer has trade in of £10.75k, so the dealer maximises the finance value (commission) by giving back the customer the "excess" £4k as cash.

I don't like PCP, but still, the cheapest thing seems to be to get the car on the PCP, grab the £3k finance incentive and then pay the finance down early so avoiding the interest costs.  That assumes the £33k is the best price to start with - assume the OP verified on broker sites to know what the "target price" should be.  Also, that the £10.75k for trade in is the correct valuation and matches or beats WBAC etc.

ComicGeek

Grumpy_chap said:

The £4k cash-back (if that is correct) is entirely illogical to the normal person on the street.

I can see how it would be sensible for a dealer as it maximises the finance amount, hence the anticipated interest and the commission paid to the dealer.  So, £33k car and to qualify for the £3k finance incentive requires the customer to put a minimum deposit of 20% (£6.6k), but the customer has trade in of £10.75k, so the dealer maximises the finance value (commission) by giving back the customer the "excess" £4k as cash.

I don't like PCP, but still, the cheapest thing seems to be to get the car on the PCP, grab the £3k finance incentive and then pay the finance down early so avoiding the interest costs.  That assumes the £33k is the best price to start with - assume the OP verified on broker sites to know what the "target price" should be.  Also, that the £10.75k for trade in is the correct valuation and matches or beats WBAC etc.

Completely normal for it to be a MAXIMUM deposit for PCP deals, which would then mean a cash payment back to the purchaser against the trade in value.

This then maximises the PCP value and makes more money on the finance for the provider, exactly as you say.

Supersonos

ElefantEd said:

Borrowing money is always more expensive than using savings*. I don't think you are missing anything, thePCP isn't a good deal.

* nearly always anyway.

Absolutely not correct, especially at the moment with rates so low.  A couple of months ago I took £40k out of my savings (that wasn't really earning any interest) and put it into shares.  I'm currently £8k better off (they may go down, of course, but they don't show any signs of that yet).  If they hit £52k I'll cash out.

neilmcl

Hungerdunger said:

Thanks everyone for your input.  I have to say that I'm still confused.  It wasn't the easiest of meetings with the salesman, what with all of us wearing masks and social distancing, and him reeling off figures to try to explain how it worked without me having the printout of the figures in front of me.  I think the best thing is to go back to him on Monday and get him to go through it all again.

From what a couple of you have said, it looks as if someone is going to pay £4,000 into my bank account, which alters things somewhat, but if I'm correct that the settlement figure would be the total of contributions owing plus GMFV, then even with that payment I'd still be £476 down on just buying it with cash.  And if I kept the cash in the bank for the three years, the interest I'd earn would be roughly equal to that shortfall.  So it seems to me that it's a lot of faffing around just to end up where I started.

By the way, there's no mention on the quotation about the APR.

If I get any further useful info, I'll post it here next week.

No, this is not correct. The settlement figure is what you owe on the vehicle up to this point in time, not any future interest. For example, taking into account your part-ex and their contribution, you owe £19630, ie, the amount of credit, so this is the figure you will need to find plus a few days of interest. Again, not sure where this £4,000 is coming from, whether it's the deposit you're paying or it's what they're going to put towards it, so potentially it's £19630 minus £4,000 (which you may or may not have to pay up front).

ElefantEd

Supersonos said:

ElefantEd said:

Borrowing money is always more expensive than using savings*. I don't think you are missing anything, thePCP isn't a good deal.

* nearly always anyway.

Absolutely not correct, especially at the moment with rates so low.  A couple of months ago I took £40k out of my savings (that wasn't really earning any interest) and put it into shares.  I'm currently £8k better off (they may go down, of course, but they don't show any signs of that yet).  If they hit £52k I'll cash out.

In what way is this borrowing money instead of using savings to buy something? You are simply shifting savings to a place where they earn better interest, in effect (though as you say, with a greater risk). If you are suggesting that one should take out a bank loan in order to buy shares, it seems unlikely that you would be loaned the money for this purpose. However, we are talking about buying a car which unlike shares always go down in value.

Alanp

Could you not get the car on hp, and then pay it off ?

neilmcl

Alanp said:

Could you not get the car on hp, and then pay it off ?

Why, there would be no difference. FYI a PCP is still a form of Hire Purchase agreement.

mezzotint

This is my take on this. The following may clarify matters. 
From the info provided the total cost over 3 years would be £36855  - ( deposit £9750 + payments £9948 + gfv £17157 )
                                                                    Less cost of car  £33380
                                                                   Interest charged.    £3475 

The interest rate works out at 14.70% over 3 years or 4.9% per year.( £3475/£23630). In my opinion it makes sense to take out the PCP  to take advantage of the dealer contribution. Then pay off the balance  of £23630 within 30 days before you  make the first payment to save the interest.  As you say if you put that balance in a bank account  your return interest wise over the 3 years  would be significantly less than the interest you would save. 

Hope the above helps.