PCP Interest calculation?

bailey_uk

Deleted_User said:

bailey_uk said:

CSL0183 said

You could try for a lower final payment by exaggerating the mileage, instead of 10k, ask for 25-30k. This will drop the final payment which means you’ll pay more of the capital off. 

Or you could forget the PCP and just buy the car outright with a much lower interest rate (but higher monthly payment)

Yes that is an interesting point to make about the lower final payment... because I have noticed that the sale person tends to call this the 'Guaranteed Future Value' and uses this as a smoke screen to try and make you think that a higher figure here is a better one!

GFV or GMV is the price that they want you to think about as a big deposit on another PCP deal to keep you in a cycle of keeping up with the Jones and getting a new car every 3 years. Paying off the balloon and keeping the car is the way to avoid this endless cycle of wasting money that many are tempted by. I got a new car on PCP albeit on 0% interest, amazingly no-one cares it is now 6 years old and I don't have to worry about the depreciation nonsense as I am not hoping to use it as a deposit or sell it off, I'm just using it as a car is intended to be used.

0% PCP sounds the best of both worlds!? I didnt know it existed to be honest..

DrEskimo

bailey_uk said:

Deleted_User said:

bailey_uk said:

CSL0183 said

You could try for a lower final payment by exaggerating the mileage, instead of 10k, ask for 25-30k. This will drop the final payment which means you’ll pay more of the capital off. 

Or you could forget the PCP and just buy the car outright with a much lower interest rate (but higher monthly payment)

Yes that is an interesting point to make about the lower final payment... because I have noticed that the sale person tends to call this the 'Guaranteed Future Value' and uses this as a smoke screen to try and make you think that a higher figure here is a better one!

GFV or GMV is the price that they want you to think about as a big deposit on another PCP deal to keep you in a cycle of keeping up with the Jones and getting a new car every 3 years. Paying off the balloon and keeping the car is the way to avoid this endless cycle of wasting money that many are tempted by. I got a new car on PCP albeit on 0% interest, amazingly no-one cares it is now 6 years old and I don't have to worry about the depreciation nonsense as I am not hoping to use it as a deposit or sell it off, I'm just using it as a car is intended to be used.

0% PCP sounds the best of both worlds!? I didnt know it existed to be honest..

Theoretically, but just need to be sure the car price is not elevated to compensate for the reduced interest. 

In my experience, I found that those dealerships offering 0% finance had much higher prices than those not. Even on new cars there are examples where the 0% PCP has less discount than those on interest bearing PCP.

Not saying a well priced car with 0% finance deal on used or new isn't possible, just be careful to look at the entire cost.

bailey_uk

DrEskimo said:

bailey_uk said:

Deleted_User said:

bailey_uk said:

CSL0183 said

You could try for a lower final payment by exaggerating the mileage, instead of 10k, ask for 25-30k. This will drop the final payment which means you’ll pay more of the capital off. 

Or you could forget the PCP and just buy the car outright with a much lower interest rate (but higher monthly payment)

Yes that is an interesting point to make about the lower final payment... because I have noticed that the sale person tends to call this the 'Guaranteed Future Value' and uses this as a smoke screen to try and make you think that a higher figure here is a better one!

GFV or GMV is the price that they want you to think about as a big deposit on another PCP deal to keep you in a cycle of keeping up with the Jones and getting a new car every 3 years. Paying off the balloon and keeping the car is the way to avoid this endless cycle of wasting money that many are tempted by. I got a new car on PCP albeit on 0% interest, amazingly no-one cares it is now 6 years old and I don't have to worry about the depreciation nonsense as I am not hoping to use it as a deposit or sell it off, I'm just using it as a car is intended to be used.

0% PCP sounds the best of both worlds!? I didnt know it existed to be honest..

Theoretically, but just need to be sure the car price is not elevated to compensate for the reduced interest. 

In my experience, I found that those dealerships offering 0% finance had much higher prices than those not. Even on new cars there are examples where the 0% PCP has less discount than those on interest bearing PCP.

Not saying a well priced car with 0% finance deal on used or new isn't possible, just be careful to look at the entire cost.

very good point!

bailey_uk

DrEskimo said:

bailey_uk said:

CSL0183 said

You could try for a lower final payment by exaggerating the mileage, instead of 10k, ask for 25-30k. This will drop the final payment which means you’ll pay more of the capital off. 

Or you could forget the PCP and just buy the car outright with a much lower interest rate (but higher monthly payment)

Yes that is an interesting point to make about the lower final payment... because I have noticed that the sale person tends to call this the 'Guaranteed Future Value' and uses this as a smoke screen to try and make you think that a higher figure here is a better one!

Well it's a balance between expected depreciation and interest payable.

The finance house won't want a GFV too high as then they are exposed to loses if the cars value is much lower, as you will simply hand it back to them.

In this example though, taking a PCP is costing you £2,640 in interest, so the car would have to be worth less than £10,000 before you saw any economic benefit of just handing the car back (the GFV minus the interest you are charged). If you think this is unlikely, and can afford a higher repayment, a straight loan would be more financially savvy.

Even at 6.8%, a personal loan would cost £1,447 in interest, thereby saving you £1,200. If you can get a lower APR of 3%, then the interest would only be £638, thereby saving you £2,000. This would increase the monthly payments to £440 and £400 respectively.

At the end you are free to trade the car in for the predicted £12,597 just as you would at the end of the PCP (assuming this is what it's worth trade value), or better yet, just keep it knowing you have paid it off in full and now have £0 per month.

a 3.1% loan is what I did :-)

bermudianmark

PCP's are expensive I have one on my wifes Mercedes but at the time I could not afford the equivalent HP payments, so at least it has served its purpose the wife got the car she wanted at the time and I kept the payments down, as always though now the lease is coming to an end I am stuck with the choice, of handing car back, taking a new lease or getting the HP I wanted in the first place (most likely option)

bailey_uk

Yeah I think its good for being able to drive a car in which you wouldn't otherwise be able to afford, and then give back, but if you are likely to keep a car 4+ years then a bank loan makes you much more financially better off with an asset to sell too rather than trying to find another deposit for something else.

The comparison between PCP and a bank loan isnt as black and white as it seems though, as my mother is upgrading her Kia which is currently on PCP and the dealership are giving her 2k extra than the GFV for her old car.