PCP - do all dealers of Mini offer the same PCP deals?

iwb100

motorguy said:

iwb100 said:

motorguy said:

iwb100 said:

DrEskimo said:

iwb100 said:

DrEskimo said:

Bolt1234 said:

Blimey. It’s complex! I am good with my mileage and know what I do year on year. I also look after my cars well.  Never been charged when I have returned them and it was the same when I had a company car.  

I could at a push buy the car outright but really don’t want to do that.  Yes agree the apr is high.  It’s a desirable car so why reduce the %? What about trying to get servicing included?  

Can I ask why not? It's saving you money (a lot of money), and this is a money saving forum? Are you really that set on donating thousands of your hard earned money to multi-billion pound finance companies?

It strikes me as very odd as you mention why you liked the idea of leasing so you didn't have to spend a few hundred on VED a year, which at least goes towards social spending, yet don't seem phased at the idea of handing over thousands a year in interest payments that goes towards nothing but profits to finance company shareholders?

If it's about having savings, then either get a cheaper car (used or cheaper model), or borrow just a small amount using a personal loan.

I imagine it’s risk. Paying a few hundred each month to have the use of the car with the ability to sell it and clear the finance or at very worst case hand it back at the end is of course going to cost £ in interest but you aren’t ever going to pay the full cost of the car. And you are paying an affordable monthly fee, or at least you hope so.  And if the bottom drops out of the market during ownership you lose only the interest payments which are a few hundred quid.

If you buy the car outright then the bottom of the market drops out for any reason you have spent tens of thousands and potentially will lose thousands in value in a few years time or be stuck with the car. 

The OP would probably lease if they could. As would I suspect a growing number of people who buy on finance since in their mind they are only ever wanting the car a few years and paying a monthly fee for the privilege of driving it. Leasing is cheaper and more accessible now. If only it wasn’t for the shortages of cars. But they don’t really care about the interest charge because it’s a simple calculation for them, how can they drive the car for three years the cheapest with minimal risk and the least amount of effort. 

Not that I would not disagree that in this case buying with a low cost loan makes much more sense than an APR of 6.9% which is more second hand rate than new car rate. But that does now always fit into the mindset of someone who has every intention of swapping their car in a few years and would pay a bit more for the privilege of a guarantee of being able to do that without risk. Which is still most of the car buying or leasing public in this country. 

Let's be very clear about this, as this is a very common misconception.

Your ability to trade the car in after 3 or 4 years (or whenever) is NOT contingent on having the car on finance. Trading the car into the dealership, or a garage or an online broker is exactly the same whether you have PCP or you own the car. You are never 'stuck' with a car you own. You will always have somewhere willing to buy it from you for a price.

The only additional option you get with PCP that you don't have with owning it is the ability to 'trade it in' (or hand back) to the finance company at the set GFV. So the risk is is not whether you get stuck with a car, it's whether the cost of buying the car and then trading it in 4 yrs is going to be greater than the cost of buying it on finance, paying interest, and handing it back to the finance company.

In this particular case, this £35k mini is going to cost you over £5k in interest to get that 'protected' trade in price offered by the finance company of £15k. That means the car will have to worth less than £10k before you got any financial gain whatsoever relative to just buying it for £35k and trading it in after 4yrs.

What are the chances the car will be worth less than £10k? Slim to none. Even if it was as low as £9k, this PCP will only have saved you £1000. It's far far far far more likely that the car will be worth £15k or higher as trade, which means taking it on PCP has needlessly cost you over £5000 for no reason.

The idea that PCP is always great for 'asset value protection' is so overstated and completely dependent on the specific deal. In this case, the GFV is so small and the interest cost so high that it is completely useless at mitigating any sort of risk.

PCP allows you to hand it back at the end without paying the balloon. That’s a guarantee. It means that your risk is only in ‘can I afford the monthly’s to rent the car’. Worst case you do so for the period and hand it back. In the case of a loan and you own it outright should the market collapse or whatever you cannot do that and you are stuck paying off the full loan with negative equity. That’s the benefit and risk mitigation in peoples minds.

The point being made is that on this occasion the O/P could be paying anything up to £5,000 for that guarantee, when in reality theres multiple options such as sell it back to the dealer, another dealer, or one of the many online buying sites - all of which would be just as easy as a handover to hand the car back.  The other two options of course is to sell it privately (will return more but you have to deal with the general public) or simply keep the car.

We are talking about the scenario where the bottom drops out of the second hand car market and you are in negative equity. In PCP you hand it back at the end and that’s it. In other scenarios you lose out. I’m not saying in any way a 6.9% deal is close to worth that risk mitigation. But that’s why people like to take PCP. They know what they are paying and know that ultimately should the market collapse they’ve had the car for their 3 or 4 years at a monthly price they were happy with and that’s it. It goes back.

Its why leasing is increasingly popular. Because it’s a cheaper form of that. Car for a few years then back it goes and no risk that it’s in negative equity.

Im merely trying to explain why people like these options. Why they are so popular with the population. Yes we know personal loans will in this case work out cheaper and certainly I’d never do a pcp at 6.9% not on your life. But for most people who want a nice monthly figure to have a car for a few years the extra risk of taking out a loan and paying back the full amount is off putting to them. As is putting their cash savings in. Even if it’s absolutely saving them money there is still a risk there that it will do the opposite. 

Thats already factored in to the residual prices.  Do you think BMW MINI dont know thats a risk?

Cheapest 3 year old JCW auto on A/T is £21,405.   That suggests a raw trade price of around £18K.  MINI's residual value is £13,523.  

Not taking much of a chance there are they?

Negative equity is only a concern if you have to sell the car / reach the end of a PCP agreement.

The O/P wouldnt be with a personal loan - they would owe considerably less at the three year point anyway (£10,500 ish when 3 years in to a five year loan) OR they could simply drive on at the car.

So, the O/P would be paying approx £3-5,000 in additional interest charges to protect herself against a scenario that MINI have factored in to the residual value anyway.

Yeah but that’s the second hand market now. Not in 3 or 4 years.

Lets hypothetically take a £25K car. That in 4 years ends up being worth £7000 due to some market issues - whatever they might be. 

You can buy it on PCP new at say 5% with a residual value of let’s say £10,000. Let’s for simplicity say there is no manufacturer contribution and no deposit. 10K miles per year.

You would on PCP pay roughly £387 a month for 48 months (using carwow pcp caluclator). So by the end of the deal you have a car with a GFV of £10K but is worth. £9k. You’ve paid £18,567 in monthly payments. You want a new car. You hand it back and that’s it. 

If you take say a 2.9% loan over 48 months that means you are paying £551 a month roughly and in total over the period £26488. But you own the car at the end. Except it’s only worth £7000. So you sell it which takes your expenditure to £19488. Around £900 worse off.

I completely agree that this PCP deal for a mini is a joke and I’d not use it, or pay it off immediately if there was any discount involved in going with it. But the fictitious example I have laid out is why people often stick with pcp and it’s by no means extreme. Dieselgate for example had people in far worse positions than that if they couldn’t hand the car back. So things can happen that leaves your car worth less than would be expected. And that’s where there is certainty in a pcp deal that doesn’t exist anywhere else. Liked fixes rate mortgages I guess. 

motorguy

iwb100 said:

motorguy said:

iwb100 said:

motorguy said:

iwb100 said:

DrEskimo said:

iwb100 said:

DrEskimo said:

Bolt1234 said:

Blimey. It’s complex! I am good with my mileage and know what I do year on year. I also look after my cars well.  Never been charged when I have returned them and it was the same when I had a company car.  

I could at a push buy the car outright but really don’t want to do that.  Yes agree the apr is high.  It’s a desirable car so why reduce the %? What about trying to get servicing included?  

Can I ask why not? It's saving you money (a lot of money), and this is a money saving forum? Are you really that set on donating thousands of your hard earned money to multi-billion pound finance companies?

It strikes me as very odd as you mention why you liked the idea of leasing so you didn't have to spend a few hundred on VED a year, which at least goes towards social spending, yet don't seem phased at the idea of handing over thousands a year in interest payments that goes towards nothing but profits to finance company shareholders?

If it's about having savings, then either get a cheaper car (used or cheaper model), or borrow just a small amount using a personal loan.

I imagine it’s risk. Paying a few hundred each month to have the use of the car with the ability to sell it and clear the finance or at very worst case hand it back at the end is of course going to cost £ in interest but you aren’t ever going to pay the full cost of the car. And you are paying an affordable monthly fee, or at least you hope so.  And if the bottom drops out of the market during ownership you lose only the interest payments which are a few hundred quid.

If you buy the car outright then the bottom of the market drops out for any reason you have spent tens of thousands and potentially will lose thousands in value in a few years time or be stuck with the car. 

The OP would probably lease if they could. As would I suspect a growing number of people who buy on finance since in their mind they are only ever wanting the car a few years and paying a monthly fee for the privilege of driving it. Leasing is cheaper and more accessible now. If only it wasn’t for the shortages of cars. But they don’t really care about the interest charge because it’s a simple calculation for them, how can they drive the car for three years the cheapest with minimal risk and the least amount of effort. 

Not that I would not disagree that in this case buying with a low cost loan makes much more sense than an APR of 6.9% which is more second hand rate than new car rate. But that does now always fit into the mindset of someone who has every intention of swapping their car in a few years and would pay a bit more for the privilege of a guarantee of being able to do that without risk. Which is still most of the car buying or leasing public in this country. 

Let's be very clear about this, as this is a very common misconception.

Your ability to trade the car in after 3 or 4 years (or whenever) is NOT contingent on having the car on finance. Trading the car into the dealership, or a garage or an online broker is exactly the same whether you have PCP or you own the car. You are never 'stuck' with a car you own. You will always have somewhere willing to buy it from you for a price.

The only additional option you get with PCP that you don't have with owning it is the ability to 'trade it in' (or hand back) to the finance company at the set GFV. So the risk is is not whether you get stuck with a car, it's whether the cost of buying the car and then trading it in 4 yrs is going to be greater than the cost of buying it on finance, paying interest, and handing it back to the finance company.

In this particular case, this £35k mini is going to cost you over £5k in interest to get that 'protected' trade in price offered by the finance company of £15k. That means the car will have to worth less than £10k before you got any financial gain whatsoever relative to just buying it for £35k and trading it in after 4yrs.

What are the chances the car will be worth less than £10k? Slim to none. Even if it was as low as £9k, this PCP will only have saved you £1000. It's far far far far more likely that the car will be worth £15k or higher as trade, which means taking it on PCP has needlessly cost you over £5000 for no reason.

The idea that PCP is always great for 'asset value protection' is so overstated and completely dependent on the specific deal. In this case, the GFV is so small and the interest cost so high that it is completely useless at mitigating any sort of risk.

PCP allows you to hand it back at the end without paying the balloon. That’s a guarantee. It means that your risk is only in ‘can I afford the monthly’s to rent the car’. Worst case you do so for the period and hand it back. In the case of a loan and you own it outright should the market collapse or whatever you cannot do that and you are stuck paying off the full loan with negative equity. That’s the benefit and risk mitigation in peoples minds.

The point being made is that on this occasion the O/P could be paying anything up to £5,000 for that guarantee, when in reality theres multiple options such as sell it back to the dealer, another dealer, or one of the many online buying sites - all of which would be just as easy as a handover to hand the car back.  The other two options of course is to sell it privately (will return more but you have to deal with the general public) or simply keep the car.

We are talking about the scenario where the bottom drops out of the second hand car market and you are in negative equity. In PCP you hand it back at the end and that’s it. In other scenarios you lose out. I’m not saying in any way a 6.9% deal is close to worth that risk mitigation. But that’s why people like to take PCP. They know what they are paying and know that ultimately should the market collapse they’ve had the car for their 3 or 4 years at a monthly price they were happy with and that’s it. It goes back.

Its why leasing is increasingly popular. Because it’s a cheaper form of that. Car for a few years then back it goes and no risk that it’s in negative equity.

Im merely trying to explain why people like these options. Why they are so popular with the population. Yes we know personal loans will in this case work out cheaper and certainly I’d never do a pcp at 6.9% not on your life. But for most people who want a nice monthly figure to have a car for a few years the extra risk of taking out a loan and paying back the full amount is off putting to them. As is putting their cash savings in. Even if it’s absolutely saving them money there is still a risk there that it will do the opposite. 

Thats already factored in to the residual prices.  Do you think BMW MINI dont know thats a risk?

Cheapest 3 year old JCW auto on A/T is £21,405.   That suggests a raw trade price of around £18K.  MINI's residual value is £13,523.  

Not taking much of a chance there are they?

Negative equity is only a concern if you have to sell the car / reach the end of a PCP agreement.

The O/P wouldnt be with a personal loan - they would owe considerably less at the three year point anyway (£10,500 ish when 3 years in to a five year loan) OR they could simply drive on at the car.

So, the O/P would be paying approx £3-5,000 in additional interest charges to protect herself against a scenario that MINI have factored in to the residual value anyway.

Yeah but that’s the second hand market now. Not in 3 or 4 years.

Lets hypothetically take a £25K car. That in 4 years ends up being worth £7000 due to some market issues - whatever they might be. 

You can buy it on PCP new at say 5% with a residual value of let’s say £10,000. Let’s for simplicity say there is no manufacturer contribution and no deposit. 10K miles per year.

You would on PCP pay roughly £387 a month for 48 months (using carwow pcp caluclator). So by the end of the deal you have a car with a GFV of £10K but is worth. £9k. You’ve paid £18,567 in monthly payments. You want a new car. You hand it back and that’s it. 

If you take say a 2.9% loan over 48 months that means you are paying £551 a month roughly and in total over the period £26488. But you own the car at the end. Except it’s only worth £7000. So you sell it which takes your expenditure to £19488. Around £900 worse off.

I completely agree that this PCP deal for a mini is a joke and I’d not use it, or pay it off immediately if there was any discount involved in going with it. But the fictitious example I have laid out is why people often stick with pcp and it’s by no means extreme. Dieselgate for example had people in far worse positions than that if they couldn’t hand the car back. So things can happen that leaves your car worth less than would be expected. And that’s where there is certainty in a pcp deal that doesn’t exist anywhere else. Liked fixes rate mortgages I guess. 

Yes, agreed, its one of the benefits of PCP.  It gives you an element of protection.  Thats a known, documented, agreed benefit.

And yes, we're in agreement that this particular PCP deal is a joke.

iwb100

motorguy said:

iwb100 said:

motorguy said:

iwb100 said:

motorguy said:

iwb100 said:

DrEskimo said:

iwb100 said:

DrEskimo said:

Bolt1234 said:

Blimey. It’s complex! I am good with my mileage and know what I do year on year. I also look after my cars well.  Never been charged when I have returned them and it was the same when I had a company car.  

I could at a push buy the car outright but really don’t want to do that.  Yes agree the apr is high.  It’s a desirable car so why reduce the %? What about trying to get servicing included?  

Can I ask why not? It's saving you money (a lot of money), and this is a money saving forum? Are you really that set on donating thousands of your hard earned money to multi-billion pound finance companies?

It strikes me as very odd as you mention why you liked the idea of leasing so you didn't have to spend a few hundred on VED a year, which at least goes towards social spending, yet don't seem phased at the idea of handing over thousands a year in interest payments that goes towards nothing but profits to finance company shareholders?

If it's about having savings, then either get a cheaper car (used or cheaper model), or borrow just a small amount using a personal loan.

I imagine it’s risk. Paying a few hundred each month to have the use of the car with the ability to sell it and clear the finance or at very worst case hand it back at the end is of course going to cost £ in interest but you aren’t ever going to pay the full cost of the car. And you are paying an affordable monthly fee, or at least you hope so.  And if the bottom drops out of the market during ownership you lose only the interest payments which are a few hundred quid.

If you buy the car outright then the bottom of the market drops out for any reason you have spent tens of thousands and potentially will lose thousands in value in a few years time or be stuck with the car. 

The OP would probably lease if they could. As would I suspect a growing number of people who buy on finance since in their mind they are only ever wanting the car a few years and paying a monthly fee for the privilege of driving it. Leasing is cheaper and more accessible now. If only it wasn’t for the shortages of cars. But they don’t really care about the interest charge because it’s a simple calculation for them, how can they drive the car for three years the cheapest with minimal risk and the least amount of effort. 

Not that I would not disagree that in this case buying with a low cost loan makes much more sense than an APR of 6.9% which is more second hand rate than new car rate. But that does now always fit into the mindset of someone who has every intention of swapping their car in a few years and would pay a bit more for the privilege of a guarantee of being able to do that without risk. Which is still most of the car buying or leasing public in this country. 

Let's be very clear about this, as this is a very common misconception.

Your ability to trade the car in after 3 or 4 years (or whenever) is NOT contingent on having the car on finance. Trading the car into the dealership, or a garage or an online broker is exactly the same whether you have PCP or you own the car. You are never 'stuck' with a car you own. You will always have somewhere willing to buy it from you for a price.

The only additional option you get with PCP that you don't have with owning it is the ability to 'trade it in' (or hand back) to the finance company at the set GFV. So the risk is is not whether you get stuck with a car, it's whether the cost of buying the car and then trading it in 4 yrs is going to be greater than the cost of buying it on finance, paying interest, and handing it back to the finance company.

In this particular case, this £35k mini is going to cost you over £5k in interest to get that 'protected' trade in price offered by the finance company of £15k. That means the car will have to worth less than £10k before you got any financial gain whatsoever relative to just buying it for £35k and trading it in after 4yrs.

What are the chances the car will be worth less than £10k? Slim to none. Even if it was as low as £9k, this PCP will only have saved you £1000. It's far far far far more likely that the car will be worth £15k or higher as trade, which means taking it on PCP has needlessly cost you over £5000 for no reason.

The idea that PCP is always great for 'asset value protection' is so overstated and completely dependent on the specific deal. In this case, the GFV is so small and the interest cost so high that it is completely useless at mitigating any sort of risk.

PCP allows you to hand it back at the end without paying the balloon. That’s a guarantee. It means that your risk is only in ‘can I afford the monthly’s to rent the car’. Worst case you do so for the period and hand it back. In the case of a loan and you own it outright should the market collapse or whatever you cannot do that and you are stuck paying off the full loan with negative equity. That’s the benefit and risk mitigation in peoples minds.

The point being made is that on this occasion the O/P could be paying anything up to £5,000 for that guarantee, when in reality theres multiple options such as sell it back to the dealer, another dealer, or one of the many online buying sites - all of which would be just as easy as a handover to hand the car back.  The other two options of course is to sell it privately (will return more but you have to deal with the general public) or simply keep the car.

We are talking about the scenario where the bottom drops out of the second hand car market and you are in negative equity. In PCP you hand it back at the end and that’s it. In other scenarios you lose out. I’m not saying in any way a 6.9% deal is close to worth that risk mitigation. But that’s why people like to take PCP. They know what they are paying and know that ultimately should the market collapse they’ve had the car for their 3 or 4 years at a monthly price they were happy with and that’s it. It goes back.

Its why leasing is increasingly popular. Because it’s a cheaper form of that. Car for a few years then back it goes and no risk that it’s in negative equity.

Im merely trying to explain why people like these options. Why they are so popular with the population. Yes we know personal loans will in this case work out cheaper and certainly I’d never do a pcp at 6.9% not on your life. But for most people who want a nice monthly figure to have a car for a few years the extra risk of taking out a loan and paying back the full amount is off putting to them. As is putting their cash savings in. Even if it’s absolutely saving them money there is still a risk there that it will do the opposite. 

Thats already factored in to the residual prices.  Do you think BMW MINI dont know thats a risk?

Cheapest 3 year old JCW auto on A/T is £21,405.   That suggests a raw trade price of around £18K.  MINI's residual value is £13,523.  

Not taking much of a chance there are they?

Negative equity is only a concern if you have to sell the car / reach the end of a PCP agreement.

The O/P wouldnt be with a personal loan - they would owe considerably less at the three year point anyway (£10,500 ish when 3 years in to a five year loan) OR they could simply drive on at the car.

So, the O/P would be paying approx £3-5,000 in additional interest charges to protect herself against a scenario that MINI have factored in to the residual value anyway.

Yeah but that’s the second hand market now. Not in 3 or 4 years.

Lets hypothetically take a £25K car. That in 4 years ends up being worth £7000 due to some market issues - whatever they might be. 

You can buy it on PCP new at say 5% with a residual value of let’s say £10,000. Let’s for simplicity say there is no manufacturer contribution and no deposit. 10K miles per year.

You would on PCP pay roughly £387 a month for 48 months (using carwow pcp caluclator). So by the end of the deal you have a car with a GFV of £10K but is worth. £9k. You’ve paid £18,567 in monthly payments. You want a new car. You hand it back and that’s it. 

If you take say a 2.9% loan over 48 months that means you are paying £551 a month roughly and in total over the period £26488. But you own the car at the end. Except it’s only worth £7000. So you sell it which takes your expenditure to £19488. Around £900 worse off.

I completely agree that this PCP deal for a mini is a joke and I’d not use it, or pay it off immediately if there was any discount involved in going with it. But the fictitious example I have laid out is why people often stick with pcp and it’s by no means extreme. Dieselgate for example had people in far worse positions than that if they couldn’t hand the car back. So things can happen that leaves your car worth less than would be expected. And that’s where there is certainty in a pcp deal that doesn’t exist anywhere else. Liked fixes rate mortgages I guess. 

Yes, agreed, its one of the benefits of PCP.  It gives you an element of protection.  Thats a known, documented, agreed benefit.

And yes, we're in agreement that this particular PCP deal is a joke.

Other thing worth pointing out is that if people are costing against their disposable income they want lower monthly payments and the same term…and that’s another reason why PCP is popular. I suppose the only reason it exists is it lets people buy new cars utilising their disposable income in a manageable way. 

motorguy

iwb100 said:

motorguy said:

iwb100 said:

motorguy said:

iwb100 said:

motorguy said:

iwb100 said:

DrEskimo said:

iwb100 said:

DrEskimo said:

Bolt1234 said:

Blimey. It’s complex! I am good with my mileage and know what I do year on year. I also look after my cars well.  Never been charged when I have returned them and it was the same when I had a company car.  

I could at a push buy the car outright but really don’t want to do that.  Yes agree the apr is high.  It’s a desirable car so why reduce the %? What about trying to get servicing included?  

Can I ask why not? It's saving you money (a lot of money), and this is a money saving forum? Are you really that set on donating thousands of your hard earned money to multi-billion pound finance companies?

It strikes me as very odd as you mention why you liked the idea of leasing so you didn't have to spend a few hundred on VED a year, which at least goes towards social spending, yet don't seem phased at the idea of handing over thousands a year in interest payments that goes towards nothing but profits to finance company shareholders?

If it's about having savings, then either get a cheaper car (used or cheaper model), or borrow just a small amount using a personal loan.

I imagine it’s risk. Paying a few hundred each month to have the use of the car with the ability to sell it and clear the finance or at very worst case hand it back at the end is of course going to cost £ in interest but you aren’t ever going to pay the full cost of the car. And you are paying an affordable monthly fee, or at least you hope so.  And if the bottom drops out of the market during ownership you lose only the interest payments which are a few hundred quid.

If you buy the car outright then the bottom of the market drops out for any reason you have spent tens of thousands and potentially will lose thousands in value in a few years time or be stuck with the car. 

The OP would probably lease if they could. As would I suspect a growing number of people who buy on finance since in their mind they are only ever wanting the car a few years and paying a monthly fee for the privilege of driving it. Leasing is cheaper and more accessible now. If only it wasn’t for the shortages of cars. But they don’t really care about the interest charge because it’s a simple calculation for them, how can they drive the car for three years the cheapest with minimal risk and the least amount of effort. 

Not that I would not disagree that in this case buying with a low cost loan makes much more sense than an APR of 6.9% which is more second hand rate than new car rate. But that does now always fit into the mindset of someone who has every intention of swapping their car in a few years and would pay a bit more for the privilege of a guarantee of being able to do that without risk. Which is still most of the car buying or leasing public in this country. 

Let's be very clear about this, as this is a very common misconception.

Your ability to trade the car in after 3 or 4 years (or whenever) is NOT contingent on having the car on finance. Trading the car into the dealership, or a garage or an online broker is exactly the same whether you have PCP or you own the car. You are never 'stuck' with a car you own. You will always have somewhere willing to buy it from you for a price.

The only additional option you get with PCP that you don't have with owning it is the ability to 'trade it in' (or hand back) to the finance company at the set GFV. So the risk is is not whether you get stuck with a car, it's whether the cost of buying the car and then trading it in 4 yrs is going to be greater than the cost of buying it on finance, paying interest, and handing it back to the finance company.

In this particular case, this £35k mini is going to cost you over £5k in interest to get that 'protected' trade in price offered by the finance company of £15k. That means the car will have to worth less than £10k before you got any financial gain whatsoever relative to just buying it for £35k and trading it in after 4yrs.

What are the chances the car will be worth less than £10k? Slim to none. Even if it was as low as £9k, this PCP will only have saved you £1000. It's far far far far more likely that the car will be worth £15k or higher as trade, which means taking it on PCP has needlessly cost you over £5000 for no reason.

The idea that PCP is always great for 'asset value protection' is so overstated and completely dependent on the specific deal. In this case, the GFV is so small and the interest cost so high that it is completely useless at mitigating any sort of risk.

PCP allows you to hand it back at the end without paying the balloon. That’s a guarantee. It means that your risk is only in ‘can I afford the monthly’s to rent the car’. Worst case you do so for the period and hand it back. In the case of a loan and you own it outright should the market collapse or whatever you cannot do that and you are stuck paying off the full loan with negative equity. That’s the benefit and risk mitigation in peoples minds.

The point being made is that on this occasion the O/P could be paying anything up to £5,000 for that guarantee, when in reality theres multiple options such as sell it back to the dealer, another dealer, or one of the many online buying sites - all of which would be just as easy as a handover to hand the car back.  The other two options of course is to sell it privately (will return more but you have to deal with the general public) or simply keep the car.

We are talking about the scenario where the bottom drops out of the second hand car market and you are in negative equity. In PCP you hand it back at the end and that’s it. In other scenarios you lose out. I’m not saying in any way a 6.9% deal is close to worth that risk mitigation. But that’s why people like to take PCP. They know what they are paying and know that ultimately should the market collapse they’ve had the car for their 3 or 4 years at a monthly price they were happy with and that’s it. It goes back.

Its why leasing is increasingly popular. Because it’s a cheaper form of that. Car for a few years then back it goes and no risk that it’s in negative equity.

Im merely trying to explain why people like these options. Why they are so popular with the population. Yes we know personal loans will in this case work out cheaper and certainly I’d never do a pcp at 6.9% not on your life. But for most people who want a nice monthly figure to have a car for a few years the extra risk of taking out a loan and paying back the full amount is off putting to them. As is putting their cash savings in. Even if it’s absolutely saving them money there is still a risk there that it will do the opposite. 

Thats already factored in to the residual prices.  Do you think BMW MINI dont know thats a risk?

Cheapest 3 year old JCW auto on A/T is £21,405.   That suggests a raw trade price of around £18K.  MINI's residual value is £13,523.  

Not taking much of a chance there are they?

Negative equity is only a concern if you have to sell the car / reach the end of a PCP agreement.

The O/P wouldnt be with a personal loan - they would owe considerably less at the three year point anyway (£10,500 ish when 3 years in to a five year loan) OR they could simply drive on at the car.

So, the O/P would be paying approx £3-5,000 in additional interest charges to protect herself against a scenario that MINI have factored in to the residual value anyway.

Yeah but that’s the second hand market now. Not in 3 or 4 years.

Lets hypothetically take a £25K car. That in 4 years ends up being worth £7000 due to some market issues - whatever they might be. 

You can buy it on PCP new at say 5% with a residual value of let’s say £10,000. Let’s for simplicity say there is no manufacturer contribution and no deposit. 10K miles per year.

You would on PCP pay roughly £387 a month for 48 months (using carwow pcp caluclator). So by the end of the deal you have a car with a GFV of £10K but is worth. £9k. You’ve paid £18,567 in monthly payments. You want a new car. You hand it back and that’s it. 

If you take say a 2.9% loan over 48 months that means you are paying £551 a month roughly and in total over the period £26488. But you own the car at the end. Except it’s only worth £7000. So you sell it which takes your expenditure to £19488. Around £900 worse off.

I completely agree that this PCP deal for a mini is a joke and I’d not use it, or pay it off immediately if there was any discount involved in going with it. But the fictitious example I have laid out is why people often stick with pcp and it’s by no means extreme. Dieselgate for example had people in far worse positions than that if they couldn’t hand the car back. So things can happen that leaves your car worth less than would be expected. And that’s where there is certainty in a pcp deal that doesn’t exist anywhere else. Liked fixes rate mortgages I guess. 

Yes, agreed, its one of the benefits of PCP.  It gives you an element of protection.  Thats a known, documented, agreed benefit.

And yes, we're in agreement that this particular PCP deal is a joke.

Other thing worth pointing out is that if people are costing against their disposable income they want lower monthly payments and the same term…and that’s another reason why PCP is popular. I suppose the only reason it exists is it lets people buy new cars utilising their disposable income in a manageable way. 

Yup.  Absolutely.

However i do think now is not the right time to buy on new car PCP from the likes of BMW as the offers are way way off in terms of cost.  Easily +50% higher monthlies than we'd have seen pre COVID.  

Grumpy_chap

What is the most that can be overpaid on a PCP deal but still keep the "insurance" of the MGFV incase of used car market crashes?

Take PCP

Secure incentives
Pay off as much as possible but not all, so avoiding most interest cost

Still keep the option to return for MGFV in the future if desired.

motorguy

Grumpy_chap said:

What is the most that can be overpaid on a PCP deal but still keep the "insurance" of the MGFV incase of used car market crashes?

Take PCP

Secure incentives
Pay off as much as possible but not all, so avoiding most interest cost

Still keep the option to return for MGFV in the future if desired.

If you're talking generally speaking, I think roughly speaking its around 30% of a "deposit" they let you put down.  

You could then overpay directly to the finance company and that would reduce interest charges.

Of this specific deal there arent any incentives to be had and its an awful interest rate so you could end up going to an awful lot of cash commitment / overpayment to protect against a very obscure scenario as JCW values have always been quite strong on the used market because of their relative rarity.

Taking the PCP deal in the first place creates the negative equity risk because it puts a hard stop on the repayment term and forces you to decide on what to do next.  If bought with a cheap loan you dont have that concern.

Grumpy_chap

Thanks, but maybe I didn't explain my question.
Accepting this PCP in this thread is not a great one.

The common advice given is to take PCP with incentives, then pay down early to avoid interest.

The suggestion has been made in this thread that there could be some value in having the MGFV.  Can that be secured like this (typical figures for example):
- car price £30k
- PCP incentive discount £2k
- customer deposit £3k
- finance £25k
- pay £15k plus interest as monthly
- MGFV £10k

Common suggestion is 1, 2, 3 then clear quickly.

Does that end the MGFV, or could the customer enforce that at the end of the term?

What if 1, 2, 3 then pay £20k so there is still some monthly to pay but the finance remain open and MGFV still available.

DrEskimo

Grumpy_chap said:

Thanks, but maybe I didn't explain my question.
Accepting this PCP in this thread is not a great one.

The common advice given is to take PCP with incentives, then pay down early to avoid interest.

The suggestion has been made in this thread that there could be some value in having the MGFV.  Can that be secured like this (typical figures for example):
- car price £30k
- PCP incentive discount £2k
- customer deposit £3k
- finance £25k
- pay £15k plus interest as monthly
- MGFV £10k

Common suggestion is 1, 2, 3 then clear quickly.

Does that end the MGFV, or could the customer enforce that at the end of the term?

What if 1, 2, 3 then pay £20k so there is still some monthly to pay but the finance remain open and MGFV still available.

Most of the interest is coming from the GFV, where the capital is not reducing. So paying down the 'depreciation' portion is going to save some interest, but will still be expensive relative to a personal loan. So that 'insurance' can still come at a high cost.

It all depends on the APR being charged and the GFV set by the finance company.

It also doesn't help that overpayments to a PCP can be complicated and vary. I know with Renault when I played with the PCP calculator online (before I settled in it full), different overpayments affected the monthly cost and the GFV. I could get monthlies very low, but it also did reduce the GFV.

It's also worth bearing in mind how punitive this 'insurance' is with the GFV. Putting VT to one side, the GFV is only available at one single point in time, the very end of the deal. It is also subject to additional charges if mileage is exceeded, or any damage beyond fair wear and tear.

I generally suggest to view it as though it was offered as an aftermarket insurance policy. For this Mini, if someone approached you and said would you like to buy 'asset value protection insurance', where for £5,000 we will insure the value of that Mini at £15,000, but only on one day, and the cost may increase....well...I think I know where most people would kindly tell them to put their 'offer'. It's an awful product!

Grumpy_chap

Yes, but I was wondering whether it is possible to pay more, so MGFV £10k, but total outstanding finance at trigger date, say, £1k.  The finance product is still active.  If the customer triggers the MGFV, the finance company need to repay the difference to the customer.

iwb100

Grumpy_chap said:

Yes, but I was wondering whether it is possible to pay more, so MGFV £10k, but total outstanding finance at trigger date, say, £1k.  The finance product is still active.  If the customer triggers the MGFV, the finance company need to repay the difference to the customer.

I think what happens after a certain point in overpayment is that the finance company will reduce the term rather than the payment. To get around this. I think. But don’t quote me on that.