Saving for a car
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So, I bought a new car in October which means 37 months after the agreement I will have to pay them , lets call it, £8,000
Is this a new car you have bought on a Personal Contract Plan (PCP)?
I.e. did you put down an upfront payment, pay a fixed amount per month, then will be left with a balloon payment of around £8k at the end?0 -
Is this a new car you have bought on a Personal Contract Plan (PCP)?
I.e. did you put down an upfront payment, pay a fixed amount per month, then will be left with a balloon payment of around £8k at the end?
Yeah.
£500 deposit, just under £400 a month and an £8k payment after three years0 -
Yeah.
£500 deposit, just under £400 a month and an £8k payment after three years
OK. So is this saving money to be able to buy the car at the end, or saving money to be able to buy another car when the PCP term finishes...?
You are aware that you don't have to pay the £8k at the end? You can sell it privately, you can sell it to another garage, you can trade it in to the same dealership, or you can just hand it back to the finance company.
I'm guessing you want to keep the car though, is this right?
If so, why not just make overpayments on the PCP? Do you know what APR you are being charged? There is a common misconception that you can directly compare APR between standard loans, and PCP style loans. Since you are paying interest on the full amount (including the balloon payment), and only paying down the capital on the difference between the invoice price and balloon payment (i.e. the expected depreciation based on the mileage you agreed), the amount of actual interest you get charged is much higher relative to a standard bank loan of the same amount, with the same APR over the same term.
As such, overpaying the PCP loan could yield much higher returns than you would get from savings accounts. I would need to look at the figures more closely though.
If you want to give details on the invoice price you agreed, the exact monthly payments, the APR and the exact balloon payment agreed, I will be more than happy to go through more definite figures with you if you want more in depth explanations.0 -
If you want to give details on the invoice price you agreed, the exact monthly payments, the APR and the exact balloon payment agreed, I will be more than happy to go through more definite figures with you if you want more in depth explanations.
By God that's a generous offer. Bravo.Free the dunston one next time too.0 -
You think you want to keep it now the car is new, but I!!!8217;m three year!!!8217;s time there!!!8217;ll be another model. That!!!8217;s how they get you! (Voice of bitter experience- I!!!8217;m terrible for it!)
PCP is not an especially efficient way to buy a car, but unless you!!!8217;re on a 0% finance deal, it is most efficient to overpay your PCP which can usually either come off the balloon or reduce monthly payments (you!!!8217;ll save more interest paying off the balloon, but that allows you the least flexibility I.e.: if you want the money for something else).
Personally, enjoy the car, save as you would anyway and see what three years brings. Worst case you can always refinance the balloon (preferably via a cheap loan).0 -
You think you want to keep it now the car is new, but I!!!8217;m three year!!!8217;s time there!!!8217;ll be another model. That!!!8217;s how they get you! (Voice of bitter experience- I!!!8217;m terrible for it!)
PCP is not an especially efficient way to buy a car, but unless you!!!8217;re on a 0% finance deal, it is most efficient to overpay your PCP which can usually either come off the balloon or reduce monthly payments (you!!!8217;ll save more interest paying off the balloon, but that allows you the least flexibility I.e.: if you want the money for something else).
Personally, enjoy the car, save as you would anyway and see what three years brings. Worst case you can always refinance the balloon (preferably via a cheap loan).
I'm pretty skeptical that "0% interest" are in fact interest free.
A lot of the time you can get the car a lot cheaper than the RRP. Online brokers are great at giving you a ball park figure of the discounts you can achieve, and depending on the car they can be quite large. I would be interested in the data of what the average saving is (not that dealers will ever disclose this data...), but I imagine the popularity of these online brokers is making it more common.
Anyway, my point is that I doubt you are able to take advantage of these 0% finance deals, on top of these large discounts. In effect, by not being able to take advantage of the large discount, you are just paying the interest through a higher purchase price.
Of course I could be mistaken. I only bought one new car on PCP (and regret it...) and it didn't have 0% finance. I got a large discount, but still cost me a fortune...!0 -
I'm pretty skeptical that "0% interest" are in fact interest free.
A lot of the time you can get the car a lot cheaper than the RRP. Online brokers are great at giving you a ball park figure of the discounts you can achieve, and depending on the car they can be quite large. I would be interested in the data of what the average saving is (not that dealers will ever disclose this data...), but I imagine the popularity of these online brokers is making it more common.
Anyway, my point is that I doubt you are able to take advantage of these 0% finance deals, on top of these large discounts. In effect, by not being able to take advantage of the large discount, you are just paying the interest through a higher purchase price.
Of course I could be mistaken. I only bought one new car on PCP (and regret it...) and it didn't have 0% finance. I got a large discount, but still cost me a fortune...!
The way to get best deals is to use a site to compare different dealer prices for the same spec vehicle (e.g.: Carwow). Then you can get an idea of the initial "best" price that the dealers can offer the car for, which usually leaves a fairly small margin before they've uphold the GAP, paint protection etc.
Then, when you visit your local dealer, you can usually leverage the same price, before even discussing payment options. If the manufacturer happens to have a 0% offer on at the time, then you're quids in, however admittedly 0% finance offerings are fairly slim pickings at the moment.
Additionally, if you're daft like me you buy a car with your heart not your head, the respective APR does little to sway me one way or another!0 -
The way to get best deals is to use a site to compare different dealer prices for the same spec vehicle (e.g.: Carwow). Then you can get an idea of the initial "best" price that the dealers can offer the car for, which usually leaves a fairly small margin before they've uphold the GAP, paint protection etc.
Then, when you visit your local dealer, you can usually leverage the same price, before even discussing payment options. If the manufacturer happens to have a 0% offer on at the time, then you're quids in, however admittedly 0% finance offerings are fairly slim pickings at the moment.
Additionally, if you're daft like me you buy a car with your heart not your head, the respective APR does little to sway me one way or another!
Yes this was my tactic for buying my last new car. CarWow quote, which I got my local dealer to match.
As mentioned, it's not so much the APR that has put me off, but the actual interest charged. The quoted APR is actually not a good indicator of how expensive the loan is, since it is made up of two parts essentially; a traditional capital and interest repayment loan on the difference between the invoice and the GFV, and a interest only repayment loan on the GFV.
As an example my last PCP was a £47k Audi S5 that I got discounted to £38.5k. I put £6k as a upfront payment (not calling it a deposit..!) so was financing £32.5k. The quoted APR was 5.8% and this was on a 24month term.
A standard bank loan to borrow £32.5k at 5.8% over 24months would cost you £1,947.65.
However, on my PCP loan with a GFV of £27k, I ended up making 23 payments of £381.14. Those payments, plus the £27k final payment totals £35,766.22, which is £3,266.22 in interest!
That's makes the PCP loan 67.7% (£1,319.22) more expensive than the 'standard' loan, even though they are both at the same APR rate and over the same term and borrowing the same amount of money.
That's why quoting the APR can be misleading, and overpaying the PCP can result in much higher savings than the APR would suggest. But this is of course entirely dependent on the price, the GFV, the APR and how much you are financing.
As aside, please say you didn't pay the dealer the ridiculous prices for those awful insurance product and add-ons...? The GAP is often marked up 4x the market value (and generally a worse product), and the paint protection is IMO borderline fraudulent...
Going OT here, but I have come to the conclusion that there are much much better ways to buy/finance a car that doesn't result in paying the dealership thousands in interest charges. Namely buying nearly new/used with personal loans will be many times cheaper, will give you 99% of the same experience, and will leave you in a better position financially each time relative to PCP on brand new (i.e. needing to borrow less each time you want to change).0 -
Going OT here, but I have come to the conclusion that there are much much better ways to buy/finance a car that doesn't result in paying the dealership thousands in interest charges. Namely buying nearly new/used with personal loans will be many times cheaper, will give you 99% of the same experience, and will leave you in a better position financially each time relative to PCP on brand new (i.e. needing to borrow less each time you want to change).
Or borrowing as much as the dealership will allow at 0% on an interest free purchasers credit card over circa 3 years, making just over the minimum payment each month and regular saving the repayment money in parallel to earn some interest before repaying the full balance before the CC offer expires...
Maybe not advisable if you have other needs for credit in the near future.
Alex.0 -
OK. So is this saving money to be able to buy the car at the end, or saving money to be able to buy another car when the PCP term finishes...?
You are aware that you don't have to pay the £8k at the end? You can sell it privately, you can sell it to another garage, you can trade it in to the same dealership, or you can just hand it back to the finance company.
I'm guessing you want to keep the car though, is this right?
If so, why not just make overpayments on the PCP? Do you know what APR you are being charged? There is a common misconception that you can directly compare APR between standard loans, and PCP style loans. Since you are paying interest on the full amount (including the balloon payment), and only paying down the capital on the difference between the invoice price and balloon payment (i.e. the expected depreciation based on the mileage you agreed), the amount of actual interest you get charged is much higher relative to a standard bank loan of the same amount, with the same APR over the same term.
As such, overpaying the PCP loan could yield much higher returns than you would get from savings accounts. I would need to look at the figures more closely though.
If you want to give details on the invoice price you agreed, the exact monthly payments, the APR and the exact balloon payment agreed, I will be more than happy to go through more definite figures with you if you want more in depth explanations.
So, I shall be keeping the car, for sure!
Thanks for your kind offer of helping through this minefield!
I have 36 monthly payments of 389.65 followed by a single payment of 7,913.50 (which is what I am saving for I have 1,980 so far...) - The APR is 3.9%0
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