Carwow offer prices lower for PCP
Just used carwow to get some prices on a new car. I planned on paying cash however the prices drop about 15% when PCP is selected.
Is this due to the kickbacks the dealer get?
Anyone ever got a price on a new car on PCP then at the last minute switched to paying cash and hope they don't change the price?
I'm not keen on getting finance on a car as they only depreciate, and at least paying cash I am never in negative equity.
Is this due to the kickbacks the dealer get?
Anyone ever got a price on a new car on PCP then at the last minute switched to paying cash and hope they don't change the price?
I'm not keen on getting finance on a car as they only depreciate, and at least paying cash I am never in negative equity.
0
Comments
-
There are often financial incentives to take out PCP. You can always take out the PCP and then pay off the whole amount under the agreement, keeping the manufacturer's/dealer's contribution. At most you will pay a few days interest. If you are about to apply for a mortgage, I'd be more cautious, but if you have the cash to immediately pay it off and do so, you'll save quite a bit.0
-
Take the finance. Ring the finance company a few days after you get the car and ask to withdraw (you have up to 14 days). Pay them - I usually use a debit card.
I've done it three times now.0 -
I suppose that paying the finance off immediately is definitely an option to save a bit. Although may not be possible due to only just arriving back in the country after living abroad.
At least it's a starting point knowing that it's possible to get a better deal with pcp.0 -
This is quite normal. You'll find that most dealerships will offer manufacturer/dealer contributions as an incentive to take out their finance deals, Carwow are simply reflecting this situation.Just used carwow to get some prices on a new car. I planned on paying cash however the prices drop about 15% when PCP is selected.
Is this due to the kickbacks the dealer get?
Anyone ever got a price on a new car on PCP then at the last minute switched to paying cash and hope they don't change the price?
I'm not keen on getting finance on a car as they only depreciate, and at least paying cash I am never in negative equity.
As already mentioned there are two methods to get these discounts if you have no intention of taking the finance to full term. You legally have 14 days to back out of any credit agreement so you can withdraw/cancel the finance within this period with no penalty, or you can simply "settle" the finance at any time with a minimum amount of interest to pay.0 -
They offer more incentives on PCP because they make that money back 2/3-fold on the interest they charge you on that finance.
I would love to hear from someone that has a better understanding, but from what I can deduce the dealers must be getting finance agreements from the likes of Barclay's and Black Horse at a much much lower rate than they charge on their PCP's. Given BoE base rate is currently 0.75%, I can't imagine they pay much more than 1/1.5%?
They then stick as much as 7% APR on their PCP deals, meaning they could be getting upwards of 6% worth of interest in pure profit!
Not to mention that the interest charged will be much higher since they will be paying the entire amount borrowed off, not paying parts (i.e. the GFV/balloon payment) as interest only. Hence why generally HP APR will be higher than PCP APR.
The amount of profit from selling finance must be astronomical....0 -
They offer more incentives on PCP because they make that money back 2/3-fold on the interest they charge you on that finance.
No. Its discounting by the back door. It allows manufacturers to offer incentives for people to buy their cars, without having to discount them more heavily than normal. Heavily discounted new cars = crap residuals and a forecourt full of used cars that cant be sold.
I would love to hear from someone that has a better understanding, but from what I can deduce the dealers must be getting finance agreements from the likes of Barclay's and Black Horse at a much much lower rate than they charge on their PCP's. Given BoE base rate is currently 0.75%, I can't imagine they pay much more than 1/1.5%?
No. The incentivised finance deals are by the manufacturer and their finance arms.
They then stick as much as 7% APR on their PCP deals, meaning they could be getting upwards of 6% worth of interest in pure profit!
No. Dealers arent finance houses.
Not to mention that the interest charged will be much higher since they will be paying the entire amount borrowed off, not paying parts (i.e. the GFV/balloon payment) as interest only. Hence why generally HP APR will be higher than PCP APR.
The amount of profit from selling finance must be astronomical....
No. Finance facilitates the selling of new cars.
Typically margins on finance deals by finance houses are waifer thin.0 -
Just to clarify, Carwow don't set prices, the manufacturers and dealers do, so the differences you see are what you would see in any dealership.0
-
No. Its discounting by the back door. It allows manufacturers to offer incentives for people to buy their cars, without having to discount them more heavily than normal. Heavily discounted new cars = crap residuals and a forecourt full of used cars that cant be sold.
No. The incentivised finance deals are by the manufacturer and their finance arms.
No. Dealers arent finance houses.
No. Finance facilitates the selling of new cars.
Typically margins on finance deals by finance houses are waifer thin.
Apologies, I have probably used the term dealer, when in fact I mean manufacturer.
But I'm still unsure how they are only making 'waiver thin' margins on the use of finance, but presumably this is due to my ignorance on the matter...!
As you say, manufacturer's don't supply finance, they source it from finance companies. Surely they are not paying the same levels of interest to procure this compared to the rates they charge their customers?
Of course knowing what this is exactly is likely to be hard, as I suspect they won't be fully disclosing this information in the public domain, but if the rates are low (as I suspect they are), then surely they are making large amounts of profit on every car sold? Not to mention the profits on selling the car itself at a mark up (albeit, slightly less mark up due to discounts for taking PCP).
For example, some Audi models I looked at, with heavy discounts (which are still having the undesirable effect of ruining their used car stock values...), on a 48month PCP would be charging as much as £6-7k in interest. Now I can borrow this on a standard loan at the same rate, which would be substantially less interest, but also at a rate as low as 2.7%, nearly a third of the APR offered on the PCP.
Presumably they too are acquiring their finance from these companies for a much lower rate than I can obtain due to the sheer scale...?
So where is this £5/6k profit from the finance of every Audi bought on PCP going...?0 -
Apologies, I have probably used the term dealer, when in fact I mean manufacturer.
But I'm still unsure how they are only making 'waiver thin' margins on the use of finance, but presumably this is due to my ignorance on the matter...!
As you say, manufacturer's don't supply finance, they source it from finance companies. Surely they are not paying the same levels of interest to procure this compared to the rates they charge their customers?
Of course knowing what this is exactly is likely to be hard, as I suspect they won't be fully disclosing this information in the public domain, but if the rates are low (as I suspect they are), then surely they are making large amounts of profit on every car sold? Not to mention the profits on selling the car itself at a mark up (albeit, slightly less mark up due to discounts for taking PCP).
For example, some Audi models I looked at, with heavy discounts (which are still having the undesirable effect of ruining their used car stock values...), on a 48month PCP would be charging as much as £6-7k in interest. Now I can borrow this on a standard loan at the same rate, which would be substantially less interest, but also at a rate as low as 2.7%, nearly a third of the APR offered on the PCP.
Presumably they too are acquiring their finance from these companies for a much lower rate than I can obtain due to the sheer scale...?
So where is this £5/6k profit from the finance of every Audi bought on PCP going...?
On paper you might assume that comparing the BoE base rate to the rate set by Finance Houses as pure profit, but it isn't as simple as that. You don't know what rate the finance houses have bought that money at - it won't be base rate, and then you have to factor in other costs - customers defaulting is a big chunk and although they can repossess cars, that won't get them all the money back, even if it is in equity, since they won't get retail value for them, and on top of that is the recovery costs. Then there's commissions to pay out and staffing etc...0 -
But I'm still unsure how they are only making 'waiver thin' margins on the use of finance, but presumably this is due to my ignorance on the matter...!
Because they are ultimately having to borrow the money to cover the loans they're making, which isnt free. They also have to deal with a significant percentage of returned cars, voluntary terminated cars, problems etc, which all eat in to their slim margin.
Used car finance is more expensive but new car finance is usually at 2.9% APR or 4.9% APR.
As you say, manufacturer's don't supply finance, they source it from finance companies. Surely they are not paying the same levels of interest to procure this compared to the rates they charge their customers?
They've went further than that - they have their own finance companies.
Of course knowing what this is exactly is likely to be hard, as I suspect they won't be fully disclosing this information in the public domain, but if the rates are low (as I suspect they are), then surely they are making large amounts of profit on every car sold? Not to mention the profits on selling the car itself at a mark up (albeit, slightly less mark up due to discounts for taking PCP).
They're not making large amounts of profit on each car. They're making money, yes, but their overall costs are high.
For example, some Audi models I looked at, with heavy discounts (which are still having the undesirable effect of ruining their used car stock values...), on a 48month PCP would be charging as much as £6-7k in interest. Now I can borrow this on a standard loan at the same rate, which would be substantially less interest, but also at a rate as low as 2.7%, nearly a third of the APR offered on the PCP.
Presumably they too are acquiring their finance from these companies for a much lower rate than I can obtain due to the sheer scale...?
So where is this £5/6k profit from the finance of every Audi bought on PCP going...?
Lookin at an offer on an S3, they're charging 6.7% APR on a new car which is actually quite high as you say. Theres approx £5,800 interest charges but they're offering £1,800 incentive so £4,000 in interest. This isnt "profit" as they have to finance it from somewhere / sell on the loans to investment companies, plus they've overheads and commissions to pay.
Not saying they're not making money at it and its definitely a profit centre, but theres risk with it too.0
This discussion has been closed.
Categories
- All Categories
- 343.2K Banking & Borrowing
- 250.1K Reduce Debt & Boost Income
- 449.7K Spending & Discounts
- 235.3K Work, Benefits & Business
- 608K Mortgages, Homes & Bills
- 173.1K Life & Family
- 247.9K Travel & Transport
- 1.5M Hobbies & Leisure
- 15.9K Discuss & Feedback
- 15.1K Coronavirus Support Boards