Carwow offer prices lower for PCP

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  • DrEskimo
    DrEskimo Posts: 2,337
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    neilmcl wrote: »
    Totally irrelevant in the case of a PCP, the finance company takes all the risk in terms of depreciation.

    It's not totally irrelevant at all. It's precisely what the cost (the combination of the deposit and monthly payment) is based on, obviously bundled in with large interest costs.

    Every deal will be different, but when you are buying something like a Audi or BMW with higher APR, It's hardly a risk to the finance company, as they are predicting the lowest possible GFV based on rock bottom market values, and furthermore greatly negating any risk of shortfall with large amounts of payable interest.

    As pointed out, interest payable can be as high as £5k. What probability is there that the car will be worth more than £5k less than the predicted GFV? At most I've seen £1-2K. Even then, that can be completely avoided by selling to other garages as it's usually based on low P/X offers.
  • Cornucopia
    Cornucopia Posts: 16,146
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    edited 8 August 2018 at 8:15PM
    DrEskimo wrote: »
    It's not totally irrelevant at all. It's precisely what the cost (the combination of the deposit and monthly payment) is based on, obviously bundled in with large interest costs.
    It's irrelevant in the sense that the PCP deal completely encapsulates the depreciation, makes it transparent to the customer and underwrites it at a particular figure. That process potentially involves a cost, but it is as it purports to be.

    I agree with your previous comments about de-emphasising of the downpayment. I think this is a particular issue within car advertising, and I'm slightly surprised that the ASA hasn't done anything about it, yet. I'd suggest that no car that has a downpayment that is more than 2x monthly payment can be described as "just" the monthly payment, and any car with a downpayment that is more than 10x should have the mandatory wording "from £X per month, plus significant downpayment".
    Every deal will be different, but when you are buying something like a Audi or BMW with higher APR, It's hardly a risk to the finance company, as they are predicting the lowest possible GFV based on rock bottom market values, and furthermore greatly negating any risk of shortfall with large amounts of payable interest.
    I doubt that they are particularly low GMFVs because that would make the payments artificially high, putting off customers. Cars depreciate, new cars doubly so.

    It would be an error to think that the depreciation of cars varies depending on how they are financed. You just see the depreciation more clearly with PCPs and Leases than with other forms of purchase.
    As pointed out, interest payable can be as high as £5k. What probability is there that the car will be worth more than £5k less than the predicted GFV? At most I've seen £1-2K. Even then, that can be completely avoided by selling to other garages as it's usually based on low P/X offers.
    Have you compared PCP, Lease and HP like-for-like? There's nothing special about "£5k" of interest. If you look at Mortgage interest on houses you will see figures vastly more than that. If you borrow a lot of money, you will likely pay a lot of interest. That's how finance works.

    Has anyone in the car industry told you that interest on PCPs will be offset by equity at the end of the term? I'd hope not.
  • DrEskimo
    DrEskimo Posts: 2,337
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    Cornucopia wrote: »
    It's irrelevant in the sense that the PCP deal completely encapsulates the depreciation, makes it transparent to the customer and underwrites it at a particular figure.


    I doubt that they are particularly low GMFVs because that would make the payments artificially high, putting off customers. Cars depreciate, new cars doubly so.


    Have you compared PCP, Lease and HP like-for-like? There's nothing special about "£5k" of interest. If you look at Mortgage interest on houses you will see figures vastly more than that. If you borrow a lot of money, you will likely pay a lot of interest. That's how finance works.

    Yes, but it sort of highlights the point I was trying to make. The fixation on monthly cost, which itself can be manipulated by upfront costs, moves attention away from the actual costs that make for more accurate comparisons. If I was buying a new car with cash, I would be looking at how long I intended to keep it, and what the predicted depreciation would look like. People looking at PCP should be doing exactly the same thing (which, if they factor in the total cost, they are indirectly).

    PCP and new cars tend to get conflated in these discussions, which is why I separate the costs of depreciation and interest. Depreciation costs are high because it's a new car, irrelevant of how the car is financed or bought. Interest costs are high because the structure of a PCP loan means you are not paying back a large proportion of the amount borrowed. If you want to reduce these costs, you don't buy new, or you look for cheaper finance. PCP doesn't magically make it cheaper. On the contrary it often makes it more expensive. It certainly makes it more attainable by offsetting the cost, but that is at the expense of higher interest.

    Since depreciation and cost of finance make up a significant proportion of the total cost of ownership, PCP often is the most expensive way to drive cars. Irrelevant of how long you keep your cars (never understood why the adage 'if you swap cars every few years, PCP is better'...convenient yes, but certainly not cheaper).

    The GFV's are low relative to what someone could get from a garage without wanting significant mark ups, or selling privately. But I appreciate your point, there is a balance that the dealership has to make to ensure the car is affordable.

    Yes. In most cases, borrowing the amount of money you are borrowing is considerably cheaper when done through a personal loan, even at the same APR. Mathematically it has to be, as you are not paying down the principal as much, so the interest is calculated on a higher number each month. If the cost of the car is low, the GFV is low, or the APR is small, I appreciate the differences can be pretty negligible though.

    Going back to the OP, when you can buy the car for the same price (whether that be taking the PCP incentives and settling within 14days), and the trade in figure is irrespective of the way the car was bought, then the only difference is the interest you are charged.

    Now leasing I get, since you are actively looking for a deal where it works out cheaper than the predicted depreciation, and that's before interest is included. However just because it's cheaper than a PCP, doesn't make it 'cheap'. It's still on a brand new car that has heavy depreciation relative to nearly new/used, despite being slightly less than predicted (and the costs I've found often get compared to RRP, not discounted, and to the aforementioned 'low' GFV's, when infect it could be sold for more using other methods).
  • Cornucopia
    Cornucopia Posts: 16,146
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    edited 8 August 2018 at 8:42PM
    DrEskimo wrote: »
    Yes, but it sort of highlights the point I was trying to make. The fixation on monthly cost, which itself can be manipulated by upfront costs, moves attention away from the actual costs that make for more accurate comparisons. If I was buying a new car with cash, I would be looking at how long I intended to keep it, and what the predicted depreciation would look like. People looking at PCP should be doing exactly the same thing (which, if they factor in the total cost, they are indirectly).
    On MSE, we generally re-calculate the monthly payment to spread the initial payment across it. That gives a better, more comparable view of the total cost. Also the actual total cost or the total cost per year, or per mile can be a useful figure.
    PCP and new cars tend to get conflated in these discussions, which is why I separate the costs of depreciation and interest. Depreciation costs are high because it's a new car, irrelevant of how the car is financed or bought. Interest costs are high because the structure of a PCP loan means you are not paying back a large proportion of the amount borrowed. If you want to reduce these costs, you don't buy new, or you look for cheaper finance. PCP doesn't magically make it cheaper. On the contrary it often makes it more expensive. It certainly makes it more attainable by offsetting the cost, but that is at the expense of higher interest.
    Yes... to an extent. When you start to examine the figures properly you may find that it is not as straightforward than that.
    Since depreciation and cost of finance make up a significant proportion of the total cost of ownership, PCP often is the most expensive way to drive cars. Irrelevant of how long you keep your cars (never understood why the adage 'if you swap cars every few years, PCP is better'...convenient yes, but certainly not cheaper).
    Again, not necessarily. Clearly keeping a car for longer reduces its cost per year and per mile (usually). However, comparing like for like in terms of different options for shorter-term ownership may not show the kind of differences you may think it would.
    The GFV's are low relative to what someone could get from a garage without wanting significant mark ups, or selling privately. But I appreciate your point, there is a balance that the dealership has to make to ensure the car is affordable.
    To echo a point made earlier, Dealers do not set finance rates, deposit levels or depreciation rates.
    Yes. In most cases, borrowing the amount of money you are borrowing is considerably cheaper when done through a personal loan, even at the same APR. Mathematically it has to be, as you are not paying down the principal as much, so the interest is calculated on a higher number each month. If the cost of the car is low, the GFV is low, or the APR is small, I appreciate the differences can be pretty negligible though.
    Yes... but I think you are putting too much emphasis on the maths, rather than the practicality. Of course it costs more to borrow on a PCP-shaped repayment profile than HP - that's because you owe more money (and therefore have spent less in repayments).
    Now leasing I get, since you are actively looking for a deal where it works out cheaper than the predicted depreciation, and that's before interest is included. However just because it's cheaper than a PCP, doesn't make it 'cheap'. It's still on a brand new car that has heavy depreciation relative to nearly new/used, despite being slightly less than predicted (and the costs I've found often get compared to RRP, not discounted, and to the aforementioned 'low' GFV's, when infect it could be sold for more using other methods).
    I've actually done comparisons in the past between buying new (perhaps on a PCP) and buying nearly new (say from years 3-6). The difference is not as much as you might think, assuming that you plan only to keep the car for the same 3-4 year period.

    What happens is

    (a) Finance rates are higher on used cars than new (generally).

    (b) There are few incentives on used cars (generally).

    (c) In both cases, you are following the depreciation curve, just a different part of it.

    (d) In both cases, the trade-in value will be reduced by the Dealer's anticipated margin on resale (unless you sell privately). The simple act of trading one fairly new car for another will cost at least £1000.

    I'm actually looking at a lease now, and I think that to obtain the use of a new car for a monthly payment of around 1% of its total cost is not a bad price. I'm not sure what price you would consider "fair"?
  • DrEskimo
    DrEskimo Posts: 2,337
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    Cornucopia wrote: »
    On MSE, we generally re-calculate the monthly payment to spread the initial payment across it. That gives a better, more comparable view of the total cost. Also the actual total cost or the total cost per year, or per mile can be a useful figure.


    Yes... to an extent. When you start to examine the figures properly you may find that it is not as straightforward than that.


    Again, not necessarily. Clearly keeping a car for longer reduces its cost per year and per mile (usually). However, comparing like for like in terms of different options for shorter-term ownership may not show the kind of differences you may think it would.


    To echo a point made earlier, Dealers do not set finance rates, deposit levels or depreciation rates.


    Yes... but I think you are putting too much emphasis on the maths, rather than the practicality. Of course it costs more to borrow on a PCP-shaped repayment profile than HP - that's because you owe more money (and therefore have spent less in repayments).


    I've actually done comparisons in the past between buying new (perhaps on a PCP) and buying nearly new (say from years 3-6). The difference is not as much as you might think, assuming that you plan only to keep the car for the same 3-4 year period.

    What happens is

    (a) Finance rates are higher on used cars than new (generally).

    (b) There are few incentives on used cars (generally).

    (c) In both cases, you are following the depreciation curve, just a different part of it.

    (d) In both cases, the trade-in value will be reduced by the Dealer's anticipated margin on resale (unless you sell privately). The simple act of trading one fairly new car for another will cost at least £1000.

    I'm actually looking at a lease now, and I think that to obtain the use of a new car for a monthly payment of around 1% of its total cost is not a bad price. I'm not sure what price you would consider "fair"?

    The problem you have with making these comparisons is that the used market has such wide variation of pricing of the same car. Location, time, condition, spec, colour, particular sales targets met by the dealer, etc etc will all influence the price. More often than not there are a range of used cars on AT and dealers websites that are massively overinflated, which if doing a cursory search to compare costs to PCP/lease can lead to false conclusions that it's not much more expensive. Reality is that a used car priced fairly (which do exist, but admit they are hard to come by...!) with low, or preferably no finance will be many magnitudes cheaper.

    As with getting good discounts and incentives on new, looking for a used car at a good price is just as much work!

    I tend to look at RRP, then spend time looking for what the highest discounts are, and what the GFV's are. I then use that to gauge whether the used prices are a fair reflection. Trying to ensure the 'discount' of buying used with mileage is accounted for appropriately.

    Then of course personally I see absolutely no value whatsoever in 'brand new'. I didn't see any difference in the brand new car, vs. the old car other than the price. Obviously others will think differently, and it's not for me to say otherwise! What was quite surprising to me was the psychology of ownership...! I really missed owning the car, and even just thinking about the possibility of settling the PCP and owning it at one point completely changed how I thought about the car.

    Yes I would absolutely not consider used car finance (but then it's probably pretty obvious I don't consider finance at all when I can help it!). There are other factors, such as risk when it comes to borrowing on a highly depreciating asset, which is another topic(!), but if I do need to borrow money, I pay no attention to the monthly cost. If I borrow money I want to pay the most amount I possibly can as fast as I can to save on interest. It's the interest cost I am focussed on. What it costs per month is irrelevant to me....but in general, I avoid consumer based debt where possible.

    The other term that gets used a lot is 'affordability', however I've found that's a pretty subjective notion too, and we all have our own idea of what is defined as 'affordable'..!
  • DrEskimo
    DrEskimo Posts: 2,337
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    Sorry just to pick up on a couple of specific points:
    Cornucopia wrote: »
    Yes... but I think you are putting too much emphasis on the maths, rather than the practicality. Of course it costs more to borrow on a PCP-shaped repayment profile than HP - that's because you owe more money (and therefore have spent less in repayments).

    Not sure i follow this, you do not borrow more money, you just repay it back slower? You owe the same amount of money on a PCP or a HP, but you offsetting a large proportion to the final payment.

    E.g.
    HP of £20,000 over 60months @ 5% APR = £376. Interest paid £2,584.
    Most of the £376 is capital repayment, so the interest calculated each month is lower.

    PCP of £20,000 over 60months @ 5% APR with GFV of £10,000 = £230. Interest paid £3,822.
    Smaller proportion of £230 is to capital repayment, so the interest calculated each month is higher.

    Obviously 30 months into the HP you will have paid off >£11,000 of the car, whereas on PCP you have only paid <£7,000.

    Cornucopia wrote: »
    (c) In both cases, you are following the depreciation curve, just a different part of it.

    Yes absolutely, the shallower part of it that doesn't cost as much!
  • Cornucopia
    Cornucopia Posts: 16,146
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    edited 8 August 2018 at 10:18PM
    DrEskimo wrote: »
    Not sure i follow this, you do not borrow more money, you just repay it back slower? You owe the same amount of money on a PCP or a HP, but you offsetting a large proportion to the final payment.

    E.g.
    HP of £20,000 over 60months @ 5% APR = £376. Interest paid £2,584.
    Most of the £376 is capital repayment, so the interest calculated each month is lower.

    PCP of £20,000 over 60months @ 5% APR with GFV of £10,000 = £230. Interest paid £3,822.
    Smaller proportion of £230 is to capital repayment, so the interest calculated each month is higher.

    Obviously 30 months into the HP you will have paid off >£11,000 of the car, whereas on PCP you have only paid <£7,000.
    I'm not sure "offsetting" is a useful term, but yes.

    At the 30 month point, your HP payments will have cost you £11,280, but your PCP payments will have cost £6,900. So, yes, you will owe more, but you will have paid less.
    Yes absolutely, the shallower part of it that doesn't cost as much!
    As I said, when you look into it, the practical difference may not be that much.

    A few weeks ago, I was looking at a Renault Kadjar (but I've since moved on).

    This vehicle, new, would have cost (on a PCP):-
    £299 deposit + £299 pm = £14,651
    A similar nearly new one (2016) from a Dealer (also on a PCP) would be:-
    £2899 deposit + £207 pm = £12,835

    So new is more expensive, but it is not "magnitudes".

    Leasing from new costs:-
    £1971 deposit + £219pm = £12,264

    Leasing new costs less than buying nearly new on a PCP.

    Buying new for cash might cost (in depreciation alone): £11,031
  • DrEskimo
    DrEskimo Posts: 2,337
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    Cornucopia wrote: »
    I'm not sure "offsetting" is a useful term, but yes.

    At the 30 month point, your HP payments will have cost you £11,280, but your PCP payments will have cost £6,900. So, yes, you will owe more, but you will have paid less.

    Yes, but come the end of the deal when you decide to either pay the balloon on the PCP, or trade in the HP, the costs will be identical in term of depreciation, but different in terms of interest (with the HP saving you around £1,300).
    Cornucopia wrote: »
    As I said, when you look into it, the practical difference may not be that much.

    A few weeks ago, I was looking at a Renault Kadjar (but I've since moved on).

    This vehicle, new, would have cost (on a PCP):-
    £299 deposit + £299 pm = £14,651
    A similar nearly new one (2016) from a Dealer (also on a PCP) would be:-
    £2899 deposit + £207 pm = £12,835

    So new is more expensive, but it is not "magnitudes".

    Leasing from new costs:-
    £1971 deposit + £219pm = £12,264

    Leasing new costs less than buying nearly new.

    Buying new for cash might cost (in depreciation alone): £11,031

    What was the rate on the used PCP? Could this be negotiated (i've been able to get it down to around half the advertised rate on nearly all i've enquired). Was the 2016 reasonably priced or was it a dealer chancing his arm on a punter that didn't know you could discount a new one by X amount?

    What about private sale? On a car under warranty, what does the mark up from a dealer give you?

    What about personal loan instead of PCP on both new and used?

    What about straight cash on used?

    Again it comes back to the main point I was trying to make. Focusing on monthlies just distracts from the actual value of the underlying asset. How much is the car, how much is it expected to depreciate and how much is the finance going to cost if needed. These are what I personally focus on, and look at new/nearly new/used, and PCP, HP, personal loan and cash.

    I just aim to minimise these as much as possible, whilst balancing it against what I want, and what I want to spend. Not monthly spend, but total spend. Since depreciation is the biggest cost involved, new always loses out. Particularly as to me personally it adds absolutely no value whatsoever...
  • xzibit
    xzibit Posts: 655
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    Interesting discussions so far.

    To answer a couple of questions I've seen, I've been looking at cars 1-3 years old, but wanted to see what the true differences were between new as an option too. I am one of these people that love to know the complete history of a car and as I'll be wanting to keep to car for a minimum 5-7 years I am looking as new as an option, however letting go of that small insecurity and buying a nearly new car will save me some money and a week into ownership I won't care anyway.

    So I was just interested in the prices the dealers supplied (I'm aware carwow is merely and intermediary) and that finance got you a reasonable discount. Now I get it.

    I see that you can get PCP deals on nearly new cars, so perhaps that's an option if the discount is still there. Then paying it off straight away.
  • DrEskimo
    DrEskimo Posts: 2,337
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    xzibit wrote: »
    Interesting discussions so far.

    To answer a couple of questions I've seen, I've been looking at cars 1-3 years old, but wanted to see what the true differences were between new as an option too. I am one of these people that love to know the complete history of a car and as I'll be wanting to keep to car for a minimum 5-7 years I am looking as new as an option, however letting go of that small insecurity and buying a nearly new car will save me some money and a week into ownership I won't care anyway.

    So I was just interested in the prices the dealers supplied (I'm aware carwow is merely and intermediary) and that finance got you a reasonable discount. Now I get it.

    I see that you can get PCP deals on nearly new cars, so perhaps that's an option if the discount is still there. Then paying it off straight away.

    Just make sure you look at what the actual best price on a new car will be to help you gauge the value of a nearly new car. It's very common to see dealers have nearly new with some mileage higher than discounted brand new, purely on the chance they will get someone less informed and present it as "XX% from RRP!", and they think it's great.
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