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  • FIRST POST
    • xzibit
    • By xzibit 7th Aug 18, 11:33 PM
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    xzibit
    Carwow offer prices lower for PCP
    • #1
    • 7th Aug 18, 11:33 PM
    Carwow offer prices lower for PCP 7th Aug 18 at 11:33 PM
    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.
Page 1
    • Mercdriver
    • By Mercdriver 8th Aug 18, 12:26 AM
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    Mercdriver
    • #2
    • 8th Aug 18, 12:26 AM
    • #2
    • 8th Aug 18, 12:26 AM
    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.
    • marlot
    • By marlot 8th Aug 18, 6:45 AM
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    marlot
    • #3
    • 8th Aug 18, 6:45 AM
    • #3
    • 8th Aug 18, 6:45 AM
    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.
    • xzibit
    • By xzibit 8th Aug 18, 6:46 AM
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    xzibit
    • #4
    • 8th Aug 18, 6:46 AM
    • #4
    • 8th Aug 18, 6:46 AM
    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.
    • neilmcl
    • By neilmcl 8th Aug 18, 6:52 AM
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    neilmcl
    • #5
    • 8th Aug 18, 6:52 AM
    • #5
    • 8th Aug 18, 6:52 AM
    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.
    Originally posted by xzibit
    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.

    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.
    • DrEskimo
    • By DrEskimo 8th Aug 18, 12:47 PM
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    DrEskimo
    • #6
    • 8th Aug 18, 12:47 PM
    • #6
    • 8th Aug 18, 12:47 PM
    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....
    • motorguy
    • By motorguy 8th Aug 18, 1:39 PM
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    motorguy
    • #7
    • 8th Aug 18, 1:39 PM
    • #7
    • 8th Aug 18, 1:39 PM

    They offer more incentives on PCP because they make that money back 2/3-fold on the interest they charge you on that finance.
    Originally posted by DrEskimo
    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%?
    Originally posted by DrEskimo
    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!
    Originally posted by DrEskimo
    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....
    Originally posted by DrEskimo
    No. Finance facilitates the selling of new cars.

    Typically margins on finance deals by finance houses are waifer thin.
    "We have normality. I repeat, we have normality. Anything you still can't cope with is therefore your own problem."
    • almillar
    • By almillar 8th Aug 18, 1:51 PM
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    almillar
    • #8
    • 8th Aug 18, 1:51 PM
    • #8
    • 8th Aug 18, 1:51 PM
    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.
    • DrEskimo
    • By DrEskimo 8th Aug 18, 1:52 PM
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    DrEskimo
    • #9
    • 8th Aug 18, 1:52 PM
    • #9
    • 8th Aug 18, 1:52 PM
    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.
    Originally posted by motorguy
    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...?
    • Mercdriver
    • By Mercdriver 8th Aug 18, 2:02 PM
    • 1,908 Posts
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    Mercdriver
    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...?
    Originally posted by DrEskimo
    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...
    • motorguy
    • By motorguy 8th Aug 18, 2:04 PM
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    motorguy

    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...!
    Originally posted by DrEskimo
    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?
    Originally posted by DrEskimo
    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).
    Originally posted by DrEskimo
    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...?
    Originally posted by DrEskimo
    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.
    "We have normality. I repeat, we have normality. Anything you still can't cope with is therefore your own problem."
    • DrEskimo
    • By DrEskimo 8th Aug 18, 2:11 PM
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    DrEskimo
    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.



    They've went further than that - they have their own finance companies.



    They're not making large amounts of profit on each car. They're making money, yes, but their overall costs are high.



    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.
    Originally posted by motorguy
    Ah of course. I am negating the risk aspect.

    In my head, the overheads (dealerships, R&D, advertising, etc.) were presumably being factored into the cost of the car, since these were being done before the big rise in car finance. By adding finance as a major part, they have sourced another revenue stream, which I can only imagine is more profitable (probably in proportional sense, rather than absolute) than they were making on the cars themselves! Of course this is just my uninformed opinion, and very happy to accept I am wrong!

    However there has to be a reason finance is pushed so heavily...! Bit like the margins on their after-market sales must be high, hence their insistence on pushing them!
    • Mercdriver
    • By Mercdriver 8th Aug 18, 2:16 PM
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    Mercdriver
    Ah of course. I am negating the risk aspect.

    In my head, the overheads (dealerships, R&D, advertising, etc.) were presumably being factored into the cost of the car, since these were being done before the big rise in car finance. By adding finance as a major part, they have sourced another revenue stream, which I can only imagine is more profitable (probably in proportional sense, rather than absolute) than they were making on the cars themselves! Of course this is just my uninformed opinion, and very happy to accept I am wrong!

    However there has to be a reason finance is pushed so heavily...! Bit like the margins on their after-market sales must be high, hence their insistence on pushing them!
    Originally posted by DrEskimo
    PCP is pushed quite heavily because it produces returning customers every 3 years who come back because they can rinse and repeat. How efficient it is for the customers depends on the rates. There is little equity in the car at the end of the term, so the customer often has to come up with a deposit again.

    On top of that, the dealer has a 3 year old car he can sell, perhaps to those who are foolish enough to buy a second hand car on PCP - usually at a higher APR again.
    • motorguy
    • By motorguy 8th Aug 18, 2:47 PM
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    motorguy
    Ah of course. I am negating the risk aspect.

    In my head, the overheads (dealerships, R&D, advertising, etc.) were presumably being factored into the cost of the car, since these were being done before the big rise in car finance. By adding finance as a major part, they have sourced another revenue stream, which I can only imagine is more profitable (probably in proportional sense, rather than absolute) than they were making on the cars themselves! Of course this is just my uninformed opinion, and very happy to accept I am wrong!

    However there has to be a reason finance is pushed so heavily...! Bit like the margins on their after-market sales must be high, hence their insistence on pushing them!
    Originally posted by DrEskimo
    You're right! Other than the dealerships are franchises - they're not (usually) owned by the manufacturer.

    Finance / PCP is pushed heavily because it sells cars. Simples. If they can get you to take finance there and then, then thats much better than you leaving the building and going elsewhere to org finance and maybe never coming back.

    Sales of "add-ons" is where the profit is these days for dealers - net profit on a new car might be anything from just a few pounds to a few hundred on a typical new car.
    "We have normality. I repeat, we have normality. Anything you still can't cope with is therefore your own problem."
    • motorguy
    • By motorguy 8th Aug 18, 2:49 PM
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    motorguy
    PCP is pushed quite heavily because it produces returning customers every 3 years who come back because they can rinse and repeat. How efficient it is for the customers depends on the rates. There is little equity in the car at the end of the term, so the customer often has to come up with a deposit again.

    On top of that, the dealer has a 3 year old car he can sell, perhaps to those who are foolish enough to buy a second hand car on PCP - usually at a higher APR again.
    Originally posted by Mercdriver
    Exactly. It gets the dealership another bite at the cherry by reselling the trade in after three years and gets people nicely in to a three year cycle of buying a new car which suits the manufacturer.

    Typically a dealer will resell a three year old car on their forecourt, however the trade ins against that car will be sold off to "back street" smaller dealers so you end up with a tiered structure of new car / approved used / used car selling.
    "We have normality. I repeat, we have normality. Anything you still can't cope with is therefore your own problem."
    • Smellyonion
    • By Smellyonion 8th Aug 18, 2:55 PM
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    Smellyonion
    As you are in a fortunate position and you have the cash, have you considered going for a car that's just 1 years old?


    I know that it takes the shine off of a new car but the savings from something that is just barely used are huge. It will still be under warranty, you will probably have some perishables that are slightly worn but you will save all that depreciation.
    • neilmcl
    • By neilmcl 8th Aug 18, 3:57 PM
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    neilmcl
    However there has to be a reason finance is pushed so heavily...! Bit like the margins on their after-market sales must be high, hence their insistence on pushing them!
    Originally posted by DrEskimo
    It's simple. The key is to shift stock of new cars and what better way to get customers coming back again and again to buy a shiny new cars that most wouldn't normally be able to afford to buy outright than to offer incentives for finance.
    • DrEskimo
    • By DrEskimo 8th Aug 18, 4:15 PM
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    DrEskimo
    Or in my case, try PCP and get a new car because it sounds like a great fun, half way through realise I am haemorrhaging far too much of my hard earned disposable income on renting a car, cry in disbelief at the rate of depreciation and amount of interest I am paying, sell the thing off to a indie dealer for a much more sensible price and never touch a new car with high interest cost finance again....

    I was driving around in a great car and should have been loving it....couldn't wait to get the sodding thing sold!
    • neilmcl
    • By neilmcl 8th Aug 18, 5:34 PM
    • 11,422 Posts
    • 8,216 Thanks
    neilmcl
    Or in my case, try PCP and get a new car because it sounds like a great fun, half way through realise I am haemorrhaging far too much of my hard earned disposable income on renting a car, cry in disbelief at the rate of depreciation and amount of interest I am paying, sell the thing off to a indie dealer for a much more sensible price and never touch a new car with high interest cost finance again....

    I was driving around in a great car and should have been loving it....couldn't wait to get the sodding thing sold!
    Originally posted by DrEskimo
    Why did it take you so long? One of the "advantages" of a PCP is that you have a new car based on a fixed monthly outlay, something you should be budgeting for from the outset.
    • DrEskimo
    • By DrEskimo 8th Aug 18, 6:42 PM
    • 186 Posts
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    DrEskimo
    Sorry that was poorly written. I meant to say Ďrealise I wasnít happy haemorrhaging...í.

    Of course I was well aware of how much it was going to cost me over 24months. However I didnít understand it to the level I do now, and believed the spiel from the dealer that I will have X many thousands in equity towards the end. Instead realising that it was going to cost me more than I hoped.

    Letís be honest, when there is the prospect of a brand new car, you tend to exhibit every psychological bias going to convince yourself itís a good idea...

    I think the problem with the way itís sold is that it is sold as everything, except what it is. Itís a loan, and a high cost interest one at that, to borrow and buy a brand new car with the agreement you will sell it back to the dealership at rock bottom market value...

    Fixation on monthly cost (sometimes even ignoring any upfront payments) takes away from the costs that matter; is the level of predicated depreciation acceptable, and is the cost of interest on the amount you are borrowing acceptable. On new cars, and on PCP, my answer to those is now generally Ďnoí....
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