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  • FIRST POST
    • paradigm
    • By paradigm 11th Jun 19, 10:03 AM
    • 13Posts
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    paradigm
    PCP Question - Negative Equity
    • #1
    • 11th Jun 19, 10:03 AM
    PCP Question - Negative Equity 11th Jun 19 at 10:03 AM
    A quick one hopefully

    I'm 7 months into a 4 year PCP and currently sat at around 6k negative equity.

    Question is: Is this gap between value and finance settle going to increase, decrease or stay broadly the same?

    I guess what I really want to know is, should I just bite the bullet now (if getting out of the PCP is essential) or am I better off waiting 6 or 12 months (noting that the ideal would be to just last the whole agreement!!).

    Thanks in advance
Page 1
    • neilmcl
    • By neilmcl 11th Jun 19, 10:39 AM
    • 13,521 Posts
    • 10,109 Thanks
    neilmcl
    • #2
    • 11th Jun 19, 10:39 AM
    • #2
    • 11th Jun 19, 10:39 AM
    A quick one hopefully

    I'm 7 months into a 4 year PCP and currently sat at around 6k negative equity.

    Question is: Is this gap between value and finance settle going to increase, decrease or stay broadly the same?

    I guess what I really want to know is, should I just bite the bullet now (if getting out of the PCP is essential) or am I better off waiting 6 or 12 months (noting that the ideal would be to just last the whole agreement!!).

    Thanks in advance
    Originally posted by paradigm
    The "gap" will be at it's highest now but will slowly decrease over time. The way PCP is designed is you'll be in negative equity all the way until near the end of the agreement.
    • LandyAndy
    • By LandyAndy 11th Jun 19, 10:41 AM
    • 24,845 Posts
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    LandyAndy
    • #3
    • 11th Jun 19, 10:41 AM
    • #3
    • 11th Jun 19, 10:41 AM
    With a PCP you are always in negative equity nearly to the end. In the last few months you will have an idea whether the GFV is higher or lower than the market value.

    Because initial depreciation is very steep this is when negative equity is at its greatest.

    Edit: neilmcl can type faster than me.
    • paradigm
    • By paradigm 11th Jun 19, 10:41 AM
    • 13 Posts
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    paradigm
    • #4
    • 11th Jun 19, 10:41 AM
    • #4
    • 11th Jun 19, 10:41 AM
    The "gap" will be at it's highest now but will slowly decrease over time. The way PCP is designed is you'll be in negative equity all the way until near the end of the agreement.
    Originally posted by neilmcl
    Thanks Neil, I was hoping this would be the case
    • DrEskimo
    • By DrEskimo 11th Jun 19, 10:55 AM
    • 735 Posts
    • 520 Thanks
    DrEskimo
    • #5
    • 11th Jun 19, 10:55 AM
    • #5
    • 11th Jun 19, 10:55 AM
    As a statistician, I am a firm believer that graphs are a beautiful way of conveying relationships between numbers, and I can't think of a better way to illustrate the relationship between car value and PCP finance payments than this graph:



    As you can see, if the GFV is accurate, you will always be in negative equity, as the product is designed to just pay the depreciation (and interest) every month. As this is calculated overall, and then split equally over the term (say 36 months), it progresses linearly. In contrast, depreciation is exponential, so it gives rise to this 'negative equity' gap.

    If the GFV is pessimistic you could end up with the two lines meeting earlier. Likewise, if you put in a large upfront payment, your starting position may be lower down, given you positive equity at the start. The amount, and for how long, depend on the exact figures.

    HTH
    • foxy-stoat
    • By foxy-stoat 11th Jun 19, 11:02 AM
    • 5,104 Posts
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    foxy-stoat
    • #6
    • 11th Jun 19, 11:02 AM
    • #6
    • 11th Jun 19, 11:02 AM
    A quick one hopefully

    I'm 7 months into a 4 year PCP and currently sat at around 6k negative equity.

    Question is: Is this gap between value and finance settle going to increase, decrease or stay broadly the same?

    I guess what I really want to know is, should I just bite the bullet now (if getting out of the PCP is essential) or am I better off waiting 6 or 12 months (noting that the ideal would be to just last the whole agreement!!).

    Thanks in advance
    Originally posted by paradigm
    You can VT at any time, you just need to find the money to settle the PCP contract to 50% of the total price, the longer you leave it the lower that amount will be.

    Any reason why you cant continue to the end of the PCP agreement and hand the car back to them?
    • paradigm
    • By paradigm 11th Jun 19, 11:03 AM
    • 13 Posts
    • 0 Thanks
    paradigm
    • #7
    • 11th Jun 19, 11:03 AM
    • #7
    • 11th Jun 19, 11:03 AM
    As a statistician, I am a firm believer that graphs are a beautiful way of conveying relationships between numbers, and I can't think of a better way to illustrate the relationship between car value and PCP finance payments than this graph:

    As you can see, if the GFV is accurate, you will always be in negative equity, as the product is designed to just pay the depreciation (and interest) every month. As this is calculated overall, and then split equally over the term (say 36 months), it progresses linearly. In contrast, depreciation is exponential, so it gives rise to this 'negative equity' gap.

    If the GFV is pessimistic you could end up with the two lines meeting earlier. Likewise, if you put in a large upfront payment, your starting position may be lower down, given you positive equity at the start. The amount, and for how long, depend on the exact figures.

    HTH
    Originally posted by DrEskimo
    Yes thanks, that is the graph I came across in my research. It shows a contradictory narrative to the one above in that the "gap" increases to a point (generally 50% through the term) and then decreases to the settlement date. Is there any way of seeing/predicting if the value curve is accurate in its trajectory?
    • paradigm
    • By paradigm 11th Jun 19, 11:06 AM
    • 13 Posts
    • 0 Thanks
    paradigm
    • #8
    • 11th Jun 19, 11:06 AM
    • #8
    • 11th Jun 19, 11:06 AM
    You can VT at any time, you just need to find the money to settle the PCP contract to 50% of the total price, the longer you leave it the lower that amount will be.
    Originally posted by foxy-stoat

    VT not really an option as it would leave me with a significantly larger bill than selling the car after getting a loan to cover the settlement

    Any reason why you cant continue to the end of the PCP agreement and hand the car back to them?
    Originally posted by foxy-stoat
    New baby
    Last edited by paradigm; 11-06-2019 at 11:07 AM. Reason: update
    • Smellyonion
    • By Smellyonion 11th Jun 19, 11:06 AM
    • 247 Posts
    • 184 Thanks
    Smellyonion
    • #9
    • 11th Jun 19, 11:06 AM
    • #9
    • 11th Jun 19, 11:06 AM
    As a statistician, I am a firm believer that graphs are a beautiful way of conveying relationships between numbers, and I can't think of a better way to illustrate the relationship between car value and PCP finance payments than this graph:



    As you can see, if the GFV is accurate, you will always be in negative equity, as the product is designed to just pay the depreciation (and interest) every month. As this is calculated overall, and then split equally over the term (say 36 months), it progresses linearly. In contrast, depreciation is exponential, so it gives rise to this 'negative equity' gap.

    If the GFV is pessimistic you could end up with the two lines meeting earlier. Likewise, if you put in a large upfront payment, your starting position may be lower down, given you positive equity at the start. The amount, and for how long, depend on the exact figures.

    HTH
    Originally posted by DrEskimo

    Looks wrong to me.


    At time Time point 0.1 (on the X axis), the gap is minimal It is not until 1.3 where the gap appears to be at its largest.




    The Value line should cross the Y axis at a lower point than the settlement line. Since the Vehicle immediately loses most of its value from day 1.
    • foxy-stoat
    • By foxy-stoat 11th Jun 19, 11:09 AM
    • 5,104 Posts
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    foxy-stoat
    Yes thanks, that is the graph I came across in my research. It shows a contradictory narrative to the one above in that the "gap" increases to a point (generally 50% through the term) and then decreases to the settlement date. Is there any way of seeing/predicting if the value curve is accurate in its trajectory?
    Originally posted by paradigm
    For what purpose?

    Figures you need to know is:

    Monthly cost and number of months to the end of the agreement.
    Total cost to 50% point (VT without paying any further)

    The market value at any point in time is not relevant if you want to VT it....unless you want to work out if you should buy it and sell on for more, which probably wont happen to your advantage.
    • foxy-stoat
    • By foxy-stoat 11th Jun 19, 11:24 AM
    • 5,104 Posts
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    foxy-stoat
    VT not really an option as it would leave me with a significantly larger bill than selling the car after getting a loan to cover the settlement

    New baby
    Originally posted by paradigm
    What are similar cars advertised for on Autotrader or Car Giant?

    That will give you an approximate valuation in todays market. Depending on the car type and value you may struggle to sell it on the open market as folk like to buy a nearly new car from a dealer using finance so expect to get less than others.
    • paradigm
    • By paradigm 11th Jun 19, 11:29 AM
    • 13 Posts
    • 0 Thanks
    paradigm
    For what purpose?

    Figures you need to know is:

    Monthly cost and number of months to the end of the agreement.
    Total cost to 50% point (VT without paying any further)

    The market value at any point in time is not relevant if you want to VT it....unless you want to work out if you should buy it and sell on for more, which probably wont happen to your advantage.
    Originally posted by foxy-stoat
    To give me an idea of my options
    • Manxman in exile
    • By Manxman in exile 11th Jun 19, 11:53 AM
    • 2,890 Posts
    • 2,601 Thanks
    Manxman in exile
    Looks wrong to me.


    At time Time point 0.1 (on the X axis), the gap is minimal It is not until 1.3 where the gap appears to be at its largest.




    The Value line should cross the Y axis at a lower point than the settlement line. Since the Vehicle immediately loses most of its value from day 1.
    Originally posted by Smellyonion

    That's what I thought
    • paradigm
    • By paradigm 11th Jun 19, 12:07 PM
    • 13 Posts
    • 0 Thanks
    paradigm
    That's what I thought
    Originally posted by Manxman in exile
    Indeed.

    The way I see it is I can either:

    a) VT: Stump up 50% of the total amount, have no car and a (relatively) big loan
    b) Buy car with loan and then sell privately, will be left with a deficit of about 50% of the VT deficit above
    c) Continue with the agreement like a sensible person would
    • foxy-stoat
    • By foxy-stoat 11th Jun 19, 1:45 PM
    • 5,104 Posts
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    foxy-stoat
    Is the car too small to fit a baby in?

    Trying to get out of a PCP this early on is going to cost you a fair amount anyway you slice it.
    • DrEskimo
    • By DrEskimo 11th Jun 19, 2:43 PM
    • 735 Posts
    • 520 Thanks
    DrEskimo
    It depends on the price you negotiate and the market demand on the car. It's entirely feasible that a dealer or a private seller can offer the car for not much more than the car was purchased for within the first few months.

    You also need to factor in the upfront payment (purposely not calling it a deposit!). I suspect the graph above is assuming that the upfront payment of around 10% is covering much of the initial depreciation in the first months.
    • motorguy
    • By motorguy 11th Jun 19, 5:04 PM
    • 19,329 Posts
    • 12,024 Thanks
    motorguy
    New baby
    Originally posted by paradigm
    What sort of a car is it and how many other kids do you have?
    Life has never given me lemons.

    It has given me anger issues, anxiety, a love for alcohol and a serious dislike for stupid people, but not lemons.
    • paradigm
    • By paradigm 12th Jun 19, 12:27 PM
    • 13 Posts
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    paradigm
    What sort of a car is it and how many other kids do you have?
    Originally posted by motorguy
    BMW 1 Series and 2 current children
    • foxy-stoat
    • By foxy-stoat 12th Jun 19, 1:38 PM
    • 5,104 Posts
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    foxy-stoat
    BMW 1 Series and 2 current children
    Originally posted by paradigm
    Yes, 3 would be a squeeze in a 1 series.

    Have you crunched the numbers on the best way forward?
    • motorguy
    • By motorguy 14th Jun 19, 8:30 AM
    • 19,329 Posts
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    motorguy
    BMW 1 Series and 2 current children
    Originally posted by paradigm
    TBH I wouldnt be rushing to change it then. Three kids will fit in the back of a 1 series no problem for the forseeable future. Certainly at least until you get yourself out of this negative equity position.

    I wouldnt be knee jerking in to changing a car.
    Life has never given me lemons.

    It has given me anger issues, anxiety, a love for alcohol and a serious dislike for stupid people, but not lemons.
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