Car PCP and deposits on them

[Dizeee]

Myself and other half have car loans, typical 3 year PCP jobbies with the balloon payment at the end. She put down £4k deposit on her loan, 0% APR at the start to lower the monthly payments. I have just put down £1k deposit on mine having only just purchased however mine is at 4.5% APR or thereabouts.

However, it has been pointed out to me that I may have shot myself in the foot. I intend to use the car as equity for another car at the 3 year point so don't intend to keep it long term. Having paid £1k deposit my payments have come down by roughly £35 a month from what they would have been with a zero desposit. However it was pointed out to me that I will end up losing out, as the total amount I have saved each month off the monthly payments will equate to less than the £1k deposit. Had I have put down no deposit I would have been paying slightly more each month but after 3 years I still won't have paid as much in total as I have by putting down a deposit. The balloon payment remains fixed in any case so that doesn't change.

So am I completely missing something here, or is it a waste of time to put down any deposit on a short term PCP on a car that you don't intend to keep?

[Capt Bravz]

£35 x 36 months = £1260
So you put down £1000 and save £1260 over the 3 year term meaning you are £260 up.
Or have I misunderstood?

[bogie]

Surely if you want to have equity to put into another car at year 3, you have to pay off a lot more than £1k in 3 years ? usually new cars are losing £1k a month in depreciation alone

PCP is like renting a car and usually the payments just cover depreciation and interest ....if you really want to build up equity, take a personal loan, pay car off. Buy new car with old one as deposit...keep it simple

[rehab71]

You're right, putting in a large deposit on a PCP doesn't really work if you're intending to use any equity as a deposit next time. If you do put in a large deposit you have to go in to it with your eyes open and aware you'll need another large deposit next time to enjoy a nice low payment next time. Here's an example:

Customer A
Buys cars for £20k with £nil deposit
X36 months at £300
GMFV of £8k

Customer B
Buys the same car for £20k but puts in £5k
X36 months at £200
GMFV of £8k

Both cars are worth exactly the same at month 36, say £9k, but customer A has created £1000 deposit to use against his new car whereas customer B has to find £4k again to get that nice low instalment again.

I always advise customers to keep the deposit low if there intending to change on a regular cycle.

Hope that helps?

[Mattt]

But you will save money on interest by going on with higher deposit, also helps with avoiding negative equity if you want to change partway through.

[sidicks]

Mattt said:

But you will save money on interest by going on with higher deposit, also helps with avoiding negative equity if you want to change partway through.

Exactly - the greater the amount being financed, the more interest you are paying!!!

[sidicks]

rehab71 said:

I always advise customers to keep the deposit low if there intending to change on a regular cycle.

Hope that helps?

Only if you want to mislead the customers and maximise the amount of interest they pay!!

Any chance you can confirm which dealership you work at so that PH members can avoid being ripped off?

Edited by sidicks on Thursday 26th February 21:29

[oop north]

sidicks said:

rehab71 said:

I always advise customers to keep the deposit low if there intending to change on a regular cycle.

Hope that helps?

Only if you want to mislead the customers and maximise the amount of interest they pay!!

Any chance you can confirm which dealership you work at so that PH members can avoid being ripped off?

Edited by sidicks on Thursday 26th February 21:29

Goodness me, very much agree with this! The example given is clearly cobblers:

Customer A
Buys cars for £20k with £nil deposit
X36 months at £300
GMFV of £8k

Customer B
Buys the same car for £20k but puts in £5k
X36 months at £200
GMFV of £8k

The problem is that the sales man to customer B has stolen his £5k deposit! With a £5k deposit and anything other than 0% interest, the total repayments must fall by more than £5,000 (the amount more is the saved interest)

I am continually gobsmacked by the number of people who think that paying a bigger deposit somehow costs them more 'cos it is "lost"

[sidicks]

oop north said:

I am continually gobsmacked by the number of people who think that paying a bigger deposit somehow costs them more 'cos it is "lost"

Of greater concern is a car salesman that doesn't understand the finance products he is selling...!!

[Dizeee]

Ok so maybe not as straightforward as I thought although what rehab has said is what is thought to be the case, i.e the balloon payment is the same no matter what deposit you put down, so is it basically boils down to whether or not you wish to "buy yourself" a lower monthly payment?

Interesting to see most replies think I haven't wasted my money though.

[sidicks]

Dizeee said:

Ok so maybe not as straightforward as I thought although what rehab has said is what is thought to be the case, i.e the balloon payment is the same no matter what deposit you put down, so is it basically boils down to whether or not you wish to "buy yourself" a lower monthly payment?

Interesting to see most replies think I haven't wasted my money though.

It is often possible to reduce the balloon (and increase the deposit or monthly payments) to allow you to achieve a higher equity for the next car purchase (and save yourself interest by effectively borrowing less).

For the same future value / balloon, a higher deposit means lower repayments and lower interest charged, so his claims are nonsense!

[Mattt]

To be fair to him, I get what he is saying. The public are mostly stupid, and all they often care about is monthly spend - ignoring the total cost.

If you get used to £300 per month as a result of a high deposit, and then with zero equity you want to get another, your monthly will shoot up.

[sidicks]

Mattt said:

To be fair to him, I get what he is saying. The public are mostly stupid, and all they often care about is monthly spend - ignoring the total cost.

If you get used to £300 per month as a result of a high deposit, and then with zero equity you want to get another, your monthly will shoot up.

You can spin it how you like, but it makes no sense:

rehab71 said:

I always advise customers to keep the deposit low if there intending to change on a regular cycle.

He might just as well have said "I always advise my customers to pay the maximum interest possible..."

Edited by sidicks on Thursday 26th February 23:31

[rehab71]

sharp910sh said:

oop north said:

sidicks said:

rehab71 said:

I always advise customers to keep the deposit low if there intending to change on a regular cycle.

Hope that helps?

Only if you want to mislead the customers and maximise the amount of interest they pay!!

Any chance you can confirm which dealership you work at so that PH members can avoid being ripped off?

Edited by sidicks on Thursday 26th February 21:29

Goodness me, very much agree with this! The example given is clearly cobblers:

Customer A
Buys cars for £20k with £nil deposit
X36 months at £300
GMFV of £8k

Customer B
Buys the same car for £20k but puts in £5k
X36 months at £200
GMFV of £8k

The problem is that the sales man to customer B has stolen his £5k deposit! With a £5k deposit and anything other than 0% interest, the total repayments must fall by more than £5,000 (the amount more is the saved interest)

I am continually gobsmacked by the number of people who think that paying a bigger deposit somehow costs them more 'cos it is "lost"

The numbers you gave for customer A and B make no sense.

For customer A you say they pay a total of 36 x 300 = £10,800 to use the car for 3 use.

But somehow customer B which is borrowing less which pay £5,000 + 36 x 200 = £12,220.

These numbers are crazy. If the interest rate is the same on both A and B. B will pay less as he is borrowing less. As he has already paid some money upfront.

Please stop posting rubbish. Seems like you want to earn yourself more interest as a car salesman.

The numbers are cobblers, ie I just made them up as an example.

[sidicks]

rehab71 said:

The numbers are cobblers, ie I just made them up as an example.

So you still stand by the nonsense you posted previously?

[rehab71]

Mattt said:

To be fair to him, I get what he is saying. The public are mostly stupid, and all they often care about is monthly spend - ignoring the total cost.

If you get used to £300 per month as a result of a high deposit, and then with zero equity you want to get another, your monthly will shoot up.

Correct, most people don't look past the monthly cost.

As stated, if you're planing to pay of the GMFV at the end (a tiny proportion in my experience) then chuck in as much deposit as you like.

However if you're planning to keep renewing your car every three years don't expect the equity at the end of the agreement to equal your big deposit you put in in the first place. If you're fully aware that putting in £5k on £12k car means payments of £75 month you have to know that when you PX it you might only have £1000 equity meaning you need to find another £4k to get a similar payment.

To be clear, the numbers I quoted are made up, just as an example.

[sidicks]

rehab71 said:

Correct, most people don't look past the monthly cost.

As stated, if you're planing to pay of the GMFV at the end (a tiny proportion in my experience) then chuck in as much deposit as you like.

A lower deposit (and the same GMFV) means you pay more interest, which is BAD!

rehab71 said:

However if you're planning to keep renewing your car every three years don't expect the equity at the end of the agreement to equal your big deposit you put in in the first place. If you're fully aware that putting in £5k on £12k car means payments of £75 month you have to know that when you PX it you might only have £1000 equity meaning you need to find another £4k to get a similar payment.

But conversely if you don't put a large deposit down your payments will be that much larger.

In ALL cases, you will be worse off if you pay a lower deposit, and hence you would have a lower deposit for your next car - and you claim that you advise people to do this...

rehab71 said:

To be clear, the numbers I quoted are made up, just as an example.

Entirely misleading and pointless!

[rehab71]

sidicks said:

But conversely if you don't put a large deposit down your payments will be that much larger.

In ALL cases, you will be worse off if you pay a lower deposit, and hence you would have a lower deposit for your next car - and you claim that you advise people to do this...

How will you have a lower deposit on your next car if you put in a low deposit first time around? The GMFV doesn't change and the value doesn't change?

[sidicks]

rehab71 said:

How will you have a lower deposit on your next car if you put in a low deposit first time around? The GMFV doesn't change and the value doesn't change?

Because you pay more interest - it's very concerning that you don't understand the basics!

Exactly where do you think the money goes?!

[rehab71]

sidicks said:

rehab71 said:

How will you have a lower deposit on your next car if you put in a low deposit first time around? The GMFV doesn't change and the value doesn't change?

Because you pay more interest - it's very concerning that you don't understand the basics!

Exactly where do you think the money goes?!

You're wrong.

If a car is £20,000 new and has GMFV of £10,000 and is worth £12,000 when the GMFV is due the equity is exactly the same regardless of the deposit.

Yes, the total amount payable is effected by the deposit but the GMFV is fixed regardless of the deposit.