Car PCP and deposits on them
Discussion
Claudia Skies said:
Sadly much of the over-regulated modern world is full of box-ticking and once that culture becomes established, common sense goes out the window. Often taking "actual knowledge" with it.
This includes HMRC. The tax system is designed by highly paid clever people and tax is avoided thanks to more highly paid clever people. Meanwhile, caught in between are ordinary people like you and me - and the ordinary people on the staff at HMRC. It is increasingly unusual to find anyone at HMRC who can do anything other than punch data into the boxes on their screen.
In a world is full of "warning notices" you rapidly get information overload followed by a false sense of security.
Are you calling me 'ordinary'..??This includes HMRC. The tax system is designed by highly paid clever people and tax is avoided thanks to more highly paid clever people. Meanwhile, caught in between are ordinary people like you and me - and the ordinary people on the staff at HMRC. It is increasingly unusual to find anyone at HMRC who can do anything other than punch data into the boxes on their screen.
In a world is full of "warning notices" you rapidly get information overload followed by a false sense of security.
Edited by sidicks on Sunday 8th March 11:41
sidicks said:
Thanks for this - this thread offers plenty of examples to demonstrate that many of the 'finance salesman' don't really understand the products they are selling, and it many cases simply know which buttons to press on the computer to produce a quote - ask them to calculate a premium from first principles using a calculator and they wouldn't have a clue!!
To be fair, it is never explained to them (at least going by my experience but clearly it was a standard 'training program', that's all this woman did - went from dealer to dealer 'selling' the 'benefits' of PCP deals). Nor were sensible merits/demerits. It was simply ALWAYS the best option. And you don't even need a calculator, it is all done on line. You simply fill in the boxes - purchase price, amount of deposit, length of loan, choose the type of product to get the interest rate (for instance sometimes a two year PCP gets a lower interest rate to push people toward even faster new car churn) and hit the button - bingo, monthly payment. Just sign here sir...
sidicks said:
Thanks for this - this thread offers plenty of examples to demonstrate that many of the 'finance salesman' don't really understand the products they are selling, and it many cases simply know which buttons to press on the computer to produce a quote - ask them to calculate a premium from first principles using a calculator and they wouldn't have a clue!!
Maybes consider its not the sales people directly, maybes the companies they work for only paying them well if they do a PCP deal through the manufacturer finance house, if they don't they either don't get paid or get penalised. Its not always the fault of the salespeople but very often the companies they work for, people need to get paid to survive.I now live in a country where PCP is basically an alien concept, they do exist but people don't understand them, however the average people are happy to pay a month here is vastly higher than in the UK, regrettably people in many cases want X car and can only afford the payments through PCP, hence the rise of them.
After_Shock said:
Maybes consider its not the sales people directly, maybes the companies they work for only paying them well if they do a PCP deal through the manufacturer finance house, if they don't they either don't get paid or get penalised. Its not always the fault of the salespeople but very often the companies they work for, people need to get paid to survive.
I now live in a country where PCP is basically an alien concept, they do exist but people don't understand them, however the average people are happy to pay a month here is vastly higher than in the UK, regrettably people in many cases want X car and can only afford the payments through PCP, hence the rise of them.
Of course PCPs can be a useful product for certain people at certain times - you just need to understand how they work and he advantages and disadvantages versus the alternatives.I now live in a country where PCP is basically an alien concept, they do exist but people don't understand them, however the average people are happy to pay a month here is vastly higher than in the UK, regrettably people in many cases want X car and can only afford the payments through PCP, hence the rise of them.
Knowing more than the salesman trying to sell you the product is also a significant advantage...!!
Edited by sidicks on Sunday 8th March 12:07
sidicks said:
Of course PCPs can be a useful product for certain people at certain times - you just need to understand how they work and he advantages and disadvantages versus the alternatives.
Yes completely agree, my PCP pen back in the UK was never the greatest but fortunately we didn't (at the time) get penalised for not selling it. However the manufacturer had a clear drive of putting people into them as the retention ratio of the customers was higher.Fortunately I had a lot of customers who changed cars very regularly (circa 18months) and PCP's were a big no no for these people.
Ari said:
It was basically pushing as hard as possible the notion that everyone should be using them (because clearly, from the finance company and the dealer, and indeed the manufacturer's point of view, getting customers conditioned to these things and to a brand new car every two years was, for obvious reasons, massively in their favour).
There was zero consideration for the best interests of the customer. The regime was clear, the best method of purchase is ALWAYS PCP with the lowest possible deposit.
I don't know if some posters (and I don't mean TVR1) are being deliberately thick, but the whole point of PCP, which Toyota has been credited with "inventing", is to get people on a rolling cycle of changing their cars every 3 years so the factories are kept busy churning out new cars.
I know several people who have done PCPs, only to be dismayed at the end of it that the deposit (often their P/X) is "lost" - that's not a great situation to get customers into if you hope to roll them into another PCP.
So it makes sense for car sales people to get people into deals with the lowest possible deposits. That way it's much easier to roll them into their next deal at a similar monthly cost. Indeed on some cars (I've seen this on MINI) the car can be changed early for a new one for the same monthly cost.
Of course it costs more in interest if you pay a lower deposit, but with already low interest rate, often further subsidised by manufacturers, the difference is peanuts.
Sheepshanks said:
but the whole point of PCP is to get people on a rolling cycle of changing their cars every 3 years so the factories are kept busy churning out new cars.
I know several people who have done PCPs, only to be dismayed at the end of it that the deposit (often their P/X) is "lost" - that's not a great situation to get customers into if you hope to roll them into another PCP.
Yup exactly customer retention ratio and change cycles are all the manufacturers are interested in.I know several people who have done PCPs, only to be dismayed at the end of it that the deposit (often their P/X) is "lost" - that's not a great situation to get customers into if you hope to roll them into another PCP.
If people aren't sold the promise of getting a deposit back at the end then they should not be dismayed by it, the idea of PCP was low deposit and low monthly payment over a shorter term, i.e getting people out of 5 years finance into 3years finance for the same amount a month.
Putting huge deposits into PCP is the wrong way to go.
However buy the right car at the right time on a PCP and you never know it may work out quite well, say for example id done a PCP on a 1M when they came out, rather wish I had wouldn't have been a bad move. Same with pretty much anything wearing a GT or RS badge from Porsche. Ok these aren't the run of the mill cars but when the Mini first came out they were rock solid on residuals for 2 years, a Focus RS cant be a bad move either.
After_Shock said:
Yup exactly customer retention ratio and change cycles are all the manufacturers are interested in.
If people aren't sold the promise of getting a deposit back at the end then they should not be dismayed by it, the idea of PCP was low deposit and low monthly payment over a shorter term, i.e getting people out of 5 years finance into 3years finance for the same amount a month.
Putting huge deposits into PCP is the wrong way to go.
However buy the right car at the right time on a PCP and you never know it may work out quite well, say for example id done a PCP on a 1M when they came out, rather wish I had wouldn't have been a bad move. Same with pretty much anything wearing a GT or RS badge from Porsche. Ok these aren't the run of the mill cars but when the Mini first came out they were rock solid on residuals for 2 years, a Focus RS cant be a bad move either.
Still cheaper to pay a higher deposit....If people aren't sold the promise of getting a deposit back at the end then they should not be dismayed by it, the idea of PCP was low deposit and low monthly payment over a shorter term, i.e getting people out of 5 years finance into 3years finance for the same amount a month.
Putting huge deposits into PCP is the wrong way to go.
However buy the right car at the right time on a PCP and you never know it may work out quite well, say for example id done a PCP on a 1M when they came out, rather wish I had wouldn't have been a bad move. Same with pretty much anything wearing a GT or RS badge from Porsche. Ok these aren't the run of the mill cars but when the Mini first came out they were rock solid on residuals for 2 years, a Focus RS cant be a bad move either.
sidicks said:
Still cheaper to pay a higher deposit....
May well be but your gambling on the long term residual of the car. Idea of PCP is low deposit and hand it back. Be much cheaper to set the mileage to the max allowed to reduce the end value to the minimum amount as that's where most the interest is incurred on these deals.
After_Shock said:
sidicks said:
Still cheaper to pay a higher deposit....
May well be but your gambling on the long term residual of the car. Idea of PCP is low deposit and hand it back. Be much cheaper to set the mileage to the max allowed to reduce the end value to the minimum amount as that's where most the interest is incurred on these deals.
Dr Jekyll said:
No, you aren't. The lower the deposit the better irrespective of long term residual. Lower balloon is also better of course, that's a separate issue.
When I said cheaper I meant less interest. So yes a lower deposit is better for PCP not for interest's sake but to protect yourself in the amount of money you could be throwing into one and not have for the next one.A lower end payment is better for interest and again to have some deposit for the next car however you are also increasing the monthly payment in the meantime which doesn't suit most people.
After_Shock said:
When I said cheaper I meant less interest. So yes a lower deposit is better for PCP not for interest's sake but to protect yourself in the amount of money you could be throwing into one and not have for the next one.
A lower end payment is better for interest and again to have some deposit for the next car however you are also increasing the monthly payment in the meantime which doesn't suit most people.
A lower deposit is better for PCP because it reduces the amount of interest you pay. It increases the amount of money you have available for the next one.A lower end payment is better for interest and again to have some deposit for the next car however you are also increasing the monthly payment in the meantime which doesn't suit most people.
Dr Jekyll said:
A lower deposit is better for PCP because it reduces the amount of interest you pay. It increases the amount of money you have available for the next one.
I think you may be getting a bit mixed up, to quote yourself:Dr Jekyll said:
The larger the deposit, the less money you are borrowing, so the less interest you pay, so the lower the cost.
It does increase the amount of money you have available for the next car if you have the cash available to pay it in the first place, most people don't hence they go PCP.After_Shock said:
Dr Jekyll said:
A lower deposit is better for PCP because it reduces the amount of interest you pay. It increases the amount of money you have available for the next one.
I think you may be getting a bit mixed up, to quote yourself:Dr Jekyll said:
The larger the deposit, the less money you are borrowing, so the less interest you pay, so the lower the cost.
It does increase the amount of money you have available for the next car if you have the cash available to pay it in the first place, most people don't hence they go PCP.There is no contradiction between saying a lower deposit reduces interest paid, and saying that paying less interest reduces overall cost.
Paying less for car 1, increases the amount of money available for car 2.
If I was buying a car on PCP I would pay as high a deposit as possible to reduce interest and therefore save money. The fact that other people doing the same thing might be put off signing another deal in 3 years time because they hadn't allowed for finding another big deposit is their problem, it has no bearing on my decision.
Dr Jekyll said:
Lower balloon is also better of course, that's a separate issue.
In practice it's probably not. These deals are pretty tight now - I know there are exceptions, but the cars tend to be worth around the low mileage GFV now. If you try and force the GFV down you're likely to lose out, especially if you want to p/x the car, because you'll be offered a low p/x value.
If you're thinking of buying the car, then you shouldn't be using a PCP anyway. Unless there was an incentive to do so that was only available on a PCP deal, which I think is a scam and shouldn't be allowed.
Dr Jekyll said:
A lower deposit is better for PCP because it reduces the amount of interest you pay. It increases the amount of money you have available for the next one.
Absolute rubbish, as already confirmed on numerous occasions.
It's very simple:
Lower deposit = higher amount borrow = more interest paid = higher overall cost.
Edited to note, previously you said (correctly):
Dr Jekyll said:
If I was buying a car on PCP I would pay as high a deposit as possible to reduce interest and therefore save money.
so you do know what you are talking about (sometimes)!!Edited by sidicks on Sunday 8th March 14:12
Dr Jekyll said:
There is no contradiction between saying a lower deposit reduces interest paid, and saying that paying less interest reduces overall cost.
Paying less for car 1, increases the amount of money available for car 2.
If I was buying a car on PCP I would pay as high a deposit as possible to reduce interest and therefore save money. The fact that other people doing the same thing might be put off signing another deal in 3 years time because they hadn't allowed for finding another big deposit is their problem, it has no bearing on my decision.
The facts are a higher deposit (unless 0%), will always mean less interest is paid and therefore the customer will have more money for the next car (unless they have no control and spunk away the money they saved in interest).
Dr Jekyll said:
There is no contradiction between saying a lower deposit reduces interest paid, and saying that paying less interest reduces overall cost.
Paying less for car 1, increases the amount of money available for car 2.
If I was buying a car on PCP I would pay as high a deposit as possible to reduce interest and therefore save money. The fact that other people doing the same thing might be put off signing another deal in 3 years time because they hadn't allowed for finding another big deposit is their problem, it has no bearing on my decision.
PCP is best done with a low deposit, yes a bit more interest is put into the mix, reduce to the end payment by increasing the mileage as that's a fixed amount and incurs interest at the fixed amount for the whole loan period at the fixed amount. Unfortunately it increases the monthly payment but at the end you are in a better position.
Everyone is different, personally id never put a large deposit into a PCP as you never know what state the market is going to be in come 2, 3 or 4 years time.
After_Shock said:
PCP is best done with a low deposit, yes a bit more interest is put into the mix, reduce to the end payment by increasing the mileage as that's a fixed amount and incurs interest at the fixed amount for the whole loan period at the fixed amount. Unfortunately it increases the monthly payment but at the end you are in a better position.
No, as above - If the same GMFV is maintained, a higher deposit and correspondingly lower monthly payments puts you in a better position than a lower deposit and higher monthly payments as you've paid less interest. It really is that simple.
After_Shock said:
Everyone is different, personally id never put a large deposit into a PCP as you never know what state the market is going to be in come 2, 3 or 4 years time.
That only applies if you have a correspondingly lower GMFV (i.e. monthly payments are the same) and so the "hand back" option is more expensive. But this is very much the unusual scenario.After_Shock said:
PCP is best done with a low deposit, yes a bit more interest is put into the mix, reduce to the end payment by increasing the mileage as that's a fixed amount and incurs interest at the fixed amount for the whole loan period at the fixed amount. Unfortunately it increases the monthly payment but at the end you are in a better position.
Everyone is different, personally id never put a large deposit into a PCP as you never know what state the market is going to be in come 2, 3 or 4 years time.
THE GMFV is determined at the begining of the contract and does not change depending on market conditions, so your argument here is rubbish. Everyone is different, personally id never put a large deposit into a PCP as you never know what state the market is going to be in come 2, 3 or 4 years time.
For example- Car is £35k, GMFV is £10k. The capital amount that gets paid between the deposit and monthlies is £25k.
If you put in a 5k deposit, the monthly capital payments will total £20k and interest will be due on this £20k (on a reducing basis) and the £10k GMFV.
If you put in a £15k deposit, then you are only paying interest on £10k (on a reducing basis) and the £10k GMFV.
Therefore, you are paying less interest with a higher deposit being paid and the risk at the end is exactley the same.
The only thing you are correct on is that a lower GMFV will mean you pay less in interest but your monthlies will of course be more.
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