Car PCP and deposits on them
Discussion
sidicks said:
pigeonskirt said:
Sidicks, are you in the motor trade?
No, is that relevant?Edited by sidicks on Saturday 28th February 19:13
I've worked at a main franchise (in sales) for 8 years. Most of our finance is now PCP. Let me tell you, if you put a large deposit in, it can be extremely difficult to re deal at the end of your plan. Generally speaking, people use a large deposit to give artificially low payments. They then get used to this, come back to re deal in 3 years, and wonder why their payment goes from £165 to £245 a month. There are cases where putting in a large deposit on PCP is beneficial..perhaps they are just planning on paying off the balloon at the end. Perhaps they are cash customers taking PCP to get an FDA (that's a deposit allowance from the finance company) which they will then settle off early. They may even want to use a large deposit to lower the GFV and at the same time the amount borrowed to lower interest (which is where I think you're coming from) but again, in the real world this doesn't really happen...mainly because the monthly payment then becomes unaffordable.
pigeonskirt said:
It is when you're offering out advice based on little experience and no professional knowledge, especially when you've now contradicted two people both in the motor trade.
As confirmed on numerous occasions, including this thread - many people involved in car sales have little knowledge about finance.Perhaps I should ask what finance qualifications the average car salesman has.....
pigeonskirt said:
I've worked at a main franchise (in sales) for 8 years. Most of our finance is now PCP. Let me tell you, if you put a large deposit in, it can be extremely difficult to re deal at the end of your plan. Generally speaking, people use a large deposit to give artificially low payments.
That's because 'generally speaking' people have little understanding of finance, and as demonstrated above, often get poor advice from car salesman!pigeonskirt said:
They then get used to this, come back to re deal in 3 years, and wonder why their payment goes from £165 to £245 a month. There are cases where putting in a large deposit on PCP is beneficial..perhaps they are just planning on paying off the balloon at the end.
If only the salesman had the nouse to explain to them that paying the amount saved (from their larger deposit) into an account would then provide them with a larger deposit than the alternative approach...pigeonskirt said:
Perhaps they are cash customers taking PCP to get an FDA (that's a deposit allowance from the finance company) which they will then settle off early. They may even want to use a large deposit to lower the GFV and at the same time the amount borrowed to lower interest (which is where I think you're coming from) but again, in the real world this doesn't really happen...mainly because the monthly payment then becomes unaffordable.
The fact remains, a larger deposit remains the cheaper way to finance a car, due to the (often) significant amount of interest saved, yet apparently car finance salesman don't appear to understand this...Disputing this demonstrates a major lack of understanding.
Edited by sidicks on Saturday 28th February 19:54
pigeonskirt said:
It is when you're offering out advice based on little experience and no professional knowledge, especially when you've now contradicted two people both in the motor trade.
I've worked at a main franchise (in sales) for 8 years. Most of our finance is now PCP. Let me tell you, if you put a large deposit in, it can be extremely difficult to re deal at the end of your plan. Generally speaking, people use a large deposit to give artificially low payments. They then get used to this, come back to re deal in 3 years, and wonder why their payment goes from £165 to £245 a month. There are cases where putting in a large deposit on PCP is beneficial..perhaps they are just planning on paying off the balloon at the end. Perhaps they are cash customers taking PCP to get an FDA (that's a deposit allowance from the finance company) which they will then settle off early. They may even want to use a large deposit to lower the GFV and at the same time the amount borrowed to lower interest (which is where I think you're coming from) but again, in the real world this doesn't really happen...mainly because the monthly payment then becomes unaffordable.
You don't need to work in the motor trade to do simple arithmetic. Nobody disputes that it may be a lot easier to sign someone up for another deal in 3 years if their first deposit was smaller. But this doesn't alter the fact that someone who puts down a larger deposit saves money compared with the person who put down a smaller one.I've worked at a main franchise (in sales) for 8 years. Most of our finance is now PCP. Let me tell you, if you put a large deposit in, it can be extremely difficult to re deal at the end of your plan. Generally speaking, people use a large deposit to give artificially low payments. They then get used to this, come back to re deal in 3 years, and wonder why their payment goes from £165 to £245 a month. There are cases where putting in a large deposit on PCP is beneficial..perhaps they are just planning on paying off the balloon at the end. Perhaps they are cash customers taking PCP to get an FDA (that's a deposit allowance from the finance company) which they will then settle off early. They may even want to use a large deposit to lower the GFV and at the same time the amount borrowed to lower interest (which is where I think you're coming from) but again, in the real world this doesn't really happen...mainly because the monthly payment then becomes unaffordable.
Anyway, if they can't afford the higher repayments associated with a low deposit for their next car, how could they afford them for their first car?
Dr Jekyll said:
You don't need to work in the motor trade to do simple arithmetic. Nobody disputes that it may be a lot easier to sign someone up for another deal in 3 years if their first deposit was smaller. But this doesn't alter the fact that someone who puts down a larger deposit saves money compared with the person who put down a smaller one.
Anyway, if they can't afford the higher repayments associated with a low deposit for their next car, how could they afford them for their first car?
Anyway, if they can't afford the higher repayments associated with a low deposit for their next car, how could they afford them for their first car?
Dr Jekyll said:
pigeonskirt said:
It is when you're offering out advice based on little experience and no professional knowledge, especially when you've now contradicted two people both in the motor trade.
I've worked at a main franchise (in sales) for 8 years. Most of our finance is now PCP. Let me tell you, if you put a large deposit in, it can be extremely difficult to re deal at the end of your plan. Generally speaking, people use a large deposit to give artificially low payments. They then get used to this, come back to re deal in 3 years, and wonder why their payment goes from £165 to £245 a month. There are cases where putting in a large deposit on PCP is beneficial..perhaps they are just planning on paying off the balloon at the end. Perhaps they are cash customers taking PCP to get an FDA (that's a deposit allowance from the finance company) which they will then settle off early. They may even want to use a large deposit to lower the GFV and at the same time the amount borrowed to lower interest (which is where I think you're coming from) but again, in the real world this doesn't really happen...mainly because the monthly payment then becomes unaffordable.
You don't need to work in the motor trade to do simple arithmetic. Nobody disputes that it may be a lot easier to sign someone up for another deal in 3 years if their first deposit was smaller. But this doesn't alter the fact that someone who puts down a larger deposit saves money compared with the person who put down a smaller one.I've worked at a main franchise (in sales) for 8 years. Most of our finance is now PCP. Let me tell you, if you put a large deposit in, it can be extremely difficult to re deal at the end of your plan. Generally speaking, people use a large deposit to give artificially low payments. They then get used to this, come back to re deal in 3 years, and wonder why their payment goes from £165 to £245 a month. There are cases where putting in a large deposit on PCP is beneficial..perhaps they are just planning on paying off the balloon at the end. Perhaps they are cash customers taking PCP to get an FDA (that's a deposit allowance from the finance company) which they will then settle off early. They may even want to use a large deposit to lower the GFV and at the same time the amount borrowed to lower interest (which is where I think you're coming from) but again, in the real world this doesn't really happen...mainly because the monthly payment then becomes unaffordable.
Anyway, if they can't afford the higher repayments associated with a low deposit for their next car, how could they afford them for their first car?
I wholeheartedly agree a bigger deposit saves on interest. This isn't in dispute. I'm pointing out that a large deposit can make it harder to re deal at the end.
If Mrs Smith has a £150 a month budget for a new car and £3000 in savings (or a p/ex), great! She can have a new car on PCP for her budget. If the car is only worth £500 more than the GFV at the end though, and she hasn't got any savings left, it means the new deal will only have £500 deposit going in. Obviously an issue if she can still only afford £150 a month! She'll then wish she was told this at day one!
Loose example, but happens in the real world.
pigeonskirt said:
Hi Dr Jekyll.
I wholeheartedly agree a bigger deposit saves on interest. This isn't in dispute. I'm pointing out that a large deposit can make it harder to re deal at the end.
If Mrs Smith has a £150 a month budget for a new car and £3000 in savings (or a p/ex), great! She can have a new car on PCP for her budget. If the car is only worth £500 more than the GFV at the end though, and she hasn't got any savings left, it means the new deal will only have £500 deposit going in. Obviously an issue if she can still only afford £150 a month! She'll then wish she was told this at day one!
Loose example, but happens in the real world.
That does not make a small deposit any better except to keep the suckers (oops, I mean customers) coming back for new cars. All you have explained there is a way to keep selling a new car every three years - not what is in the interests of customers at all. This really does look to me like you are just trying to keep yourself in money. Not surprising (and in a sense I don't blame you) but having a go at sidicks for contradicting two people join the motor trade and therefore he must be in the wrong - er, not the case, I think...I wholeheartedly agree a bigger deposit saves on interest. This isn't in dispute. I'm pointing out that a large deposit can make it harder to re deal at the end.
If Mrs Smith has a £150 a month budget for a new car and £3000 in savings (or a p/ex), great! She can have a new car on PCP for her budget. If the car is only worth £500 more than the GFV at the end though, and she hasn't got any savings left, it means the new deal will only have £500 deposit going in. Obviously an issue if she can still only afford £150 a month! She'll then wish she was told this at day one!
Loose example, but happens in the real world.
There is actually a conflict of interest with car dealers giving finance 'advice'. The dealer recieves commission from the finance house, I believe as a percentage of the interest they recive and therefore the more interest the consumer commits to, the bigger commission the dealership will receive.
So taking advice from someone who doesn't work in the motor trade on this sort of thing is actually quite sensible.
So taking advice from someone who doesn't work in the motor trade on this sort of thing is actually quite sensible.
Edited by TheHound on Saturday 28th February 21:25
oop north said:
pigeonskirt said:
Hi Dr Jekyll.
I wholeheartedly agree a bigger deposit saves on interest. This isn't in dispute. I'm pointing out that a large deposit can make it harder to re deal at the end.
If Mrs Smith has a £150 a month budget for a new car and £3000 in savings (or a p/ex), great! She can have a new car on PCP for her budget. If the car is only worth £500 more than the GFV at the end though, and she hasn't got any savings left, it means the new deal will only have £500 deposit going in. Obviously an issue if she can still only afford £150 a month! She'll then wish she was told this at day one!
Loose example, but happens in the real world.
That does not make a small deposit any better except to keep the suckers (oops, I mean customers) coming back for new cars. All you have explained there is a way to keep selling a new car every three years - not what is in the interests of customers at all. This really does look to me like you are just trying to keep yourself in money. Not surprising (and in a sense I don't blame you) but having a go at sidicks for contradicting two people join the motor trade and therefore he must be in the wrong - er, not the case, I think...I wholeheartedly agree a bigger deposit saves on interest. This isn't in dispute. I'm pointing out that a large deposit can make it harder to re deal at the end.
If Mrs Smith has a £150 a month budget for a new car and £3000 in savings (or a p/ex), great! She can have a new car on PCP for her budget. If the car is only worth £500 more than the GFV at the end though, and she hasn't got any savings left, it means the new deal will only have £500 deposit going in. Obviously an issue if she can still only afford £150 a month! She'll then wish she was told this at day one!
Loose example, but happens in the real world.
I'm not doing this for my benefit! It's unlikely a group of ph'ers are going to come flooding through the doors to buy cars on PCP! Most PH'ers use cash remember!
Anyway, what this thread has tought me is that offering advice on car finance is a thankless task! There's obviously an alterior motive or somebody who knows better despite not working in the trade. This is the internet after all, what can I expect?
With this in mind, I'm out! As you were everyone!
pigeonskirt said:
Anyway, what this thread has tought me is that offering advice on car finance is a thankless task!
At no point have any of the car salesman suggested that they explain all of the options to the customer - in particular that a large deposit is the cheapest way to go - they just appear to treat the customer like an idiot and push them towards the highest interest (highest earning for them) low deposit contract....pigeonskirt said:
There's obviously an alterior motive or somebody who knows better despite not working in the trade.
I think that the claim that 'someone knows better' has been proven to be accurate!!pigeonshirt said:
With this in mind, I'm out! As you were everyone!
pigeonskirt said:
If you put a large deposit (i.e £4000) in at day 1, you do commit yourself to putting in around about £4000 every time you renew
Absolute unmitigated b
ks. Do you know what 'commit' means?Problem is, PCP is sold in the same way as mobile phone contracts, with this idea that you get a "free upgrade" to something new and shiny every few years as long as you keep paying the monthlies. Sales staff want these 'easy renewals' as a 'free car' is unsurprisingly easy to sell someone who is already 'tuned in' to paying a similar monthly sum.
A large deposit (and hence lower payments) makes the "renewal sale" much more difficult for the salesman, ("HOW much more each month??") because he's got to explain it all to the customer. - assuming he understands it, which from what I've seen here is doubtful. So a low deposit is definitely in the salesman's interest. (I've no idea if commission is related to the size of the payments or the interest charge - I think it's often a flat fee?)
Are big deposits on leasing different, though? If your car is stolen/written off early in the lease, do you lose the deposit?
pigeonskirt said:
oop north said:
pigeonskirt said:
Hi Dr Jekyll.
I wholeheartedly agree a bigger deposit saves on interest. This isn't in dispute. I'm pointing out that a large deposit can make it harder to re deal at the end.
If Mrs Smith has a £150 a month budget for a new car and £3000 in savings (or a p/ex), great! She can have a new car on PCP for her budget. If the car is only worth £500 more than the GFV at the end though, and she hasn't got any savings left, it means the new deal will only have £500 deposit going in. Obviously an issue if she can still only afford £150 a month! She'll then wish she was told this at day one!
Loose example, but happens in the real world.
That does not make a small deposit any better except to keep the suckers (oops, I mean customers) coming back for new cars. All you have explained there is a way to keep selling a new car every three years - not what is in the interests of customers at all. This really does look to me like you are just trying to keep yourself in money. Not surprising (and in a sense I don't blame you) but having a go at sidicks for contradicting two people join the motor trade and therefore he must be in the wrong - er, not the case, I think...I wholeheartedly agree a bigger deposit saves on interest. This isn't in dispute. I'm pointing out that a large deposit can make it harder to re deal at the end.
If Mrs Smith has a £150 a month budget for a new car and £3000 in savings (or a p/ex), great! She can have a new car on PCP for her budget. If the car is only worth £500 more than the GFV at the end though, and she hasn't got any savings left, it means the new deal will only have £500 deposit going in. Obviously an issue if she can still only afford £150 a month! She'll then wish she was told this at day one!
Loose example, but happens in the real world.
I'm not doing this for my benefit! It's unlikely a group of ph'ers are going to come flooding through the doors to buy cars on PCP! Most PH'ers use cash remember!
Anyway, what this thread has tought me is that offering advice on car finance is a thankless task! There's obviously an alterior motive or somebody who knows better despite not working in the trade. This is the internet after all, what can I expect?
With this in mind, I'm out! As you were everyone!
I do think you have a bit of a cheek to accuse other people of having an ulterior motive (whether or not you can spell it 
)However, the point that perhaps has been missed is that, by paying a large deposit, the customer gets used to lower monthly payments - and then when replacing a car the customer doesn't like having to find a big deposit to keep the same repayments while getting a new car. I believe that is your point
That doesn't, though, mean they are "forced" to do that - and it certainly doesn't mean they are ill-advised to do that, because provided they have some discipline to save funds while making lower payments they are (a) saving interest by borrowing less and (b) saving up for the next deposit
oop north said:
That doesn't, though, mean they are "forced" to do that - and it certainly doesn't mean they are ill-advised to do that, because provided they have some discipline to save funds while making lower payments they are (a) saving interest by borrowing less and (b) saving up for the next deposit
I think i may have spotted the flaw in your argument - you're giving the vast majority of the car buying population of this country far too much credit...VerySideways said:
you're giving the vast majority of the car buying population of this country far too much credit...
Precisely: "You're not competent to manage your own finances, therefore it's vitally important you give as much as possible to your friendly car salesman every month, in perpetuity. And don't argue!"I'd rather give someone the benefit of the doubt even if they blew it all on powerfully built frozen parrots.
Dr Jekyll said:
Do you really believe that the bulk of PCP buyers put their capital into something that gives a higher after tax return than the interest they are paying?
That's not what I said, or even intimated in any way. I'd appreciate it if you did not put words into my mouth. Thanks Edited by Dr Jekyll on Saturday 28th February 17:30
oop north said:
Hear, hear! That's a really silly example - cars generally depreciate, but homes generally do not (and you also don't know in advance what is going to happen to house prices) - if you know there is going to be a massive property price crash you would not buy a property. But if acquiring the use of a car that is going to depreciate, and everyone knows that (we all know in advance that car values will generally fall over time) then you are going to have to pay for the depreciation. In fact I would say it is not just silly but actually a dangerous example because it makes a totally invalid comparison between housing and cars that confuses people.
Unless I'm misreading that, I think you may have missed the point. The analogy is meant to reflect the merits/downsides of wholly owning or renting an asset that is definately going to depreciate. I could have used the word "Reindeer" instead of "Flat" but then you probably would only have had a go at me about fluctuations in the Caribou market?As for the change cycle - whats not to like? You have the opportunity of being in the latest models with the newest technology, most of them come with service plans so that's taken care of, no MOT's, always in warranty..
As previously stated in the thread, I do understand that these schemes are not for everyone. My Dealerships customer base is primarily high net worth, professional individuals who purchase high value goods, the majority of which could probably pay cash for what the are buying many times over yet about 85% of what we do are on these schemes, so I'm guessing hat there is something in them somewhere.
Also, these types of agreement were originally written for those who opted out of the company car schemes and took the allowance when the BIK for nice company cars became prohibitive - the users may well have available high monthly disposable income but not necessarily huge amounts of cash in the bank. A common trait these days.
As to whether or not it's the "right" way to buy a car, surely that's down to the individual?
You may like fried eggs with tomato ketchup, an idea that I find completety abhorrent but it's your egg, so craic on mate, it's f
k all to do with me.Edited by Mastiff on Monday 2nd March 09:36
IMO it's a highly questionable strategy to keep borrowing more money to buy "wasting assets". It's completely different from taking a mortgage to buy a house. But I know lots of people do it.
Changing your car every 3 years or so is IMO one of the most expensive ways to engage in car ownership. The financial benefit of buying a better new car every 6 years instead is absolutely huge. Part of the secret is to buy a recently introduced model so that it doesn't go out of date in that timescale. I avoid buying heavily discounted run-out models at all costs.
Changing your car every 3 years or so is IMO one of the most expensive ways to engage in car ownership. The financial benefit of buying a better new car every 6 years instead is absolutely huge. Part of the secret is to buy a recently introduced model so that it doesn't go out of date in that timescale. I avoid buying heavily discounted run-out models at all costs.
So yes, in response to the OP's query, the more up-front payment (or 'deposit') you put into the deal, then the less you are borrowing and consequently you will pay less interest overall (assuming the interest rate remains the same across different quotations.) The only case where this won't happen is if you have a 0% APR deal.
Claudia Skies said:
Part of the secret is to buy a recently introduced model so that it doesn't go out of date in that timescale. I avoid buying heavily discounted run-out models at all costs.
Not sure I'd agree on that, particularly if you're planning to keep it for much more than 3 years. >20% off models due to be replaced within a year isn't unheard of, and a new model would need stonkingly better residuals to match that.Mastiff said:
Unless I'm misreading that, I think you may have missed the point. The analogy is meant to reflect the merits/downsides of wholly owning or renting an asset that is definately going to depreciate. I could have used the word "Reindeer" instead of "Flat" but then you probably would only have had a go at me about fluctuations in the Caribou market?
Missed what point? In my opinion, the whole argument about owning or leasing a depreciating asset (you must "always" hire it) is a nonsense. I maintain that property is a lousy example (it is in a class of its own, really) - it just pushes the person looking at the example to give a conclusion that suits the person putting their argument forward. Edited by Mastiff on Monday 2nd March 09:36
It seems to me that the nub is this:
- it might well be reasonable to say that you should not rent an appreciating asset (because that way you lose the benefit of appreciation)
but
- it does not follow that you should not rent a depreciating asset - because in general you cannot avoid the depreciation
With a PCP you might be able to limit the depreciation to a maximum amount, but you are still going to have to pay for it (unless the manufacturer is promoting one particular type of purchase over others - e.g., Golf R lease). You don't magically get rid of depreciation by leasing something (if you did, you wouldn't need GAP insurance would you?) - someone's going to have to pay for it
Mastiff said:
As to whether or not it's the "right" way to buy a car, surely that's down to the individual?
Yes - and most of the argument here is between traders who tell customers they should keep the deposit down because it's better for them, without pointing out that it will cost them a lot more in the long run. I and others are pointing out the folly of just believing what the people in the trade say - ie, that following their advice will cost more moneyEdited by oop north on Monday 2nd March 14:46
Mastiff said:
Dr Jekyll said:
Do you really believe that the bulk of PCP buyers put their capital into something that gives a higher after tax return than the interest they are paying?
That's not what I said, or even intimated in any way. I'd appreciate it if you did not put words into my mouth. Thanks Edited by Dr Jekyll on Saturday 28th February 17:30
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