Car PCP and deposits on them
Discussion
sidicks said:
TVR1 said:
In the short term, yes. The major lack of understand of how PCP agreements work and how interest is calculated on them though, is yours.
Let's work backwards. The MGFV isnt just a figure plucked out of thin air. They are calculated by looking at historical trade values, depreciation from new etc. very simply put, if you purchase a car for £30k, whatever the MGFV you expect to have an equity return of around 10-15% should you p/ex the car. If you put in more than that, it's money that won't be coming back. In effect, you have paid more deposit for a short term reduction in payments.
But then you'll tell us 'you save on interest if you put more deposit in'
In a normal HP agreement, yes but once again, a fundemental lack of understanding of how interest is calculated on a PCP. You are paying a much higher rate on that amount than the bit you are paying back. You really wont save much by putting in a bigger deposit as there is no way of reducing that chunk of interest.
Like it or not, the best and lowest cost way overall with a PCP is low deposit. Frankly, if the OP is intending ownership its the wrong finance in the firstplace.
Let's work backwards. The MGFV isnt just a figure plucked out of thin air. They are calculated by looking at historical trade values, depreciation from new etc. very simply put, if you purchase a car for £30k, whatever the MGFV you expect to have an equity return of around 10-15% should you p/ex the car. If you put in more than that, it's money that won't be coming back. In effect, you have paid more deposit for a short term reduction in payments.
But then you'll tell us 'you save on interest if you put more deposit in'
In a normal HP agreement, yes but once again, a fundemental lack of understanding of how interest is calculated on a PCP. You are paying a much higher rate on that amount than the bit you are paying back. You really wont save much by putting in a bigger deposit as there is no way of reducing that chunk of interest.
Like it or not, the best and lowest cost way overall with a PCP is low deposit. Frankly, if the OP is intending ownership its the wrong finance in the firstplace.
Priceless! All kinds of wrong.
Please see my example above which has real numbers and confirms my previois comments (supported by others who do clearly have done basic mathematical knowledge)...!!
Stop baiting people that have been on courses by manufacturers on how to get people into cars they can't afford to own!
Next they will be telling us that PCP is for the benefit of the punter!
silentbrown said:
So if I "kiss goodbye" to £1000 to you, and in return you'd give me the "small amount" of £29 every month for 41 months? Where do I sign???
I'm not saying goodbye to my £1000 - just "au revoir", because over the course of the 42 months I'll get it all back together with 189 of it's little friends.
Please, explain to me how this is bad. I'm not saying a PCP deposit is the best or wisest thing you can do with your £££, just that increasing the deposit saves you money over the course of the PCP. Regardless of ownership ambitions, or the GFV. If you disagree, give a worked example. I'm not aware of *any* scenario where my deposit is "lost".
It's quite amazing how someone who claims to know so much can demonstrably understand so little!!I'm not saying goodbye to my £1000 - just "au revoir", because over the course of the 42 months I'll get it all back together with 189 of it's little friends.
Please, explain to me how this is bad. I'm not saying a PCP deposit is the best or wisest thing you can do with your £££, just that increasing the deposit saves you money over the course of the PCP. Regardless of ownership ambitions, or the GFV. If you disagree, give a worked example. I'm not aware of *any* scenario where my deposit is "lost".
Edited by sidicks on Tuesday 3rd March 21:35
Dr Jekyll said:
TVR1 said:
TheHound said:
TVR1 said:
In the short term, yes. The major lack of understand of how PCP agreements work and how interest is calculated on them though, is yours.
Let's work backwards. The MGFV isnt just a figure plucked out of thin air. They are calculated by looking at historical trade values, depreciation from new etc. very simply put, if you purchase a car for £30k, whatever the MGFV you expect to have an equity return of around 10-15% should you p/ex the car. If you put in more than that, it's money that won't be coming back. In effect, you have paid more deposit for a short term reduction in payments.
But then you'll tell us 'you save on interest if you put more deposit in'
In a normal HP agreement, yes but once again, a fundemental lack of understanding of how interest is calculated on a PCP. You are paying a much higher rate on that amount than the bit you are paying back. You really wont save much by putting in a bigger deposit as there is no way of reducing that chunk of interest.
Like it or not, the best and lowest cost way overall with a PCP is low deposit. Frankly, if the OP is intending ownership its the wrong finance in the firstplace.
This is all kinds of wrongLet's work backwards. The MGFV isnt just a figure plucked out of thin air. They are calculated by looking at historical trade values, depreciation from new etc. very simply put, if you purchase a car for £30k, whatever the MGFV you expect to have an equity return of around 10-15% should you p/ex the car. If you put in more than that, it's money that won't be coming back. In effect, you have paid more deposit for a short term reduction in payments.
But then you'll tell us 'you save on interest if you put more deposit in'
In a normal HP agreement, yes but once again, a fundemental lack of understanding of how interest is calculated on a PCP. You are paying a much higher rate on that amount than the bit you are paying back. You really wont save much by putting in a bigger deposit as there is no way of reducing that chunk of interest.
Like it or not, the best and lowest cost way overall with a PCP is low deposit. Frankly, if the OP is intending ownership its the wrong finance in the firstplace.
With the exception of 0% APR, putting in a larger deposit will always save money.
Edited by TheHound on Tuesday 3rd March 21:36
So those that do the maths know that a bigger deposit is better financially
and the car salesmen come at it from the point of view of better being not having customers who will be pissed off in 3 years time if they do not have enough equity in their car to match their original deposit and get a new model for a similar monthly payment.
Am I understanding the disagreement here?
and the car salesmen come at it from the point of view of better being not having customers who will be pissed off in 3 years time if they do not have enough equity in their car to match their original deposit and get a new model for a similar monthly payment.
Am I understanding the disagreement here?
MTech535 said:
So those that do the maths know that a bigger deposit is better financially
and the car salesmen come at it from the point of view of better being not having customers who will be pissed off in 3 years time if they do not have enough equity in their car to match their original deposit and get a new model for a similar monthly payment.
Am I understanding the disagreement here?
No - TVR1 is claiming that the lowest cost approach with a PCP is with a low deposit!!!and the car salesmen come at it from the point of view of better being not having customers who will be pissed off in 3 years time if they do not have enough equity in their car to match their original deposit and get a new model for a similar monthly payment.
Am I understanding the disagreement here?
sidicks said:
That works for 'conventional' compound interest, but apparently not for TVR1 compound interest...!!
if you are so clever, please tell me how much interest and monthlies you would pay on a 25k loan over 4 years at a flat rate of 4% with a final payment of £8k? I bet you arrive at around £604 don't you? TVR1 said:
if you are so clever, please tell me how much interest and monthlies you would pay on a 25k loan over 4 years at a flat rate of 4% with a final payment of £8k? I bet you arrive at around £604 don't you?
No, the answer is not £604. Try £630.83.Hopefully you're going to come up with another classic like this:
TVR1 said:
On a typical 42 month PCP for every £1000 more or less, your payments change by approximately £29. Can you see why it's a bad idea to put in thousands more to reduce your payments by such a small amount-especially if that deposit is greater than 10-15% as thats money you can kiss goodbye.
Edited by sidicks on Saturday 7th March 23:33
The problem is that car salesmen get sent on 'training courses'. These aren't really training courses, they're brainwashing courses.
I went on one once. The woman (who worked for the company that we used for the finance, forget which one now) running it started off with her 'credentials', telling us about all the banking and finance jobs she'd held over the last couple of years. There were about eight of them, which rather suggested she wasn't that clever and got booted out regularly (or she was, and jumped before she was pushed).
Anyway, we had virtually nothing about the 'mechanics' of PCP type deals, it was all about how great they were, how they were definitely the best possible way to buy a car, and yes, how low deposits were definitely a good thing.
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.
She went as far as to say that, even if the customer has the money to buy the car outright, he/she is better off with a PCP! I challenged this, saying clearly if you have the money you're better off paying outright and not paying interest? Apparently not according to her, because 'what if you lose your job? If you've put your money in to a car you've nothing to live on'. I pointed out that if you lost your job you'd be far better off not being tied to £300/month going out every month, and indeed if you could easily afford £300/month payments then putting those into a savings account for your next car means you'd have savings pretty quick anyway, even if you were dumb enough to sink every penny of your savings into a brand new car. Far better surely? It didn't go down at all well!
Neither did the fact that surely you're financially better off buying a car with a normal loan and keeping it much longer rather than constantly taking the biggest depreciation hit on a brand new to two year (or three year) old car over and over again. Apparently there is no depreciation though, using a PCP 'avoids it'.
We even had the classic 'why buy a depreciating asset, you're better off renting it!'
It was a joke, she really could not handle being challenged, her job was simply to instil as hard as possible that PCP is the way forward for everybody, completely regardless of individual circumstances! And everyone else just sat there nodding believing it all to be gospel!
It was an 'interesting' experience to say the least.
I went on one once. The woman (who worked for the company that we used for the finance, forget which one now) running it started off with her 'credentials', telling us about all the banking and finance jobs she'd held over the last couple of years. There were about eight of them, which rather suggested she wasn't that clever and got booted out regularly (or she was, and jumped before she was pushed).
Anyway, we had virtually nothing about the 'mechanics' of PCP type deals, it was all about how great they were, how they were definitely the best possible way to buy a car, and yes, how low deposits were definitely a good thing.
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.
She went as far as to say that, even if the customer has the money to buy the car outright, he/she is better off with a PCP! I challenged this, saying clearly if you have the money you're better off paying outright and not paying interest? Apparently not according to her, because 'what if you lose your job? If you've put your money in to a car you've nothing to live on'. I pointed out that if you lost your job you'd be far better off not being tied to £300/month going out every month, and indeed if you could easily afford £300/month payments then putting those into a savings account for your next car means you'd have savings pretty quick anyway, even if you were dumb enough to sink every penny of your savings into a brand new car. Far better surely? It didn't go down at all well!
Neither did the fact that surely you're financially better off buying a car with a normal loan and keeping it much longer rather than constantly taking the biggest depreciation hit on a brand new to two year (or three year) old car over and over again. Apparently there is no depreciation though, using a PCP 'avoids it'.
We even had the classic 'why buy a depreciating asset, you're better off renting it!'
It was a joke, she really could not handle being challenged, her job was simply to instil as hard as possible that PCP is the way forward for everybody, completely regardless of individual circumstances! And everyone else just sat there nodding believing it all to be gospel!
It was an 'interesting' experience to say the least.
Ari said:
The problem is that car salesmen get sent on 'training courses'. These aren't really training courses, they're brainwashing courses.
I went on one once. The woman (who worked for the company that we used for the finance, forget which one now) running it started off with her 'credentials', telling us about all the banking and finance jobs she'd held over the last couple of years. There were about eight of them, which rather suggested she wasn't that clever and got booted out regularly (or she was, and jumped before she was pushed).
Anyway, we had virtually nothing about the 'mechanics' of PCP type deals, it was all about how great they were, how they were definitely the best possible way to buy a car, and yes, how low deposits were definitely a good thing.
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 interest is ALWAYS PCP with the lowest possible deposit.
She went as far as to say that, even if the customer has the money to buy the car outright, he/she is better off with a PCP! I challenged this, saying clearly if you have the money you're better off paying outright and not paying interest? Apparently not according to her, because 'what if you lose your job? If you've put your money in to a car you've nothing to live on'. I pointed out that if you lost your job you'd be far better off not being tied to £300/month going out every month, and indeed if you could easily afford £300/month payments then putting those into a savings account for your next car means you'd have savings pretty quick anyway, even if you were dumb enough to sink every penny of your savings into a brand new car. Far better surely? It didn't go down at all well!
Neither did the fact that surely you're financially better off buying a car with a normal loan and keeping it much longer rather than constantly taking the biggest depreciation hit on a brand new to two year (or three year) old car over and over again. Apparently there is no depreciation though, using a PCP 'avoids it'.
We even had the classic 'why buy a depreciating asset, you're better off renting it!'
It was a joke, she really could not handle being challenged, her job was simply to instil as hard as possible that PCP is the way forward for everybody, completely regardless of individual circumstances! And everyone else just sat there nodding believing it all to be gospel!
It was an 'interesting' experience to say the least.
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!!I went on one once. The woman (who worked for the company that we used for the finance, forget which one now) running it started off with her 'credentials', telling us about all the banking and finance jobs she'd held over the last couple of years. There were about eight of them, which rather suggested she wasn't that clever and got booted out regularly (or she was, and jumped before she was pushed).
Anyway, we had virtually nothing about the 'mechanics' of PCP type deals, it was all about how great they were, how they were definitely the best possible way to buy a car, and yes, how low deposits were definitely a good thing.
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 interest is ALWAYS PCP with the lowest possible deposit.
She went as far as to say that, even if the customer has the money to buy the car outright, he/she is better off with a PCP! I challenged this, saying clearly if you have the money you're better off paying outright and not paying interest? Apparently not according to her, because 'what if you lose your job? If you've put your money in to a car you've nothing to live on'. I pointed out that if you lost your job you'd be far better off not being tied to £300/month going out every month, and indeed if you could easily afford £300/month payments then putting those into a savings account for your next car means you'd have savings pretty quick anyway, even if you were dumb enough to sink every penny of your savings into a brand new car. Far better surely? It didn't go down at all well!
Neither did the fact that surely you're financially better off buying a car with a normal loan and keeping it much longer rather than constantly taking the biggest depreciation hit on a brand new to two year (or three year) old car over and over again. Apparently there is no depreciation though, using a PCP 'avoids it'.
We even had the classic 'why buy a depreciating asset, you're better off renting it!'
It was a joke, she really could not handle being challenged, her job was simply to instil as hard as possible that PCP is the way forward for everybody, completely regardless of individual circumstances! And everyone else just sat there nodding believing it all to be gospel!
It was an 'interesting' experience to say the least.
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.
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.
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