What does GFV mean?

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Discussion

TroubledSoul

Original Poster:

4,589 posts

193 months

Tuesday 22nd July 2014
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HTP99 said:
You can get a PCP on a used car however with many manufacturers the rates and offers on new cars actually can make it cheaper to finance a new car as opposed to a used car.
I can believe that, from a monthly payments POV, but I don't think I'd ever buy with the intention to give it back after three years, so I'd rather buy a car I think I could pay the final payment on if I wanted to stick with it.

I do get bored easily though, so should probably have started buying new cars on PCP years ago. I reckon I have spent an average of £200 a month modifying and maintaining what are, in the grand scheme of things, sh*t old cars for the last ten years.

bayemvay

49 posts

157 months

Tuesday 22nd July 2014
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Go Find Vaseline



Sheepshanks

32,528 posts

118 months

Tuesday 22nd July 2014
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rfoster said:
TroubledSoul said:
I also didn't realise that you'd have to basically pay off the entire agreement to change cars mid term. That's a big incentive to see it through.
Well - an early settlement will be subject to a regulated settlement calculation, so you don't payoff *everything* as such.

If we assumed you borrowed £20,000 over 36 months at £400 per month, with a £10k balloon, and wanted to settle early after 18 monthly payments had been met, your balance left would be:

18 x £400 + £10,000 = £17,200
But there would be a rebate of interest no longer payable of £1656.06
Leaving a settlement figure of £15,543.94
(plus any document fees still payable under the specifics of your agreement which vary from company to company.)
It probably wouldn't be an issue in the middle of the agreement, but bear in mind that if you wanted to terminate early and hand the car back, the Guaranteed bit of GFV only applies at the end of the original term.

This caught people out when the backside dropped out of the market in 2007/8 and their cars where worth less than the GFV.

rfoster

1,482 posts

253 months

Wednesday 23rd July 2014
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Sheepshanks said:
The Guaranteed bit of GFV only applies at the end of the original term.
Exactly.

Troubledsoul - PCP is available through certain finance companies wink for vehicles up to 5 years old at the beginning of the agreement and 9 years old at the end. We have managed to get some older vehicles done as well - these are usually higher end Ferrari / Aston Martins, and pretty much in each case it's been beneficial to take a longer term hire purchase agreement instead.

Andy665

3,599 posts

227 months

Wednesday 23rd July 2014
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rfoster said:
pretty much in each case it's been beneficial to take a longer term hire purchase agreement instead.
Thats a pretty sweeping generalisation - beneficial in terms of what - monthly payment, total amount payable etc etc

One big advantage of PCP is that the GFV does provide the purchaser with a safety net that minimises the potential risk of the market collapsing

There is no such thing as a perfect finance agreement, every customer and situation is unique - it should be down to the sales person to give best advice / guidance - but thats almost impossible due to manufacturers setting minimum standards of PCP sales on new cars - if a customer was not best suited to a PCP agreement but by not taking that agreement the sales person / dealership fell beneath their minimum threshold - ask yourself - is the dealership really going to give best advice or try to sove said customer in to the PCP agreement so they hit their target


rfoster

1,482 posts

253 months

Wednesday 23rd July 2014
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Andy665 said:
Thats a pretty sweeping generalisation - beneficial in terms of what - monthly payment, total amount payable etc etc

One big advantage of PCP is that the GFV does provide the purchaser with a safety net that minimises the potential risk of the market collapsing

There is no such thing as a perfect finance agreement, every customer and situation is unique - it should be down to the sales person to give best advice / guidance - but thats almost impossible due to manufacturers setting minimum standards of PCP sales on new cars - if a customer was not best suited to a PCP agreement but by not taking that agreement the sales person / dealership fell beneath their minimum threshold - ask yourself - is the dealership really going to give best advice or try to sove said customer in to the PCP agreement so they hit their target
In the instances to which I mention above on the older cars we've managed to obtain GFV's on - the GFV's set by the finance company have been considerably lower than the anticipated resale values of the car. Here's one of the examples.

2005 '55' Ferrari 430 Spider at £55,000
Deposit of £10,000
48 payments of £940.30
Balloon achieved was £10750

In this particular instance it was beneficial to the customer to take a 5 year hire purchase agreement - both the monthly payments and rate were lower (60 payments of £900). In addition, the settlement after 48 payments were made was lower than the final balloon.

Agree that all finance routes should be considered before signing!

Jader1973

3,942 posts

199 months

Wednesday 23rd July 2014
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HTP99 said:
You can get a PCP on a used car however with many manufacturers the rates and offers on new cars actually can make it cheaper to finance a new car as opposed to a used car.
Because who sells most new cars is the winner at the end of the year, so they incentivise new sales.

mcflurry

9,079 posts

252 months

Wednesday 23rd July 2014
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It means no tyre kickers at change time, albeit that the change time is fixed in advance.

If the car's worth more than the GFV, the difference is the deposit on the new one. If it's worth less then you walk away and the finance company picks up the tab smile

Alternatively you can pay / finance the balloon, and keep the car longer, although it's not usually the cheapest way to do it. For example, a 5 year HP agreement may have a similar break point to VT the agreement at half time.


Sheepshanks

32,528 posts

118 months

Wednesday 23rd July 2014
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rfoster said:
In the instances to which I mention above on the older cars we've managed to obtain GFV's on - the GFV's set by the finance company have been considerably lower than the anticipated resale values of the car.
You'd expect that, though, as there's no manufacturer behind the deal to act as a safety net. The finance company daren't get it wrong so they play safe.


TroubledSoul

Original Poster:

4,589 posts

193 months

Wednesday 23rd July 2014
quotequote all
Well I have learned something from this thread. Can't say that very often on PH! laugh

What happens with these schemes where you can PX the car at the end and start again with another one? I presume that if the GFV is say, £10k, they don't just give you £10k PX off the next car? That would be like being given free money and we all know they won't do that.

What gives?

Sheepshanks

32,528 posts

118 months

Wednesday 23rd July 2014
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TroubledSoul said:
What happens with these schemes where you can PX the car at the end and start again with another one? I presume that if the GFV is say, £10k, they don't just give you £10k PX off the next car? That would be like being given free money and we all know they won't do that.
You question adds weight to my concerns about PCP - I think they're not far off a scam as many people are sold them without realising what they're getting in to.

I think the answer has been given already in the thread, but no, they don't give you £10K. If the car is worth more than £10K then you get the extra. If it's worth less then you get nothing (and don't have to pay the shortfall either).

panholio

1,078 posts

147 months

Wednesday 23rd July 2014
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TroubledSoul said:
Well I have learned something from this thread. Can't say that very often on PH! laugh

What happens with these schemes where you can PX the car at the end and start again with another one? I presume that if the GFV is say, £10k, they don't just give you £10k PX off the next car? That would be like being given free money and we all know they won't do that.

What gives?
With respect, your question beggars belief.

The GFV stands for guaranteed future value but I concede this is a (deliberately?) misleading term. It is what you need to pay the finance company to own the car at the end of term come hell or high water. You are protected against any shortfall in the value of the car against this figure - hence the "guaranteed" part. If the car is worth more then happy days, that difference is yours to put to the next car, keep whatever.

Car valuation is not an exact science, the market changes so the idea of these schemes is that you don't have to take the risk on that.

Edited by panholio on Wednesday 23 July 13:32

Sheepshanks

32,528 posts

118 months

Wednesday 23rd July 2014
quotequote all
panholio said:
With respect, your question beggars belief.
Not to me - I've met people who think they're going to get the deposit back at the end of the deal. They either think it's like the deposit on renting something, or they've been told the car will be worth sufficiently over the GFV to cover their deposit.

HTP99

22,443 posts

139 months

Wednesday 23rd July 2014
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Sheepshanks said:
panholio said:
With respect, your question beggars belief.
Not to me - I've met people who think they're going to get the deposit back at the end of the deal. They either think it's like the deposit on renting something, or they've been told the car will be worth sufficiently over the GFV to cover their deposit.
As I mentioned earlier in the thread, when we took over where I work now I came across many people who were missold a PCP and believed that they were going to get the whole of the GFV back; effectively in good hard cash to then use on another car as the deposit.

I have also come across many people who haven't have been sold a PCP properly in the first place where they have traded a car in that they owned outright, so they had say £3500, used it all as the deposit and had very affordable monthly payments and then come the end of the PCP they don't have a massive chunk of money to put in as a deposit for a new PCP so their monthly payments are effetively almost double and yet they don't understand why; they hadn't been advised at the start of their first PCP that this scenario is likely to happen.

Edited by HTP99 on Wednesday 23 July 14:00

Sheepshanks

32,528 posts

118 months

Wednesday 23rd July 2014
quotequote all
HTP99 said:
As I mentioned earlier in the thread, when we took over where I work now I came across many people who were missold a PCP and believed that they were going to get the whole of the GFV back; effectively in good hard cash to then use on another car as the deposit.
Hmmm...I wonder who's going to foot the bill when that misselling 'scandal' gets going?

HTP99 said:
I have also come across many people who haven't have been sold a PCP properly in the first place where they have traded a car in that they owned outright, so they had say £3500, used it all as the deposit and had very affordable monthly payments and then come the end of the PCP they don't have a massive chunk of money to put in as a deposit for a new PCP so their monthly payments are effetively almost double and yet they don't understand why; they hadn't been advised at the start of their first PCP that this scenario is likely to happen.
My brother did that on a car for his missus. Both of them are in sales related jobs and I would have said fairly switched on (in fact she used to do something related to selling car finance to dealers) but he seemed dismayed that at the end of the deal, the car was under water and they walked away with nothing, having p/x'd a perfectly reasonable car.

TroubledSoul

Original Poster:

4,589 posts

193 months

Wednesday 23rd July 2014
quotequote all
panholio said:
With respect, your question beggars belief.
A little strong, no? I've never, ever read anything about or had anyone explain PCP to me. I just wanted to learn, that's all. It seems to have become a very common thing in the marketplace, so I feel it's prudent to have a clue about it.

What I was getting at with that last question is that you are basically stuck with either needing to find a big deposit to change, needing to find a big balloon payment or you end up with nothing. I just wanted to make sure I had that right.

It does sound like a lot of people get into these deals with no clue about this or about how they will raise the money needed at the end of the agreement.

rfoster

1,482 posts

253 months

Wednesday 23rd July 2014
quotequote all
I wrote this up about 6 months ago for PH - hope it helps!




Car finance options.

1. Hire purchase - available for all new and used vehicles of all ages (depending on finance company.)

This is effectively a loan to buy a car. You pay a deposit to the car dealer, and the balance is paid back in monthly instalments to a finance company over a period between 24 and 60 months usually. At the end of the finance agreement, when all the payments have been made, title of the vehicle passes to you.

Pros: You can get into the car you want now rather than saving up and waiting.
Cons: You'll pay interest on the money you borrow.

2. Lease purchase - available for all new and used cars, typically up to 5 years old (though some finance companies will offer balloons on expensive classic cars too.)

This is essentially the same as a hire purchase, but with a final balloon payment payable at the end of the agreement. This final balloon is not a guaranteed future value - you must still pay this. This can be covered by perhaps refinancing the final balloon, or selling the car to cover the balloon - or just paying the balloon if you have the money to do so.

Pros: You will get more car for your monthly budget with a finance agreement with final balloon payment.
Cons. You'll pay more in total interest charges over the term, as you are deferring a large lump of capital until the end of the agreement. There's also the possibility that the final balloon payment may be more than the car is worth and this is at your risk - when you start your finance agreement, most finance companies will ask what mileage you expect to cover in the vehicle and they will set the final balloon at a conservative level to try and ensure you're not in negative equity.

3. Contract Purchase or PCP. Available on all new cars and used cars up to 5 years old at the beginning of the agreement, and 9 years old at the end (depending on finance company.)

This is very similar to lease purchase, you'll pay a deposit plus monthly payments, and at the end of the agreement there is again a final balloon payment payable. This time however, it's classed as a guaranteed future value - this means that the finance company will guarantee to purchase the vehicle from you for exactly the same amount as your final balloon payment. This balloon payment is set by the finance company at the start of the agreement by ascertaining what mileage you expect to cover over the term of the agreement (2-4 years.)
At the end of the term, you have the following choices.

a. Just hand the vehicle back to the finance company with no further obligation - please note that the finance company will charge you if you have gone over your anticipated mileage as a pence-per-mile cost which will be on your agreement. They will also have the right to charge for any damage to the vehicle, missing keys / missing services etc.

b. Sell the car yourself and pay the balloon to the finance company before it's due. If you sell the car for more than the final balloon payment then you get to keep any equity in the vehicle to put towards your next car.

c. Refinance the final balloon if you want to keep the car, or simply pay the balloon and title will pass to you.

Pros: Payments are usually lower than a straight forward hire purchase and there is the safety net of just being able to hand the vehicle back at the end, if you want to.

Cons: Same as lease purchase, you'll pay more interest than a hire purchase because you are deferring a lump of capital until the end of the agreement.




On all of the above agreements, you are responsible for all maintenance / servicing / road fund licence / insurance, just as you would if you owned the vehicle outright. Your name goes on the vehicle registration document, and the finance company have a 'charge' over the vehicle (which will show on an HPI report.) They are the owner of the vehicle until such time as the agreement is finished. You are responsible for keeping the vehicle in a roadworthy condition.

Assuming you take one of these agreements in your own name rather than in a limited company, then the agreements are regulated by the consumer credit act which is very flexible. This give you the option of making lump sum payments during the course of the agreement and either lowering your remaining monthly payments, shortening the term or lower the final balloon (if you have one.) You can also settle the finance agreement at any time and benefit from a regulated settlement figure. The finance company will provide you with a settlement figure which shows the balance outstanding to pay, less a rebate of interest charges that you won't have to pay as you're settling early, and the final settlement figure.

Under the consumer credit act, you also have the right to voluntarily terminate the agreement and hand it back to the finance company, once you have paid 50% of the total amount payable under the agreement. The finance company will have the right here to charge you for any damage / missing keys / services / illegal tyres. Additionally, on a contract purchase agreement, the finance company will also have the right to charge you for excess mileage on a pro-rata basis.

Note - whilst it is your right to terminate the vehicle and it doesn't have an effect on your credit score, it does leave a footprint on your credit file that can be viewed by any finance company who are considering credit applications. It may or may not have an influence as to whether they will consider lending you money.




Contract Hire and Personal Contract Hire - available for all new cars and vans - not usually available for used cars.

With this scheme you are effectively hiring your choice of vehicle for a set amount of time. At the end of the term, you simply hand the car back to the finance company. There are often the options of extending the lease agreement if you want to. You'll pay VAT on your monthly rentals - on a personal contract hire this is usually included in the rentals quoted to you by the finance company but it's best to check.

All contract hire agreement includes road fund licences throughout the term. You may be charged for any increase in the cost of road fund licences (depending on how much the government increases it year on year.) There is the option of an additional maintenance and servicing package for premium on the monthly rentals.

You are responsible for paying for fuel and insurance, and on a non maintenance agreement, you'll also need to pay for all maintenance and servicing in accordance with the manufacturer's guidelines.

Pros. you can get a new car every few years with a low deposit and usually lower monthly rentals than you would achieve on a hire purchase agreement. There are often some extremely competitive contract hire deals that are subsidised by the manufacturer.
Cons. You never own the car and will not benefit from any equity in the vehicle.

kmpowell

2,918 posts

227 months

Wednesday 23rd July 2014
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panholio said:
But a lot of people don't understand it (as demonstrated by this thread on a car forum, God help the general public) and enter into it with misconceptions. This can also be an advantage to the person selling it.
Scary isn't it. Here's a conversation I had with somebody on the BMW forum a while ago when they were pleased with the deal they got on their new 1 series. They thought the interest they were paying on a 4yr PCP was £480, but in reality (as I explained in detail) it was actually £3,300...

kmpowell said:
hufc2002 said:
kmpowell said:
hufc2002 said:
Over the 4 year PCP and if I choose to pay the balloon and keep the car, I will have only paid £468 interest. That less than £10 a month
A total over 4 years of only £468 interest, how did you work that out?!? :?
Quite simmple really:

List price of car with all options - £26,655
Deal price - £24,006

£1500 part-ex (Deposit)
£300 (deposit for car to be built)
£1800 total deposit

£326.80 per month x 48 months = £15,686.40 in payments
£9636.82 baloon payment
£25,323.22 total payments

£1800 deposit + £25,323.22 in payments = £27,123,22

£27,123,22 - £26,655 (list price) = £468.22 (interest). Divide this by 48 months = £9.75
Sorry to be the bearer of bad news, but that's not how you work out interest payments. APR = Annual Percentage Rate, Interest is calculated annually (but charged monthly). So, in yr1 you will get charged 4.9%, in yr2 you'll get charged 4.9% on yr2 capital PLUS interest on yr1's total which includes the interest you paid in yr1, and so on. So to put it simply in yr2 yr3 and yr4 you are paying interest on the interest you've already paid in previous years. The total interest you will pay over your 4 year deal is actually circa £3,300.

I've broken it down for you. If you are on the 4.9% APR 47+1mth plan with payments of £326.80 a month and a GFV payment of of £9636.82 in month 48, then your payment schedule is as follows:

At 12 months
Exit plan Settlement Figure - £19,159.06
Total made in monthly payments - £3,921.60 (made up of £2,790.94 capital and £1,130.66 interest)

At 24 months
Exit plan Settlement Figure - £16,054.53
Total made in monthly payments - £7,843.20 (made up of £5,895.47 capital and £1,947.73 interest)

At 36 months
Exit plan Settlement Figure - £12,798.51
Total made in monthly payments - £11,764.80 (made up of £9,151.49 capital and £2,613.31 interest)

At 48 months
GFV settlement figure - £9,636.82
Total made in monthly payments - £15,686.40 (made up of £12,313.18 capital and £3,373.22 interest)

So the total amount you pay for the car after the 4 years is [as you correctly say] £27,123.22, but it's actually made up of the following:
Amount being financed after discount - £21,950 (cost less the one off doc fees)
Deposit - £1800.00
Interest - £3,373.22

Dealers are VERY clever in spinning finance so the customer thinks they are paying less than they think, so I hope the true picture above helps

TroubledSoul

Original Poster:

4,589 posts

193 months

Wednesday 23rd July 2014
quotequote all
Cheers, top man!

Sheepshanks

32,528 posts

118 months

Wednesday 23rd July 2014
quotequote all
TroubledSoul said:
What I was getting at with that last question is that you are basically stuck with either needing to find a big deposit to change, needing to find a big balloon payment or you end up with nothing. I just wanted to make sure I had that right.
Yes. Basically that's the "trap" with a PCP.

People will argue that you've got choices when the term is up, but in reality the thing that often makes most sense is to start a new PCP.

If you hand the car back and walk away, you will be literally walking as you haven't got a car. If you don't have the GFV in your back pocket, you need to borrow it. Borrowing, say, £10K over 3yrs is going to cost £300/mth - the dealer will do you another PCP for close to that and you see a shiny new car rather than a 3yr old "st-heap" so you go for it.