Help me compare finance quotes
Discussion
Looking at a £70k car, thinking of dropping a £20k deposit.
Got the following figures (best of what I received so far in terms of total cost):
36 months PCP: £903.73pcm + £27,476.25 balloon, 8.6% APR
48 months PCP: £859.92pcm + £20,825 balloon, 8.5% APR
60 months straight finance: £1,017.45pcm, 8.5% APR
So cheapest one is 36 months PCP, BUT - is it a good deal?
Is it worth putting in less/more deposit?
Bit of a noob when it comes to finance.
All I want to make sure is that I don't end up in negative equity (I expect car's value to be £35k trade-in in 6 years time).
Got the following figures (best of what I received so far in terms of total cost):
36 months PCP: £903.73pcm + £27,476.25 balloon, 8.6% APR
48 months PCP: £859.92pcm + £20,825 balloon, 8.5% APR
60 months straight finance: £1,017.45pcm, 8.5% APR
So cheapest one is 36 months PCP, BUT - is it a good deal?
Is it worth putting in less/more deposit?
Bit of a noob when it comes to finance.
All I want to make sure is that I don't end up in negative equity (I expect car's value to be £35k trade-in in 6 years time).
Can't help you with crunching the finance numbers but I have some concerns about your depreciation figures. Most cars lose about half their value every 3 years. In your 6 years of ownership,
First 3 years = £70k divided by 2 = £35k
Next 3 years = £35k divided by 2 = £17,500
Even if my very rough rule of thumb is significantly pessimistic you a punting a big depreciation risk if hoping for 50% after 6 years.
First 3 years = £70k divided by 2 = £35k
Next 3 years = £35k divided by 2 = £17,500
Even if my very rough rule of thumb is significantly pessimistic you a punting a big depreciation risk if hoping for 50% after 6 years.
You're comparing retail prices with trade-in value.
You think 7 years = 8 years.
Dealer margin will be what? Minimum £5k I would think.
8-year-old cars are going for 33k trade retail.
So I would base my exit price on c.£28k BEST CASE.
Because remember right now the design is only 8 years old MAX. In six years time that design is now 14 years old so will look much more dated than it does today.
So unless it has become a classic (which you shouldn't bank on really) I would say £28k is the higher end of what you might expect.
(Obviously also depends on the kind of mileage you are aiming to do too!)
So given that... what about negative equity?
Would you ever be in a position where you couldn't sell the car and close off the finance?
Well in short, no.
The worst case would be in three years when you need to come up with £27.5k. If I am close on £28k value in six years then you still have plenty of equity at three years.
On the various APRs here's what I do.
I hate paying interest.
The rate is roughly the same in all cases - so it is just a question of HOW LONG do you want to pay interest for....
So if you are 100% sure you can come up with £27.5k cash in three years then I would go for that option.
Let's say you get a £10k net bonus every year and save it up.
In three years you have £30k-ish.
Someone then says - I can offer you a GUARANTEED 8.6% tax free return...
Trust me - you should JUMP AT IT!!!
That is what you have with the 36 month deal.
You stop paying 8.5% for THREE YEARS. Which is the equivalent of saving at the same rate (tax free).
So go shorter if you can, is my answer.
You think 7 years = 8 years.
Dealer margin will be what? Minimum £5k I would think.
8-year-old cars are going for 33k trade retail.
So I would base my exit price on c.£28k BEST CASE.
Because remember right now the design is only 8 years old MAX. In six years time that design is now 14 years old so will look much more dated than it does today.
So unless it has become a classic (which you shouldn't bank on really) I would say £28k is the higher end of what you might expect.
(Obviously also depends on the kind of mileage you are aiming to do too!)
So given that... what about negative equity?
Would you ever be in a position where you couldn't sell the car and close off the finance?
Well in short, no.
The worst case would be in three years when you need to come up with £27.5k. If I am close on £28k value in six years then you still have plenty of equity at three years.
On the various APRs here's what I do.
I hate paying interest.
The rate is roughly the same in all cases - so it is just a question of HOW LONG do you want to pay interest for....
So if you are 100% sure you can come up with £27.5k cash in three years then I would go for that option.
Let's say you get a £10k net bonus every year and save it up.
In three years you have £30k-ish.
Someone then says - I can offer you a GUARANTEED 8.6% tax free return...
Trust me - you should JUMP AT IT!!!
That is what you have with the 36 month deal.
You stop paying 8.5% for THREE YEARS. Which is the equivalent of saving at the same rate (tax free).
So go shorter if you can, is my answer.
Thought I'd give you an idea of what you would owe on finance if you needed to sell the car after keeping it for 3 years (these assume the agreement is regulated, and the settlements here don't take into account and document fees that may be charged on the agreement.).
1. the 3 year PCP option. After 36 monthly payments have been made, you'll just have the balloon left to either pay, or hand the car back.
2. the 4 year PCP option. After 36 monthly payments have been made, the balance outstanding to pay (12 monthly rentals plus balloon) is £31,144.29. There would be a rebate of interest not payable for early settlement of £1,831.42, leaving a settlement figure of £29,312.87
3. the 5 year hire purchase option. After 36 monthly payments have been made, the balance outstanding to pay (24 monthly payments) is £24418.80. There would be a rebate of interest not payable for early settlement of £1667.29, leaving a settlement amount of £22,751.51
So assuming you were to sell the car at £35,000 at month 36, your equity would be:
36 month deal. £35,000 less final balloon £27,500ish - equity £7,500 ish
48 month deal. £35,000 less settlement £29,300ish - equity £5,700 ish
60 month deal. £35,000 less settlement £22,750ish - equity £12,250 ish.
Obviously the higher equity in the 60 month deal is offset by the higher monthly payments you've had to make during the course of the agreement.
I would suggest that your concerns about negative equity are unfounded - and this is simply due to the sizeable deposit you are putting into the deal (close to 30%). You should find that at any point of the agreement, you'll be able to exit whilst retaining some equity.
By the way I can improve on the finance examples for you - happy to email some ideas to you directly if it's of interest.
Cheers, Richard.
1. the 3 year PCP option. After 36 monthly payments have been made, you'll just have the balloon left to either pay, or hand the car back.
2. the 4 year PCP option. After 36 monthly payments have been made, the balance outstanding to pay (12 monthly rentals plus balloon) is £31,144.29. There would be a rebate of interest not payable for early settlement of £1,831.42, leaving a settlement figure of £29,312.87
3. the 5 year hire purchase option. After 36 monthly payments have been made, the balance outstanding to pay (24 monthly payments) is £24418.80. There would be a rebate of interest not payable for early settlement of £1667.29, leaving a settlement amount of £22,751.51
So assuming you were to sell the car at £35,000 at month 36, your equity would be:
36 month deal. £35,000 less final balloon £27,500ish - equity £7,500 ish
48 month deal. £35,000 less settlement £29,300ish - equity £5,700 ish
60 month deal. £35,000 less settlement £22,750ish - equity £12,250 ish.
Obviously the higher equity in the 60 month deal is offset by the higher monthly payments you've had to make during the course of the agreement.
I would suggest that your concerns about negative equity are unfounded - and this is simply due to the sizeable deposit you are putting into the deal (close to 30%). You should find that at any point of the agreement, you'll be able to exit whilst retaining some equity.
By the way I can improve on the finance examples for you - happy to email some ideas to you directly if it's of interest.
Cheers, Richard.
Thanks all, that's very helpful.
In reality I probably wouldn't keep the car longer than 3 years so the above scenario is very applicable.
All this just made me realise how much I'd be hit by depreciation! After 3 years I'd be left with very little equity to "reinvest" in another car.
So now I'm wondering whether I should get that Gallardo I've always wanted... Start at £70-80k but unlikely to depreciate massively more in the next few years?
In reality I probably wouldn't keep the car longer than 3 years so the above scenario is very applicable.
All this just made me realise how much I'd be hit by depreciation! After 3 years I'd be left with very little equity to "reinvest" in another car.
So now I'm wondering whether I should get that Gallardo I've always wanted... Start at £70-80k but unlikely to depreciate massively more in the next few years?
walm said:
That is what you have with the 36 month deal.
You stop paying 8.5% for THREE YEARS. Which is the equivalent of saving at the same rate (tax free).
So go shorter if you can, is my answer.
But surely you get the same option with the other two, just by terminating the deal early? And if you take the 60 month highest payment then you're actually paying off more of the capital each month, so less interest gets paid overall. (in other words the higher payments mean you're basically 'going shorter' anyway)You stop paying 8.5% for THREE YEARS. Which is the equivalent of saving at the same rate (tax free).
So go shorter if you can, is my answer.
Based on RFosters figures and taking the increased payments into account, the 60-month plan comes out about £500 better assuming you terminate at 3 years.
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