PCP Experiences Good AND Bad please
Discussion
I'll no doubt get flamed for this but I fully expect a large proportion of people who use PCP and other forms of credit to buy brand new cars are the same ones who moan that they will never be able to raise enough deposit to buy a house. Or that they don't have enough spare income to save for retirement.
Ashley1987 said:
KTF said:
Exactly, I read somewhere that most high end stuff is bought on finance for this reason as the cash in the bank can be 'invested' to offset the cost of the finance payment each month rather than having it all tied up in a depreciating asset.
100% agree. Ashley1987 said:
HTP99 said:
Shock horror, a wealthy person buying a car on finance and I was under the impression, according to alot of posters on Pistonheads, that only poor people bought cars on finance and if you had the money paying outright was the best way, well I never!
Why use your own money?! Keep your own in the bank.I sold a car this weekend just gone to a family who had the money available in savings, originally they were after finance however in the end they borrowed the money off off parents, why did they do this, because they didn't want to sink a huge proportion of their savings into a depreciating asset and would rather the money remained in the bank for emergencies, which is a far more sensible option.
KTF said:
Ashley1987 said:
Why use your own money?! Keep your own in the bank.
Exactly, I read somewhere that most high end stuff is bought on finance for this reason as the cash in the bank can be 'invested' to offset the cost of the finance payment each month rather than having it all tied up in a depreciating asset.Snowboy said:
I found that PCP was no better than leasing if you want to change in 3 years, but terrible if you wanted to keep the car.
If from the outset you want to keep the car beyond the PCP term then PCP probably isn't for you, however it still may work as it gives you the choice, come the end of the agreement you may have come into some money or be in a better paid job so you may want to change to a newer better spec car, if you don't want to change it then just refinance or pay off the balloon. PCP is better than leasing/CH in that at the end of the agreement you may have equity in the car, with a lease or CH deal there will be no equity.
I bought brand new on PCP in 2009. Put down £4500 deposit, financed at 5%, paid £350 every month and paid off the £16500 balloon last December. Total interest charged was approximately £3500. Overall a good experience for me. I bought the car, an all new model during the worst periods of the recession so I got a really cracking deal. VAT was also 15%. So even if there came a time that I couldnt afford the repayments, everytime I checked, I found that I could easily sell the car to webuyanycar for a price more than I owed the finance company.
Would I do it again? Yes but next time (I am already saving for this) I will put my money in a stable third world country's government instrument (e.g Ghana Treasury Bills @ 20%) and use the interest earned for the monthly payments. If I had delayed buying my car for 4 years and put the total amount I paid for it into Ghanaian Treasury Bills I'd be earning between £5,000 and £7,000 per year. More than enough to cover the monthly payments of my car.
Would I do it again? Yes but next time (I am already saving for this) I will put my money in a stable third world country's government instrument (e.g Ghana Treasury Bills @ 20%) and use the interest earned for the monthly payments. If I had delayed buying my car for 4 years and put the total amount I paid for it into Ghanaian Treasury Bills I'd be earning between £5,000 and £7,000 per year. More than enough to cover the monthly payments of my car.
HTP99 said:
I was being facetious, there are many car buying threads on Pistonheads here where if you so much as mention finance you are pilloried, many on here think that if you have the available funds then why would you even entertain finance.
I sold a car this weekend just gone to a family who had the money available in savings, originally they were after finance however in the end they borrowed the money off off parents, why did they do this, because they didn't want to sink a huge proportion of their savings into a depreciating asset and would rather the money remained in the bank for emergencies, which is a far more sensible option.
Yeah I was actually agreeing with you. I sold a car this weekend just gone to a family who had the money available in savings, originally they were after finance however in the end they borrowed the money off off parents, why did they do this, because they didn't want to sink a huge proportion of their savings into a depreciating asset and would rather the money remained in the bank for emergencies, which is a far more sensible option.
Countdown said:
The dealership does not give the Customer any cash if AMV > GMFV.
The only way the customer can benefit from any "equity" is to pay the GMFV and then hopefully sell the car for the AMV.
In reference to your two points above; yes they can and no not totally correct as your first point is wrong. The only way the customer can benefit from any "equity" is to pay the GMFV and then hopefully sell the car for the AMV.
Example:
Customer comes in with a Fiesta that has an MFV of £4000, they want a Clio, said Fiesta is worth £4500, they get £500 to either put down as deposit on their new Clio or if they decide they want to go for a nil deposit finance deal, we give her £500 cash.
Your second point is correct in that they can pay of the MFV of £4000 and sell the car privately for £5000, however my first point proves that selling it privately isn't the only way to do this.
This is assuming "AMV > GMFV" means; actual market value is greater than guaranteed future value.
Ashley1987 said:
HTP99 said:
I was being facetious, there are many car buying threads on Pistonheads here where if you so much as mention finance you are pilloried, many on here think that if you have the available funds then why would you even entertain finance.
I sold a car this weekend just gone to a family who had the money available in savings, originally they were after finance however in the end they borrowed the money off off parents, why did they do this, because they didn't want to sink a huge proportion of their savings into a depreciating asset and would rather the money remained in the bank for emergencies, which is a far more sensible option.
Yeah I was actually agreeing with you. I sold a car this weekend just gone to a family who had the money available in savings, originally they were after finance however in the end they borrowed the money off off parents, why did they do this, because they didn't want to sink a huge proportion of their savings into a depreciating asset and would rather the money remained in the bank for emergencies, which is a far more sensible option.
oyster said:
I'll no doubt get flamed for this but I fully expect a large proportion of people who use PCP and other forms of credit to buy brand new cars are the same ones who moan that they will never be able to raise enough deposit to buy a house. Or that they don't have enough spare income to save for retirement.
My whole reason is to find a good balance between just that. I have had direct debits to accounts for a long time now just putting money away to buy a house. I could go out and whack a deposit on something now and have a very low monthly payment. I won't do that though. I'll just keep the money in the bank and strike a good deal when the time is right. As a lot of people have said it works for some people and it doesn't work for others. I always put too much money away just in case. That is a rule of thumb so I am not going to go and PCP an R8 (As much as I would like to!) because its pretty dangerous/stupid. You never know what is around the corner!
HTP99 said:
You are correct, there was a very interesting article in Autocar a few years ago about how high end, we are talking Ferrari's, Porsches, Lamborghini's etc are generally bought on finance, even by the most wealthy people, as they understand that sinking £100k in one go into a massively depreciating asset, doesn't make financial sense.
I think this is an interesting one... yes 100k on a zero yield and generally depreciating asset is not, in the grand scheme of things, a very clever thing to do. But people want to buy these cars.Having 100k in the bank earning 2% on a 3y bond or some savings scheme and paying 50% tax on that and paying 1.5k (I have no idea what the monthly charge would be) and non refundable deposit to a finance company is never in my mind, going to be a better thing to do.
If, you are a risk taker and think you can beat the finance companies APR (after tax) then maybe, but I think paying the cash upfront and saving the coupon/finance each month for when you want to change makes more sense.
I think I failed Man Maths 1.01
Andy665 said:
I was talking to a bloke in a dealership a couple of weeks ago - he was in the process of handing back a 3 year old car, funded using PCP. He thought it was perfect for him - he paid £86k for the car and had a GMFV of £39k - the car was actually valued at £29k.
That is steep depreciation for a three year old car. What was it? Some kind of niche supercar with the "wrong" options and a DKR interior?LA167 said:
PCP is epic!! It gives you the chance to have a car you wouldn't normally be able to afford and protects you against depreciation. We're all petrolheads here and no doubt own/want to own fast cars outright, but for mainstream/normal/volume cars (whatever you want to call it) why would anyone want to use their own money to pay for it? It is a depreciating asset afterall! 2 scenarios:
Mr X changes his car every 3 years and is a cash buyer and wants a brand new A6 Avant 2.0 TDI S-Line. He gets about a grand off the car from his local dealer and parts with £33,500 of his hard earned cash. Over the next 3 years Mr X is saving for his next car in 3 years time, putting away a healthy amount each month. 3 years later he comes to trade in and gets £17,000 in part exchange. He's lost £15,500 of his own money.
Mr Y also changes his car every 3 years but always does a PCP, he also wants a brand new A6 Avant 2.0 TDI S-Line. He gets the same approximate grand off the list price of the car from his local dealer but also gets to take advantage of the £2,250 that Audi Finance give towards his deposit. He then puts £6,000 of his own money (or equity in his PX) into the deal and pays £399 a month over 3 years. His Guaranteed Minimum Future Value is £14,000 giving him £3,000 of equity when he trades in. With his payments and his initial deposit he's paid approximately £20,000 over the 3 years, hasn't had to save any money for his next car AND has a nice bit of equity as deposit towards his next car!
Why wouldn't you do a PCP, it's the b
ks!
Where's that 'Not sure if serious' image?Mr X changes his car every 3 years and is a cash buyer and wants a brand new A6 Avant 2.0 TDI S-Line. He gets about a grand off the car from his local dealer and parts with £33,500 of his hard earned cash. Over the next 3 years Mr X is saving for his next car in 3 years time, putting away a healthy amount each month. 3 years later he comes to trade in and gets £17,000 in part exchange. He's lost £15,500 of his own money.
Mr Y also changes his car every 3 years but always does a PCP, he also wants a brand new A6 Avant 2.0 TDI S-Line. He gets the same approximate grand off the list price of the car from his local dealer but also gets to take advantage of the £2,250 that Audi Finance give towards his deposit. He then puts £6,000 of his own money (or equity in his PX) into the deal and pays £399 a month over 3 years. His Guaranteed Minimum Future Value is £14,000 giving him £3,000 of equity when he trades in. With his payments and his initial deposit he's paid approximately £20,000 over the 3 years, hasn't had to save any money for his next car AND has a nice bit of equity as deposit towards his next car!
Why wouldn't you do a PCP, it's the b
ks!HTP99 said:
You are correct, there was a very interesting article in Autocar a few years ago about how high end, we are talking Ferrari's, Porsches, Lamborghini's etc are generally bought on finance, even by the most wealthy people, as they understand that sinking £100k in one go into a massively depreciating asset, doesn't make financial sense.
I don't understand this, I think Warren Buffet is often quoted (I believe it may be a misquote) - "never buy a depreciating asset". I think the logic behind this is that you can do something better with your money but the fact is that the person who is buying it (the manufacturer I guess) sure as hell isn't going to accept the depreciation for themselves out of the goodness of their heart. I think it made a lot more sense when you could perhaps get higher returns on your money than they were charging for the finance, but we don't live in those times now. I recall a BMW "business manager" (finance salesman) suggesting I was mad not to finance my car and that I should put the cash in an icelandic bank as they were paying such high interest rates...look what happened to them.I guess the quote should be "never buy a depreciating asset, pay someone else a premium to accept that depreciation" as in most cases that is what you will do. There are exceptions e.g. deals available on BMW M5s I think you'd struggle to buy it and not lose more in depreciation than the lease costs but I guess they are leases and we are talking PCP.
Dr Jekyll said:
LA167 said:
PCP is epic!! It gives you the chance to have a car you wouldn't normally be able to afford and protects you against depreciation. We're all petrolheads here and no doubt own/want to own fast cars outright, but for mainstream/normal/volume cars (whatever you want to call it) why would anyone want to use their own money to pay for it? It is a depreciating asset afterall! 2 scenarios:
Mr X changes his car every 3 years and is a cash buyer and wants a brand new A6 Avant 2.0 TDI S-Line. He gets about a grand off the car from his local dealer and parts with £33,500 of his hard earned cash. Over the next 3 years Mr X is saving for his next car in 3 years time, putting away a healthy amount each month. 3 years later he comes to trade in and gets £17,000 in part exchange. He's lost £15,500 of his own money.
Mr Y also changes his car every 3 years but always does a PCP, he also wants a brand new A6 Avant 2.0 TDI S-Line. He gets the same approximate grand off the list price of the car from his local dealer but also gets to take advantage of the £2,250 that Audi Finance give towards his deposit. He then puts £6,000 of his own money (or equity in his PX) into the deal and pays £399 a month over 3 years. His Guaranteed Minimum Future Value is £14,000 giving him £3,000 of equity when he trades in. With his payments and his initial deposit he's paid approximately £20,000 over the 3 years, hasn't had to save any money for his next car AND has a nice bit of equity as deposit towards his next car!
Why wouldn't you do a PCP, it's the bks!
Where's that 'Not sure if serious' image?Mr X changes his car every 3 years and is a cash buyer and wants a brand new A6 Avant 2.0 TDI S-Line. He gets about a grand off the car from his local dealer and parts with £33,500 of his hard earned cash. Over the next 3 years Mr X is saving for his next car in 3 years time, putting away a healthy amount each month. 3 years later he comes to trade in and gets £17,000 in part exchange. He's lost £15,500 of his own money.
Mr Y also changes his car every 3 years but always does a PCP, he also wants a brand new A6 Avant 2.0 TDI S-Line. He gets the same approximate grand off the list price of the car from his local dealer but also gets to take advantage of the £2,250 that Audi Finance give towards his deposit. He then puts £6,000 of his own money (or equity in his PX) into the deal and pays £399 a month over 3 years. His Guaranteed Minimum Future Value is £14,000 giving him £3,000 of equity when he trades in. With his payments and his initial deposit he's paid approximately £20,000 over the 3 years, hasn't had to save any money for his next car AND has a nice bit of equity as deposit towards his next car!
Why wouldn't you do a PCP, it's the b
ks!
Countdown said:
Andy665 said:
Example
I was talking to a bloke in a dealership a couple of weeks ago - he was in the process of handing back a 3 year old car, funded using PCP. He thought it was perfect for him - he paid £86k for the car and had a GMFV of £39k - the car was actually valued at £29k.
If he had bought on HP or paid cash he'd have lost £57k in depreciation, having a GMFV meant that he lost £47k, still a silly amount but £10k less than on HP / cash
He was clearly a fairly wealthy bloke and was not only handing the car back but going to buy another - again on PCP
For that customer PCP worked very well
It seems that, interms of financing the purchase, it boils down to this;I was talking to a bloke in a dealership a couple of weeks ago - he was in the process of handing back a 3 year old car, funded using PCP. He thought it was perfect for him - he paid £86k for the car and had a GMFV of £39k - the car was actually valued at £29k.
If he had bought on HP or paid cash he'd have lost £57k in depreciation, having a GMFV meant that he lost £47k, still a silly amount but £10k less than on HP / cash
He was clearly a fairly wealthy bloke and was not only handing the car back but going to buy another - again on PCP
For that customer PCP worked very well
If GMFV > actual Market value then customer "wins"
If GMFV < actual Market Value then Dealership "wins"
If the car is worth more than the GMFV then the customer takes the equity
If the car is worth less than the GMFV the finance house takes the loss
The dealership has ZERO financial interest / involvement in the agreement
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