Car PCP and deposits on them

[sidicks]

TheHound said:

THE GMFV is determined at the begining of the contract and does not change depending on market conditions, so your argument here is rubbish.

I think his point is that you can reduce the GMFV by artificially assuming a higher mileage during the term. My previous experience was that there is a 'maximum' 'balloon' payment that can be assumed in the contract but there is scope to structure the contract to have a lower ballon (lower interest) with correspondingly higher monthly payments, but then providing scope for a higher deposit next time around.

TheHound said:

For example- Car is £35k, GMFV is £10k. The capital amount that gets paid between the deposit and monthlies is £25k.

If you put in a 5k deposit, the monthly capital payments will total £20k and interest will be due on this £20k (on a reducing basis) and the £10k GMFV.

If you put in a £15k deposit, then you are only paying interest on £10k (on a reducing basis) and the £10k GMFV.

Therefore, you are paying less interest with a higher deposit being paid and the risk at the end is exactley the same.

The only thing you are correct on is that a lower GMFV will mean you pay less in interest but your monthlies will of course be more.

Edited by sidicks on Sunday 8th March 14:37

[Dr Jekyll]

TheHound said:

Dr Jekyll said:

There is no contradiction between saying a lower deposit reduces interest paid, and saying that paying less interest reduces overall cost.
Paying less for car 1, increases the amount of money available for car 2.

If I was buying a car on PCP I would pay as high a deposit as possible to reduce interest and therefore save money. The fact that other people doing the same thing might be put off signing another deal in 3 years time because they hadn't allowed for finding another big deposit is their problem, it has no bearing on my decision.

From your previous posts I think you do generally understand it but you are contradticating yourself here.

The facts are a higher deposit (unless 0%), will always mean less interest is paid and therefore the customer will have more money for the next car (unless they have no control and spunk away the money they saved in interest).

Sorry, the combination of lunchtime pints and dealing with PCP advocates have befuddled my brain. I meant to say in the earlier post that higher deposit lowers the interest.

[After_Shock]

TheHound said:

THE GMFV is determined at the begining of the contract and does not change depending on market conditions, so your argument here is rubbish.

For example- Car is £35k, GMFV is £10k. The capital amount that gets paid between the deposit and monthlies is £25k.

If you put in a 5k deposit, the monthly capital payments will total £20k and interest will be due on this £20k (on a reducing basis) and the £10k GMFV.

If you put in a £15k deposit, then you are only paying interest on £10k (on a reducing basis) and the £10k GMFV.

Therefore, you are paying less interest with a higher deposit being paid and the risk at the end is exactley the same.

The only thing you are correct on is that a lower GMFV will mean you pay less in interest but your monthlies will of course be more.

Im fully aware of how they work having sold the things for nearly 10 years.

However having seen many and I mean many people insist on putting 5k, 7k etc etc deposits into them to be left with a car that's worth on trade in the GMFV and being severely annoyed its simply not worth it.

People get into a state of mind that I put 5k in I will get 5k back at the end, it doesn't work like that, the banks/manufacturers can reasonably well predict the GMFV at the end to being pretty much bang on what the cars worth.

Yes you are paying more a month by putting less deposit in and a bit more interest but id much rather leave 3,4 5k etc in the bank to then be able to actually afford a deposit for the next car.

[sidicks]

Dr Jekyll said:

Sorry, the combination of lunchtime pints and dealing with PCP advocates have befuddled my brain. I meant to say in the earlier post that higher deposit lowers the interest.

[After_Shock]

Dr Jekyll said:

Sorry, the combination of lunchtime pints and dealing with PCP advocates have befuddled my brain. I meant to say in the earlier post that higher deposit lowers the interest.

Btw im not an advocate, ive never personally bought a car on PCP and actually wouldn't. If I cant afford the car on a monthly basis through traditional HP means I wont buy it (regrettably I don't fall into the PH elite that have cash for everything)

[sidicks]

After_Shock said:

Im fully aware of how they work having sold the things for nearly 10 years.

However having seen many and I mean many people insist on putting 5k, 7k etc etc deposits into them to be left with a car that's worth on trade in the GMFV and being severely annoyed its simply not worth it.

People get into a state of mind that I put 5k in I will get 5k back at the end, it doesn't work like that, the banks/manufacturers can reasonably well predict the GMFV at the end to being pretty much bang on what the cars worth.

Yes you are paying more a month by putting less deposit in and a bit more interest but id much rather leave 3,4 5k etc in the bank to then be able to actually afford a deposit for the next car.

If you've paid less interest you are much able to afford a higher deposit for the next car....!

[After_Shock]

sidicks said:

If you've paid less interest you are much able to afford a higher deposit for the next car....!

FFS get your interest head off, in the real world do you think people sit an calculate that little bit of interest ive saved by putting an extra 1k in is actually going to make a difference come the next car? Most ppl will probably p*ss the saving up against the wall the first weekend after buying the car, or maybes the people who do calculate it have no life and sit at home warm in the thought of that little saving.................

Yes its a simple correlation, bigger deposit = less interest we can all work that out easily. However blowing a huge deposit into a 2 year deal that your never going to see again isn't sensible mathematics.

[sidicks]

After_Shock said:

FFS get your interest head off, in the real world do you think people sit an calculate that little bit of interest ive saved by putting an extra 1k in is actually going to make a difference come the next car? Most ppl will probably p*ss the saving up against the wall the first weekend after buying the car, or maybes the people who do calculate it have no life and sit at home warm in the thought of that little saving.................

Yes its a simple correlation, bigger deposit = less interest we can all work that out easily. However blowing a huge deposit into a 2 year deal that your never going to see again isn't sensible mathematics.

Where do you think this deposit goes? Vanishes into thin air???

Paying a lower deposit requires much higher monthly payments - where do they come from, a magic money tree?

[TheHound]

sidicks said:

If you've paid less interest you are much able to afford a higher deposit for the next car....!

I am sure he thinks that if you put in a higher deposit, you pay the same monthly figure as a lower deposit. Thats the only way he can think he is making sense.

But as you said

[Magic919]

You can tell which ones are the car dealers here. (Nothing personal, James)

[After_Shock]

TheHound said:

I am sure he thinks that if you put in a higher deposit, you pay the same monthly figure as a lower deposit. Thats the only way he can think he is making sense.

But as you said

Yes of course put in a 500 quid deposit = the exact same monthly payment as putting in 5k, magic money trees and cash fairies excluded.

Im fully aware funnily enough it reduces the monthly payment.

Look everyones different on these, low deposits suit people who can afford the payment and don't want to risk the cash up front. High deposits suit people who have the cash to risk and want a lower monthly amount, however these people would be better going HP and paying less interest in the grand scheme of things.

As I say ive sold these things for years, ive seen people put in low and high deposits and the high deposit route results in lots of unhappy people come the end of the term.

[After_Shock]

Magic919 said:

You can tell which ones are the car dealers here. (Nothing personal, James)

Not at all, regrettably you cant reason with the mathematicians on here.

[sidicks]

After_Shock said:

Yes of course put in a 500 quid deposit = the exact same monthly payment as putting in 5k, magic money trees and cash fairies excluded.

Im fully aware funnily enough it reduces the monthly payment.

So why do you keep wittering on about the deposit being 'lost' / 'thrown away' etc etc??

After_Shock said:

Look everyones different on these, low deposits suit people who can afford the payment and don't want to risk the cash up front. High deposits suit people who have the cash to risk and want a lower monthly amount, however these people would be better going HP and paying less interest in the grand scheme of things.

There is no more risk in "high deposit, low monthly payments" than "low deposit, high monthly payments (plus extra interest)", why are you still struggling to understand this?

After_Shock said:

As I say ive sold these things for years, ive seen people put in low and high deposits and the high deposit route results in lots of unhappy people come the end of the term.

Which can only be explained by poor advice by you, not explaining how these things work!!!

[sidicks]

After_Shock said:

Not at all, regrettably you cant reason with the mathematicians on here.

You mean those who understand the numbers rather than those who don't?

[After_Shock]

sidicks said:

Which can only be explained by poor advice by you, not explaining how these things work!!!

Poor advice by my ROFL, no as ive already said people who purchase these products get stuck into the minds that they get back the deposit that they put in, regardless of how much advice you give people that's what they expect, hence they are never happy come the end and the deposit has vanished.

Im not struggling to understand anything I fully understand how it all works, as ive already said yes more deposit = less interest due to a lower monthly payment, however in the real world people through a chunk of cash in expecting it to somehow re-appear at the end and when it doesn't they are left in a position without such a big deposit again, regardless of what advice is given.

However the interest savings you are banging on about are not as vast you probably make out, due to the fact that the GMFV is a fixed amount, as this doesn't reduce with time neither does the interest calculated on it. Throwing big deposits into HP reduces interest significantly, its not such a saving on PCP is it?

[sidicks]

After_Shock said:

Poor advice by my ROFL, no as ive already said people who purchase these products get stuck into the minds that they get back the deposit that they put in, regardless of how much advice you give people that's what they expect, hence they are never happy come the end and the deposit has vanished.

Surely it's up to the salesman to set expectations...

After_Shock said:

Im not struggling to understand anything I fully understand how it all works, as ive already said yes more deposit = less interest due to a lower monthly payment, however in the real world people through a chunk of cash in expecting it to somehow re-appear at the end and when it doesn't they are left in a position without such a big deposit again, regardless of what advice is given.

Ignoring the interest saving, the fact is that at the end of the contract they are in exactly the same position (in terms of deposit to carry forward) as someone who went down the low deposit, high monthly payment approach. The large deposit is not 'blown', 'lost', 'thrown away' or any other misleading phrase you want to use.

After_Shock said:

However the interest savings you are banging on about are not as vast you probably make out, due to the fact that the GMFV is a fixed amount, as this doesn't reduce with time neither does the interest calculated on it. Throwing big deposits into HP reduces interest significantly, its not such a saving on PCP is it?

I previously provided a simple example to show that there would be a £400+ interest saving on a typical PCP deal - that's almost half of the £1k deposit you apparently support.

Also, as explained previously, it is also possible to amend the balloon payment with some PCP schemes (e.g. to compensate for a higher deposit).

[After_Shock]

sidicks said:

I previously provided a simple example to show that there would be a £400+ interest saving on a typical PCP deal - that's almost half of the £1k deposit you apparently support.

Also, as explained previously, it is also possible to amend the balloon payment with some PCP schemes (e.g. to compensate for a higher deposit).

Yes as I already suggest altering the end payment to help out on the interest, if I had no understanding of how these work why would I even suggest such a silly idea?

As usual blame the salesperson, the sales person can set expectations all day long, however have you ever been introduced to a business/finance manager when buying a car? Almost every garage has this in the sales process, they can easily advise a different route or an easier route for them or even a different bank with a higher interest but a higher end payment so appears cheaper a month to get paid more/hit a target. The customer can then easily go to another garage and get a load of duff advice and any good work put in by one person can easily be undone.

On the basis the person is sensible and puts the monthly saving amount into a pot every month and never spends the interest they save by putting a higher deposit in yes they are in the same position, how many people in the 'real' world do this? Seldom few. So yes the saving in the coming 2, 3, 4 years can very easily be lost.

Im not supporting any monthly payments, 1k was just a simple figure out of the air.

[sidicks]

After_Shock said:

Yes as I already suggest altering the end payment to help out on the interest, if I had no understanding of how these work why would I even suggest such a silly idea?

As usual blame the salesperson, the sales person can set expectations all day long, however have you ever been introduced to a business/finance manager when buying a car?

My experience is that they often don't know what they are talking about - one tried to convince me to focus on flat rate interest as APR was 'misleading' etc etc

After_Shock said:

Almost every garage has this in the sales process, they can easily advise a different route or an easier route for them or even a different bank with a higher interest but a higher end payment so appears cheaper a month to get paid more/hit a target. The customer can then easily go to another garage and get a load of duff advice and any good work put in by one person can easily be undone.

On the basis the person is sensible and puts the monthly saving amount into a pot every month and never spends the interest they save by putting a higher deposit in yes they are in the same position, how many people in the 'real' world do this? Seldom few. So yes the saving in the coming 2, 3, 4 years can very easily be lost.

No, you're still missing the fundamental point - they can do what they want with the monthly saving, that's irrelevant.

At the end of the period ignoring the interest saved, they will still have exactly the same to put into the next deal as the person following your strategy - the difference between the car value and the GMFV.

[After_Shock]

sidicks said:

No, you're still missing the fundamental point - they can do what they want with the monthly saving, that's irrelevant.

At the end of the period ignoring the interest saved, they will still have exactly the same to put into the next deal as the person following your strategy - the difference between the car value and the GMFV.

Other than banging your head in theory yes they will except for the fact they may not be in the same financial position due to not saving the monthly payment difference over the term of the loan. As you say they can do what they want with the money but 'if' they have not saved it as they should have done they may now suddenly have a 500 quid deposit and not a few grand they would have hoped. This is what happens. APR is misleading for many reasons, its affected by too many factors so to focus on that especially in PCP deals is foolish as its lowered by off setting a large payment to the end for example.

Ive done a quick PCP calculation to give you the idea of savings from an actual example:

1. The low deposit route:
Car = 30k brand new
GMFV after 36 months = 14,400k
Deposit = 1k
36 Payments = 579 per month
TAP = 36,244 To own the car at the end

2. Higher deposit route:
Car = 30k
GMFV after 36 months = 14,400k
Deposit = 8k
36 Payments = 339 per month
TAP = 34,604 To own the car at the end

Saving for putting in a 8k deposit to start with in interest terms = 1,640 over 3 years.

3. Higher deposit on a HP over same term based on the same advertised rate of interest:
Car = 30k
Deposit = 8k
36 Payments = 666
TAP = 31,980 To own the car at the end.

O.k the monthly payment is higher but due to having no GMFV at the end generating interest the actual interest savings by putting a high deposit into a HP deal are much greater. The interest saving between the two PCP deals is not vast but is of course a saving, but for high deposits I always suggest HP, unless of course the person cant afford that particular car on a HP route and needs PCP to get the payments way down over the same time period.

Everyones different, everyones circumstances are different its purely personal choice. But in saving interest terms PCP is not the route to go.

[Sheepshanks]

sidicks said:

I think his point is that you can reduce the GMFV by artificially assuming a higher mileage during the term. My previous experience was that there is a 'maximum' 'balloon' payment that can be assumed in the contract but there is scope to structure the contract to have a lower ballon (lower interest) with correspondingly higher monthly payments, but then providing scope for a higher deposit next time around.

To do that artificially by inflating the mileage is a stupid and pointless gamble. You'd be giving away a chunk of one of the main advantages of a PCP - the GFV safety net.