Is this a good deal? [Car finance question]

[crazy about cars]

I must admit I am not really good when it comes to finances so I hope someone could give some opinions.

My current car has around £22,000 outstanding balance (inc interest)- give or take. I have around 50+ months left of finance payment. I am currently paying around £420/ppm including PPI. I've been offered a value of £28,000 for my car (selling privately should see anything from £30,000-£35,000). I've bought this car around 8 months ago for £40,000 in total.

The car I am looking at currently has sticker price of £48,000 (ex-demo March 2012 car) but I am pretty sure that should drop soon as they have to clear it.

After some negotiation I am offered this deal (rough figures):

Additional cash deposit : £7000
Monthly payment over 24 months : £468ppm
Guaranteed value proctection (not too sure what that means but was told the value is guaranteed come the time I change cars in the future)

I personally think the cash deposit is too much but a bit tempted by the fact I get a shorted finance deal and also prospect of a "guaranteed future value". The car I am looking at even though niche will be easier to re-sell compared to my current one.

What do you think PH? Stick with my current deal and work to settle it early sometime next year or go for this deal but negotiate a smaller cash deposit?

[DavidY]

I think you need to be more clear:-

1) Is there a balloon on the new deal?
2) If there is no balloon on the new deal, and you are only adding 7K to the 6K left after paying off the finance on your existing car, and you only have 34 x £468 payments, then you have a good deal on a 48K car, as you are only paying 24K for it!!!

[crazy about cars]

DavidY said:

I think you need to be more clear:-

1) Is there a balloon on the new deal?
2) If there is no balloon on the new deal, and you are only adding 7K to the 6K left after paying off the finance on your existing car, and you only have 34 x £468 payments, then you have a good deal on a 48K car, as you are only paying 24K for it!!!

Hi,

sorry for the stupid question but what do you mean by balloon? I know I need to get the settlement figure on my existing finance minus any rebate of charges...

edit: its 24 x £468 not 36...

Edited by crazy about cars on Monday 20th August 19:18

[DavidY]

The final fee after paying 24 months of monthly payments on the new car, probably quite a large number!

Sorry about the 34 was a typo, Mathis was right though!

[crazy about cars]

DavidY said:

The final fee after paying 24 months of monthly payments on the new car, probably quite a large number!

Sorry about the 34 was a typo, Mathis was right though!

Ah fair point. He did blurp something about guaranteed value when selling the car but I guess that doesn't include the balloon. Funny how the deal first started at £980/ppm and went down to half of that haha.

I will re-evalutate options but just think it's not worth putting 7k cash in at this time.

[DavidY]

It's not the 7k cash that you have to worry about, it is can you handle the loss of The money on the existing car and the total amount that you will be paying on the new vehicle. 13k deposit + 11k finance + final ballon will be a lot more than 48k. Add then the loss on your existing vehicle by bailing out only 8 months in, and then you'll see how much you are really paying for your cars!!!

There will be loads on PH who will say that all finance is bad, but it really depends on your personal circumstances and how you want to manage debt.

[oldnbold]

I presume this is a PCP deal. The guaranteed future value (GFV) is the minium amount the car will be worth at the end of the deal.

You generally have 3 options at that point.

1 Hand the car back and walk away

2 Pay the GFV and keep the car.

3 PX the car for a new one, the PX value is normally more than the GFV by perhaps £1 - £2k. Therefore after the GFV has been repaid you have £? amount to put into a new deal.

Obviously if the PX price offered is less than the GFV just hand the car back to the finance Company - they then have a big headache to deal with

[crazy about cars]

DavidY said:

It's not the 7k cash that you have to worry about, it is can you handle the loss of The money on the existing car and the total amount that you will be paying on the new vehicle. 3k deposit + 11k finance + final ballon will be a lot more than 48k. Add then the loss on your existing vehicle by bailing out only 8 months in, and then you'll see how much you are really paying for your cars!!!

There will be loads on PH who will say that all finance is bad, but it really depends on your personal circumstances and how you want to manage debt.

I guess that puts things in better perspective. At the moment (although I'm tied in for 5 years) I know exactly what I will be paying. The deal, although tempting with shorter period (and a stonking new car!) I guess if I work out the maths I will end up paying much more. I am pretty sure this car will drop further in price as it is a convertible so I might just give it a miss for now. Might be tempted if I can have the same deal but no extra cash deposit but don't think that will be possible for now...

I will definitely need to spend around £3000 on my current car in the next 2 months but I guess that is better than what I will loose out on...

[crazy about cars]

oldnbold said:

I presume this is a PCP deal. The guaranteed future value (GFV) is the minium amount the car will be worth at the end of the deal.

You generally have 3 options at that point.

1 Hand the car back and walk away

2 Pay the GFV and keep the car.

3 PX the car for a new one, the PX value is normally more than the GFV by perhaps £1 - £2k. Therefore after the GFV has been repaid you have £? amount to put into a new deal.

Obviously if the PX price offered is less than the GFV just hand the car back to the finance Company - they then have a big headache to deal with

Thanks for the explanation Alright, might be another silly question but I don't see much point in option #2? The car will definitely be worth less than the GFV I am getting now... Paying the GFV 2 years down the line for the same car just doesn't make sense? He quoted the GFV at a value very close to the sticker price. (The car is registered March 2012 and only have 3000 miles on it)

[sidicks]

crazy about cars said:

Thanks for the explanation Alright, might be another silly question but I don't see much point in option #2? The car will definitely be worth less than the GFV I am getting now... Paying the GFV 2 years down the line for the same car just doesn't make sense? He quoted the GFV at a value very close to the sticker price. (The car is registered March 2012 and only have 3000 miles on it)

You're making it impossible for anyone to offer any proper advice, as you aren't giving us the full information about the deal!!

Having a GFV close to the purchase price makes zero sense.

Sidicks

[oldnbold]

sidicks said:

crazy about cars said:

Thanks for the explanation Alright, might be another silly question but I don't see much point in option #2? The car will definitely be worth less than the GFV I am getting now... Paying the GFV 2 years down the line for the same car just doesn't make sense? He quoted the GFV at a value very close to the sticker price. (The car is registered March 2012 and only have 3000 miles on it)

You're making it impossible for anyone to offer any proper advice, as you aren't giving us the full information about the deal!!

Having a GFV close to the purchase price makes zero sense.

Sidicks

The GFV is a guess at what the car will be worth at the end of the deal, in your case in 2 years time. How can this be close to the sticker price.

I'd get the deal explained to again and if your not good at this sort of stuff take someone with you.

[sidicks]

oldnbold said:

The GFV is a guess at what the car will be worth at the end of the deal, in your case in 2 years time. How can this be close to the sticker price.

I'd get the deal explained to again and if your not good at this sort of stuff take someone with you.

Exactly!

If he has had a full finance quote then he should be able to post the details on here, then we can give it a proper review.

[crazy about cars]

Sorry about that. The conversation was on the phone and he did give me a few options with the one I've pointed out working out the cheapest. My bad for not asking more about the Guaranteed Future Value. I naively thought that was a good thing for me as it guarantees my car's future value so I know exactly how much my car is worth for p/x but from reading it seems that that's how much I actually have to pay to keep the car at the end of the term...

Due to unforseen circumstances might not get in touch with sales exec until next week ... I know this is a "how long is a piece of string" question but is it possible to guestinate the balloon figure here? The car is a SLK55AMG if that helps. 1 owner ex-demo...

edit: So let's say the agreed balloon figure is £15,000 which I believe is a fair figure for a car worth £38000 ish now (pushing 62k when new in March!!!)
Does this mean at the end of term after the monthly payments made (24 x £470 for example) I still have to first fork out this amount in cash to either keep the car or offer it up for p/x? Pretty big lump sum to pay at the end which is a contrast to my current finance deal (5 years x £420ish basically paying 1.2k per year as interest)

edit2: Wouldn't a full finance quote "tie you in" more into the deal? I believe a full valuation of my current car has to be undertaken (HPI checks, health checks etc) for that?

Again, I apologise for all the silly questions...

Edited by crazy about cars on Monday 20th August 22:12

Edited by crazy about cars on Monday 20th August 22:13

[sidicks]

crazy about cars said:

Sorry about that. The conversation was on the phone and he did give me a few options with the one I've pointed out working out the cheapest. My bad for not asking more about the Guaranteed Future Value. I naively thought that was a good thing for me as it guarantees my car's future value so I know exactly how much my car is worth for p/x but from reading it seems that that's how much I actually have to pay to keep the car at the end of the term...

Due to unforseen circumstances might not get in touch with sales exec until next week ... I know this is a "how long is a piece of string" question but is it possible to guestinate the balloon figure here? The car is a SLK55AMG if that helps. 1 owner ex-demo...

edit: So let's say the agreed balloon figure is £15,000 which I believe is a fair figure for a car worth £38000 ish now (pushing 62k when new in March!!!)
Does this mean at the end of term after the monthly payments made (24 x £470 for example) I still have to first fork out this amount in cash to either keep the car or offer it up for p/x? Pretty big lump sum to pay at the end which is a contrast to my current finance deal (5 years x £420ish basically paying 1.2k per year as interest)

edit2: Wouldn't a full finance quote "tie you in" more into the deal? I believe a full valuation of my current car has to be undertaken (HPI checks, health checks etc) for that?

Again, I apologise for all the silly questions...

Edited by crazy about cars on Monday 20th August 22:12

Edited by crazy about cars on Monday 20th August 22:13

As you clearly aren't faniliar with car finance, you need to get a written quote and post the numbers on here so that we can make an informed opinion:

At the minimum, you need to find out:

1) Price of car being purchased (you seem to mention £48k in one post above but £38k in another).

2) Total deposit paid (it sounds as though this will be a combination of cash plus the net value of your current car once the outstanding finance has been settled)

3) Amount and number of monthly payments - it seems this is probably 24 x £468

4) Final payment (including any charges)

5) APR (ie the interest rate on the loan). With 1) - 4) above it is possible to calculate 5). You should be aiming for under 10%

Sidicks

[Deva Link]

crazy about cars said:

. I naively thought that was a good thing for me as it guarantees my car's future value so I know exactly how much my car is worth for p/x but from reading it seems that that's how much I actually have to pay to keep the car at the end of the term...

Correct - generally speaking with GFV's the car is worth about the same as the GFV or less. It usually makes no sense to keep the car.

crazy about cars said:

edit: So let's say the agreed balloon figure is £15,000 which I believe is a fair figure for a car worth £38000 ish now (pushing 62k when new in March!!!)
Does this mean at the end of term after the monthly payments made (24 x £470 for example) I still have to first fork out this amount in cash to either keep the car or offer it up for p/x?

You have to fork out the money if you want to keep the car. If you p/x it then the dealer will take care of it, but bear in mind it will effectively have no value (as it's likely to be worth about the same as the GFV).


Key point: At the end of the term you'll probably end up with NOTHING, unless you're very lucky and the car ends up being worth more than the GFV. All your money will be gone and so will the car.

This might seem obvious to many people but someone in my family, and a girl in our office, were both utterly convinced that they'd get the deposit back at the end of their PCPs!

[oldnbold]

Deva Link said:

You have to fork out the money if you want to keep the car. If you p/x it then the dealer will take care of it, but bear in mind it will effectively have no value (as it's likely to be worth about the same as the GFV).


Key point: At the end of the term you'll probably end up with NOTHING, unless you're very lucky and the car ends up being worth more than the GFV. All your money will be gone and so will the car.

This might seem obvious to many people but someone in my family, and a girl in our office, were both utterly convinced that they'd get the deposit back at the end of their PCPs!

Most finance companies set GFV very conservativly these days, in other words unrealistically low. This is because if the GFV is close to or above the cars actual value at the end of the deal most people will simply hand the car back to the finance company and walk away.

The last thing any finance company want is to deal with a load of cars handed back. Especially if they are the wrong way around because they cant make them worth the GFV, the cars are only worth what the trade will pay for them.

In my experience over the last couple of years at the end of PCP's on even fairly inexpensive cars (£10 - £15k) there has been at least £1k of equaty after the GFV has been paid.

In fact we often call customers 6 months before the PCP ends and are able to put them in a brand new model of the car they are driving for the same monthly payment. Which is exactly what a good PCP deal is designed to do.

[S10GTA]

How much a month?! That's more than my mortgage!

[Deva Link]

oldnbold said:

The last thing any finance company want is to deal with a load of cars handed back.

I'm gobsmacked (bearing in mind you appear to be in car sales?) that you say that.

Handing back is EXACTLY what they want. The whole idea of manufacturrer backed PCPs is to keep the factories busy by getting people to change their cars every 3 years. If you set the deal up so the GFV is low then the 'danger' is that people will pay the money and keep the car.

I run a Merc and the Merc forums are full of people whose PCPs are under water at the end, and on the current deals there's no chance of any excess value. As it happens, the OP is looking at a Merc, but it's used, so that may skew things a bit.

Anyway, perhaps the bigger point is that even if his car is worth more than the GFV, that difference is going to be very small beer indeed compared to the amounts he's paying out.

[oldnbold]

Deva Link said:

I'm gobsmacked (bearing in mind you appear to be in car sales?) that you say that.

Handing back is EXACTLY what they want. The whole idea of manufacturrer backed PCPs is to keep the factories busy by getting people to change their cars every 3 years. If you set the deal up so the GFV is low then the 'danger' is that people will pay the money and keep the car.

I run a Merc and the Merc forums are full of people whose PCPs are under water at the end, and on the current deals there's no chance of any excess value. As it happens, the OP is looking at a Merc, but it's used, so that may skew things a bit.

Anyway, perhaps the bigger point is that even if his car is worth more than the GFV, that difference is going to be very small beer indeed compared to the amounts he's paying out.

There is a difference between handing back to a finance co and PX the car to a dealer to buy another on PCP. With Mercedes I believe the manafacturer/finance co is effectivly the same. Not so with many other brands.

Yes manafactures want you to come back in 3 years and go again. But a finance company does not want a whole load of cars coming back because they have set the GFV at £6k but the cars are only worth £5k for example. In this case the finance company is £1k wrong which will probably wipe out its profit, or even show a loss on the deal.

I've seen some of the recent Mercedes deals on offer discussed on here, and at face value it looks like Mercedes are going to be taking a loss in a couple of years.

In fact I was tempted by the SLK deals, it would have been worth selling our 08 SLK and taking a new one on PCP as it only does about 6k miles a year

[crazy about cars]

Hi guys,

Thanks for your patience and input so far. I've managed to get a finance agreement proposal from Merc (Agility Agreement). Here are the details :

Period Of Hire : 24 Months
Total Cash Price + VAT : £50129.00 (sticker price is shown at £48899)
LESS Deposit : £13,500 (subject to my current finance settlement but I think this is a close figure)
Balance financed : £36629
ADD finance charge @ 11.5% APR : £7589
Balance payable : £44218.04
Total amount Payable : £57718.04
Optional Purchase Payment (I would think this is the balloon?) : £32700.00 [Personally I think this is too high? The car is advertised for £38k-ish at the moment]
Annual Mileage : 5000 miles
No of payments : 24/monthly
Payment : £408.40

All sounded good on the phone but studying this on paper doesn't make it so good... this means I will need to pay lump some of £32700 in 2 years time or I will end up with zero equity... To upkeep my current car for 2 years will not cost that much unless something major happens (TOUCH WOOD!)...

The positive side for now though is that my monthly payments will be lower and I am tied to 2 years instead of 5...

So if I plan to p/x for another car after 2 years does this mean I have to pay £32700 first?

edit: I forgot to mention this deal is also on the condition I fork out additional £6500 in cash (deposit).

Edited by crazy about cars on Tuesday 21st August 11:48

Edited by crazy about cars on Tuesday 21st August 11:48