Can someone talk to me about PCP pros and cons?
Discussion
I testdrove a Z4M today and really liked it. The car was up at approx £20k.
By the time my car is sold + the mods + some cash I have, I should have about £11-12k
I was going to take a loan on the rest. Repayments would therefore be around £200, although originally much higher until the TT sold allowing to pay off a large chunk. (48months)
The PCP offered to me as an example was £1000 deposit, £6500 guaranteed value and repayments of £398. The £12k from my car could be left in a bank and drip fed to pay this off. This way I would need to find £150 a month.
Just want some advice and people's experience as I've never financed a car with pcp, and so this is a step in to the unknown.
By the time my car is sold + the mods + some cash I have, I should have about £11-12k
I was going to take a loan on the rest. Repayments would therefore be around £200, although originally much higher until the TT sold allowing to pay off a large chunk. (48months)
The PCP offered to me as an example was £1000 deposit, £6500 guaranteed value and repayments of £398. The £12k from my car could be left in a bank and drip fed to pay this off. This way I would need to find £150 a month.
Just want some advice and people's experience as I've never financed a car with pcp, and so this is a step in to the unknown.
We just bought a new car with PCP and it took me a while to get the hang of the details.
You don't own the car until the finance is paid off. (Might seem obvious but the first dealer gave us wrong advice.)
Our deal is over three years. Every £1k we put in as a deposit reduced the monthly payments by £25. If you've got a decent-sized lump sum to use at the beginning then it'll minimise the total cost of the interest because you're borrowing less. The only risk to this plan is if you plan to finish the deal early, because you'll lose more of your deposit as a result.
At the end of the term, you simply need to give the finance company the balance outstanding. You can either give them the car or you can give them the cash. If you don't want to borrow the cash or dip into savings then sell the car privately. Since the GFV (guaranteed future value) is calculated based on the trade value of the car you should be able to sell the car for significantly more than their GFV amount and have some left over. Selling privately will also mean that the mileage is less significant and minor damage won't affect the price too much. (If you hand the car back with any marks and dings they'd be within their rights to charge you full-whack to fix them.)
Our PCP deal allows us to terminate once we've got to the halfway mark. I don't know how common an early-termination option is.
Not sure what else to say. Ask questions.
You don't own the car until the finance is paid off. (Might seem obvious but the first dealer gave us wrong advice.)
Our deal is over three years. Every £1k we put in as a deposit reduced the monthly payments by £25. If you've got a decent-sized lump sum to use at the beginning then it'll minimise the total cost of the interest because you're borrowing less. The only risk to this plan is if you plan to finish the deal early, because you'll lose more of your deposit as a result.
At the end of the term, you simply need to give the finance company the balance outstanding. You can either give them the car or you can give them the cash. If you don't want to borrow the cash or dip into savings then sell the car privately. Since the GFV (guaranteed future value) is calculated based on the trade value of the car you should be able to sell the car for significantly more than their GFV amount and have some left over. Selling privately will also mean that the mileage is less significant and minor damage won't affect the price too much. (If you hand the car back with any marks and dings they'd be within their rights to charge you full-whack to fix them.)
Our PCP deal allows us to terminate once we've got to the halfway mark. I don't know how common an early-termination option is.
Not sure what else to say. Ask questions.
My PCP deal on my Mito allowed me to settle at any point, with the interest applied pro-rata. The only word of caution would be that a few folks on the Alfa forums have found the finance company to be right buggers when it comes to paying for the odd small scratch/scuff etc. Couple this with the Alfa's terrible paint quality and it was quite an issue for some people.
If you think by the 3 year term you'll either want to A) keep the car forever, or B) pay off the settlement and sell/trade it elsewhere then you'll be fine. If you're relying on the finance company having it back i'd be very wary of kerbed wheels etc which would weigh on my mind over the ownership.
Cheers,
Rob
If you think by the 3 year term you'll either want to A) keep the car forever, or B) pay off the settlement and sell/trade it elsewhere then you'll be fine. If you're relying on the finance company having it back i'd be very wary of kerbed wheels etc which would weigh on my mind over the ownership.
Cheers,
Rob
By way of illustration, here's how our calculations worked out:
Negotiated purchase price: £28,700
Our deposit: £6000
After 36 months, the GFV is: £13,800
£28,700
- £6000
-£13,800
£8900 = amount of capital to repay
We pay £334 * 36 = £12024 so we're repaying the £8900 plus another £3124 in interest
Interest isn't just charged on the £8900 of course - it's charged on the full £28,700-£6000 because that's the amount of credit someone is giving us. And that's why the interest figure looks high.
I know the figures are irrelevant to you but the illustration might help you to work out the true cost of the PCP versus the loan route before deciding.
Incidentally, the dealers offered much cheaper deals on a new car than they would on any of the used, which is why we bought new. Have you explored this route too? We were pleasantly surprised; you might be too.
Negotiated purchase price: £28,700
Our deposit: £6000
After 36 months, the GFV is: £13,800
£28,700
- £6000
-£13,800
£8900 = amount of capital to repay
We pay £334 * 36 = £12024 so we're repaying the £8900 plus another £3124 in interest
Interest isn't just charged on the £8900 of course - it's charged on the full £28,700-£6000 because that's the amount of credit someone is giving us. And that's why the interest figure looks high.
I know the figures are irrelevant to you but the illustration might help you to work out the true cost of the PCP versus the loan route before deciding.
Incidentally, the dealers offered much cheaper deals on a new car than they would on any of the used, which is why we bought new. Have you explored this route too? We were pleasantly surprised; you might be too.
AcidReflux said:
Since the GFV (guaranteed future value) is calculated based on the trade value of the car you should be able to sell the car for significantly more than their GFV amount and have some left over.
Be very, very wary of this.. You are gambling with the residual (GFV) and beating the residual is very, very rare. The PCP product is fine, I've had a few cars like this over the years, just be absolutely certain you know what you are getting into and DYOR, car salesmen usually don't have a clue about the product and will say anything to get you to sign.
Regarding the early termination, the halfway point normally refers to half the outstanding finance INCLUDING the balloon (aka GFV, residual etc.) and NOT halfway through the term of the agreement.
As with many finance products PCP sometimes gets a bad press because it is missold and misunderstood by both vendor and customer.
If you got a straight loan or finance at 7% flat rate, you would be paying about 260 over 36 if you put your full car down as deposit. If you went over 48 you would be paying around 213 p/m. Its a bit more, but you havnt got 6500 to find at month 36 and you can sell the car at any time as settle the loan.
If you go the bank loan route, you should be able to get a better rate too.
If you have a chunk of deposit, there is no point in doing pcp. Pcp is designed to help people who cant afford the car they are looking at, believe they can.
If you go the bank loan route, you should be able to get a better rate too.
If you have a chunk of deposit, there is no point in doing pcp. Pcp is designed to help people who cant afford the car they are looking at, believe they can.
mattviatura said:
AcidReflux said:
Since the GFV (guaranteed future value) is calculated based on the trade value of the car you should be able to sell the car for significantly more than their GFV amount and have some left over.
Be very, very wary of this.. You are gambling with the residual (GFV) and beating the residual is very, very rare. I wouldn't call it a gamble though. If you can afford the deal based on the GFV they quote then you can't lose - the GFV is guaranteed
- and anything extra you can get by selling privately instead is a bonus.nsmith1180 said:
Pcp is designed to help people who cant afford the car they are looking at, believe they can.
And a loan is different in what way?OP, try and ignore the pros and cons arguments, there are both and I'm going to butt out now because I don't want to upset the mods but it can be a safe product provided you enter the agreement with your eyes open.
Quick tip for anyone considering any financial agreement - read it through.
playerone said:
AcidReflux said:
By way of illustration, here's how our calculations worked out:
Negotiated purchase price: £28,700
Our deposit: £6000
After 36 months, the GFV is: £13,800
What car is it? Losing two thirds of its value after 3 years isnt too flash.Negotiated purchase price: £28,700
Our deposit: £6000
After 36 months, the GFV is: £13,800
nsmith1180 said:
If you got a straight loan or finance at 7% flat rate, you would be paying about 260 over 36 if you put your full car down as deposit. If you went over 48 you would be paying around 213 p/m. Its a bit more, but you havnt got 6500 to find at month 36 and you can sell the car at any time as settle the loan.
If you go the bank loan route, you should be able to get a better rate too.
If you have a chunk of deposit, there is no point in doing pcp. Pcp is designed to help people who can't afford the car they are looking at, believe they can.
So it's hardly helping them.If you go the bank loan route, you should be able to get a better rate too.
If you have a chunk of deposit, there is no point in doing pcp. Pcp is designed to help people who can't afford the car they are looking at, believe they can.
AcidReflux said:
playerone said:
AcidReflux said:
By way of illustration, here's how our calculations worked out:
Negotiated purchase price: £28,700
Our deposit: £6000
After 36 months, the GFV is: £13,800
What car is it? Losing two thirds of its value after 3 years isnt too flash.Negotiated purchase price: £28,700
Our deposit: £6000
After 36 months, the GFV is: £13,800
nsmith1180 said:
AcidReflux said:
playerone said:
AcidReflux said:
By way of illustration, here's how our calculations worked out:
Negotiated purchase price: £28,700
Our deposit: £6000
After 36 months, the GFV is: £13,800
What car is it? Losing two thirds of its value after 3 years isnt too flash.Negotiated purchase price: £28,700
Our deposit: £6000
After 36 months, the GFV is: £13,800
Seriously, buy a car you can afford to pay for with cash, no tie ins, no interest to pay, can sell it whenever you like and you get more money left over each month to save up for the next one.
Busa_Rush said:
Is that correct ? A Galaxy costs £22,400 for three years motoring on a Ford PCP ? That's criminal.
You can get a quote from the Ford website:http://www.ford.co.uk/SBE/ConfigureYourVehicle/Con...
The GFV on a £29.5k Titanium X Galaxy for a 3 year deal today is now over £8k but not by much.
Busa_Rush said:
nsmith1180 said:
AcidReflux said:
playerone said:
AcidReflux said:
By way of illustration, here's how our calculations worked out:
Negotiated purchase price: £28,700
Our deposit: £6000
After 36 months, the GFV is: £13,800
What car is it? Losing two thirds of its value after 3 years isnt too flash.Negotiated purchase price: £28,700
Our deposit: £6000
After 36 months, the GFV is: £13,800
Seriously, buy a car you can afford to pay for with cash, no tie ins, no interest to pay, can sell it whenever you like and you get more money left over each month to save up for the next one.
If you buy a car with normal HP or loan. You would normally put in more deposit, and pay more per month. The benefit of this is, when the loan is paid off, you will have an asset with no outstanding finance. Much as the OP has now with his TT. Also if you decide to change or sell your car before the loan is finished you will normally have some equity in the vehicle.
If you buy a car via PCP you will normally put in a low deposit, and pay less per month. However at the end of the term the GFV/Balloon payment will not leave you with much if any equity in the car. If you want to change or sell your car early, you will nearly always have to stump up some cash to get out of it.
IMO if you have decent deposit, get a loan, pay a bit more per month, and stay in front in terms of equity. You will normally borrow less, and therefore pay less overall. You will also have the flexibility to change, sell your car when ever you want.
If you have less deposit and less per month to spend, get a PCP, but do it in the knowledge you will need to commit to the car for the whole term, and you will never own it and will just about pay enough to catch up with the amount it depreciates by over the term.
If you buy a car via PCP you will normally put in a low deposit, and pay less per month. However at the end of the term the GFV/Balloon payment will not leave you with much if any equity in the car. If you want to change or sell your car early, you will nearly always have to stump up some cash to get out of it.
IMO if you have decent deposit, get a loan, pay a bit more per month, and stay in front in terms of equity. You will normally borrow less, and therefore pay less overall. You will also have the flexibility to change, sell your car when ever you want.
If you have less deposit and less per month to spend, get a PCP, but do it in the knowledge you will need to commit to the car for the whole term, and you will never own it and will just about pay enough to catch up with the amount it depreciates by over the term.
It astounds me how few people understand finance and fall out with the concept of PCP because you don't 'own' the car. Not owning the car is not a negative point, it just doesn't matter. You get a car, keep it for a time, get rid of it - whether you buy cash, HP, PCP, contract hire, whatever. You still get to drive it every day - who gives a f
k? It doesn't many any sense to pay cash really, unless you have a lot of money and are buying new models when they come out and selling them soon after at a profit. Or maybe you just don't care and don't want lots of paperwork! Saving up to buy a car if you don't have the money just lying around is stupid, because you can just PCP it and have it now. Yes you will be paying interest, but car dealers would always say that you could be earning interest on that cash sat in the bank, or invested in something with a good return for the full period that you have the car, rather than sat depreciating in a car. Car dealers often talk ste, but they have a point on this bit. If you can't take £25k and make it return you a few grand over three years then you have more money than sense. Also, no-one saves up to pay cash for a house, and people don't seem to biff about the £0000's of mortgage interest. I am a big believer in PCP because it makes total sense. You take the depreciation and pay for that over the term, plus interest. Why would you pay more than that, maybe even the whole value of the car and then get lots of that back when you sell the car... makes no sense to me at all. Just pay for what you use. Take the buy option at the end, and sell the car privately if you can be arsed, you will get more for it than the GFV. I did this and got £6k back over and above the GFV on my last PCP.
GFV is intended to be the anticipated value, but in reality manufacturers (well, their finance arms) set the GFV to manipulate the marketplace. Higher than expected value GFV means lower payments, making the deal more attractive. Low GFV means high payments, but more chance of equity at the end, boosting repeat business. Also, on deposits be wary of putting down large amounts unless you really know what you are doing. You are likely to never see that money again unless you play it so you ensure that you get equity to match it back. It kind of goes against the point of the whole thing anyway. It won't actually save you hardly anything over the term, and you could be chucking it down the drain. Minimal deposit is more sensible and less risky.
Of course any kind of finance is always bad if you overstretch yourself. Also if you are thick and don't understand that you don't own the car till it is paid off or something equally stupid then that you deserve to be shafted.
k? It doesn't many any sense to pay cash really, unless you have a lot of money and are buying new models when they come out and selling them soon after at a profit. Or maybe you just don't care and don't want lots of paperwork! Saving up to buy a car if you don't have the money just lying around is stupid, because you can just PCP it and have it now. Yes you will be paying interest, but car dealers would always say that you could be earning interest on that cash sat in the bank, or invested in something with a good return for the full period that you have the car, rather than sat depreciating in a car. Car dealers often talk ste, but they have a point on this bit. If you can't take £25k and make it return you a few grand over three years then you have more money than sense. Also, no-one saves up to pay cash for a house, and people don't seem to biff about the £0000's of mortgage interest. I am a big believer in PCP because it makes total sense. You take the depreciation and pay for that over the term, plus interest. Why would you pay more than that, maybe even the whole value of the car and then get lots of that back when you sell the car... makes no sense to me at all. Just pay for what you use. Take the buy option at the end, and sell the car privately if you can be arsed, you will get more for it than the GFV. I did this and got £6k back over and above the GFV on my last PCP. GFV is intended to be the anticipated value, but in reality manufacturers (well, their finance arms) set the GFV to manipulate the marketplace. Higher than expected value GFV means lower payments, making the deal more attractive. Low GFV means high payments, but more chance of equity at the end, boosting repeat business. Also, on deposits be wary of putting down large amounts unless you really know what you are doing. You are likely to never see that money again unless you play it so you ensure that you get equity to match it back. It kind of goes against the point of the whole thing anyway. It won't actually save you hardly anything over the term, and you could be chucking it down the drain. Minimal deposit is more sensible and less risky.
Of course any kind of finance is always bad if you overstretch yourself. Also if you are thick and don't understand that you don't own the car till it is paid off or something equally stupid then that you deserve to be shafted.
PCP's are great deals. A car is a depreciating assets so why tie up £30k of cash in something losing value.
You take out the PCP, run the car for the duration, and hand it back. No hassle. You don't own the car unless you pay the Balloon payment at the end, You are only paying the interest (on the full capital) and the depreciation.
At the end of the term, if the GFV is greater than the market value, hand it back, no suprises, no worrying about how much the car is worth. If the GFV is less then sell it / use as part exchange, and its a nice bonus.
IMO Quite a simple way of running the car with no hassle. Even Tax is included in many PCP deals.
You take out the PCP, run the car for the duration, and hand it back. No hassle. You don't own the car unless you pay the Balloon payment at the end, You are only paying the interest (on the full capital) and the depreciation.
At the end of the term, if the GFV is greater than the market value, hand it back, no suprises, no worrying about how much the car is worth. If the GFV is less then sell it / use as part exchange, and its a nice bonus.
IMO Quite a simple way of running the car with no hassle. Even Tax is included in many PCP deals.
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