PCP: How many people actually pay the balloon
Discussion
funkyrobot said:
If you take up a PCP and have covered more miles than agreed to at balloon time, does this affect anything other than the vehicle value?
This is based on the scenario of someone paying the balloon.
The option to buy fee/gfv stays the same the money is taken up with the excess mileage fee that the finance provider charges to compensate them for the lower trade in value This is based on the scenario of someone paying the balloon.
Unless you VT early
I think sometimes PCP's are horrendously expensive, judging by the Ford one we were offered, the numbers were daft, skewed towards the monthlies and the salesman did his pitch like we were four year olds, including a rudimentary drawing of a car to explain deposit, monthly payments and Balloon, glossed over the total cost, not important, all about the monthlies. Now I am fairly savvy with money but I can totally see how people get signed up to some eye watering deals if that is the accepted way of explaining it, not everyone is very financially aware, I really thought he was going to offer me his Crayons as a snack at one point.
Still, if they are happy, keep their heads down, pay it and after three years or whatever go in and get another, then thats fine, I think we got a bad deal as it was a secondhand car, maybe one of these threads could be used to just outline typical APR's, GFV's and where will do a fair deal, rather than backbiting and general air of menace ?
Still, if they are happy, keep their heads down, pay it and after three years or whatever go in and get another, then thats fine, I think we got a bad deal as it was a secondhand car, maybe one of these threads could be used to just outline typical APR's, GFV's and where will do a fair deal, rather than backbiting and general air of menace ?
Ken Figenus said:
Rawwr said:
That's the way I think of PCP. It's a two step process, which is brilliant:
1) I get to specify a new vehicle to my requirements and tastes and then in three years time;
2) I get to buy a second-hand vehicle which meets my requirements and tastes of which I know the full history.
It's genius!
But if that is your starting point end goal why not pay off more of the capital as you go rather than defer that whilst paying interest on it, and then pay interest on it AGAIN at end of the PCP? In my case swapping to a loan saved me about £12k over the PCP term for the same goal. The only reason can be monthly affordability. Having a nice car is very important in life (!) and life is short, so no issues with that at all if it gets you in a nicer car and makes you happier. But pay £110 a month more to save £12k over the term? That's a chunk of wedge so no contest! Forget Waitrose do Lidl - pay more for the right things - job done wink!1) I get to specify a new vehicle to my requirements and tastes and then in three years time;
2) I get to buy a second-hand vehicle which meets my requirements and tastes of which I know the full history.
It's genius!
That is simply because the balloon pushes back a proportion of the repayment to the end of the term, so the amount of debt on which interest is charged is higher each month.
I can't see how your numbers can be correct on the savings though. An extra £110 a month over 4 years = £5,280. If the balloon payment is of that order, then you might be saving a few hundred pounds in interest. How do you manage to get to £12k??
I also struggle to understand the comment that you would pay interest on the balloon twice, unless you are suggesting that people will take out a second loan to finance it? If that is the case and the term is extended, they you should surely assume the same term for HP for a true comparison.
For me, liquidity is a factor:
1. If I buy a £30k car cash, then it is not particularly liquid. I found myself in this position in 2008, when the used market stalled following the financial crisis.
2. A PCP lets me retain some liquidity and buy the car outright in a few years time, when the amount of cash tied up in the asset will be lower. I will pay interest charges as a result, but I can invest the cash to offset that to some degree. (e.g. by reducing mortgage interest in an offset account).
3. As you have noted you could pay less interest with HP. However, you could also save interest within the PCP structure by putting down a bigger deposit.
Ultimately, you need to make an educated decision based on a review of the numbers, depending on what you wish to buy and your financial circumstances at the time.
InitialDave said:
PhantomPH said:
I just blinked and half a page of posts disappeared!
Yep, relatively innocuous ones, too, nothing ranty (compared to the rest of the thread)J4CKO said:
I think sometimes PCP's are horrendously expensive, judging by the Ford one we were offered, the numbers were daft, skewed towards the monthlies and the salesman did his pitch like we were four year olds, including a rudimentary drawing of a car to explain deposit, monthly payments and Balloon, glossed over the total cost, not important, all about the monthlies. Now I am fairly savvy with money but I can totally see how people get signed up to some eye watering deals if that is the accepted way of explaining it, not everyone is very financially aware, I really thought he was going to offer me his Crayons as a snack at one point.
Still, if they are happy, keep their heads down, pay it and after three years or whatever go in and get another, then thats fine, I think we got a bad deal as it was a secondhand car, maybe one of these threads could be used to just outline typical APR's, GFV's and where will do a fair deal, rather than backbiting and general air of menace ?
PCP deals on used cars are almost exclusive crap these days. Its the new car deals that are the ones where there is merit to be had.Still, if they are happy, keep their heads down, pay it and after three years or whatever go in and get another, then thats fine, I think we got a bad deal as it was a secondhand car, maybe one of these threads could be used to just outline typical APR's, GFV's and where will do a fair deal, rather than backbiting and general air of menace ?
This link is probably a good starting point - they're 0% APR deals on mostly PCP offers.
https://www.carwow.co.uk/best/cars-for-sale-with-0...
daemon said:
J4CKO said:
I think sometimes PCP's are horrendously expensive, judging by the Ford one we were offered, the numbers were daft, skewed towards the monthlies and the salesman did his pitch like we were four year olds, including a rudimentary drawing of a car to explain deposit, monthly payments and Balloon, glossed over the total cost, not important, all about the monthlies. Now I am fairly savvy with money but I can totally see how people get signed up to some eye watering deals if that is the accepted way of explaining it, not everyone is very financially aware, I really thought he was going to offer me his Crayons as a snack at one point.
Still, if they are happy, keep their heads down, pay it and after three years or whatever go in and get another, then thats fine, I think we got a bad deal as it was a secondhand car, maybe one of these threads could be used to just outline typical APR's, GFV's and where will do a fair deal, rather than backbiting and general air of menace ?
PCP deals on used cars are almost exclusive crap these days. Its the new car deals that are the ones where there is merit to be had.Still, if they are happy, keep their heads down, pay it and after three years or whatever go in and get another, then thats fine, I think we got a bad deal as it was a secondhand car, maybe one of these threads could be used to just outline typical APR's, GFV's and where will do a fair deal, rather than backbiting and general air of menace ?
This link is probably a good starting point - they're 0% APR deals on mostly PCP offers.
https://www.carwow.co.uk/best/cars-for-sale-with-0...
Elysium said:
I think you are making the point that the total interest charged on a 4 year PCP at 3% APR is higher than that charged on a 4 year HP loan at 3% APR.
That is simply because the balloon pushes back a proportion of the repayment to the end of the term, so the amount of debt on which interest is charged is higher each month.
I can't see how your numbers can be correct on the savings though. An extra £110 a month over 4 years = £5,280. If the balloon payment is of that order, then you might be saving a few hundred pounds in interest. How do you manage to get to £12k??
I also struggle to understand the comment that you would pay interest on the balloon twice, unless you are suggesting that people will take out a second loan to finance it? If that is the case and the term is extended, they you should surely assume the same term for HP for a true comparison.
For me, liquidity is a factor:
1. If I buy a £30k car cash, then it is not particularly liquid. I found myself in this position in 2008, when the used market stalled following the financial crisis.
2. A PCP lets me retain some liquidity and buy the car outright in a few years time, when the amount of cash tied up in the asset will be lower. I will pay interest charges as a result, but I can invest the cash to offset that to some degree. (e.g. by reducing mortgage interest in an offset account).
3. As you have noted you could pay less interest with HP. However, you could also save interest within the PCP structure by putting down a bigger deposit.
Ultimately, you need to make an educated decision based on a review of the numbers, depending on what you wish to buy and your financial circumstances at the time.
Thanks for being on topic mate. Seriously guys, I'm no PCP fan or HD fan but all this vitriol? And I just did 2 PCP's for a bit as I worked it out and it suited us... Its just one bloody option in a sea of others... S()d the narkiness.That is simply because the balloon pushes back a proportion of the repayment to the end of the term, so the amount of debt on which interest is charged is higher each month.
I can't see how your numbers can be correct on the savings though. An extra £110 a month over 4 years = £5,280. If the balloon payment is of that order, then you might be saving a few hundred pounds in interest. How do you manage to get to £12k??
I also struggle to understand the comment that you would pay interest on the balloon twice, unless you are suggesting that people will take out a second loan to finance it? If that is the case and the term is extended, they you should surely assume the same term for HP for a true comparison.
For me, liquidity is a factor:
1. If I buy a £30k car cash, then it is not particularly liquid. I found myself in this position in 2008, when the used market stalled following the financial crisis.
2. A PCP lets me retain some liquidity and buy the car outright in a few years time, when the amount of cash tied up in the asset will be lower. I will pay interest charges as a result, but I can invest the cash to offset that to some degree. (e.g. by reducing mortgage interest in an offset account).
3. As you have noted you could pay less interest with HP. However, you could also save interest within the PCP structure by putting down a bigger deposit.
Ultimately, you need to make an educated decision based on a review of the numbers, depending on what you wish to buy and your financial circumstances at the time.
But dear Elysium.. The PCP was 6% the loan 2.8%.
If someone has the money standing by to pay off a PCP balloon end of term (£18k in my case) I struggle to understand why they would save this capital at low interest but fund that saving at high PCP capital repayment deferment interest? Surely better to pay off the capital as you go? Many may take a loan out to pay the balloon though so yes, you pay interest on two contracts on that balloon amount in that approach. I think that's extremely bad use of funds.
My maths indicated that a £25k 2.8% loan over 54 months v £30k PCP @6% with a balloon of 18k over 48 months meant if I paid an extra £110 a month on the loan deal it killed the £18k balloon dead at a £6k cost. That's my reality - I agree it looks like a huge saving! Am I right?
It was £388pm PCP v £500 loan repayment. I may have chucked in a couple of grand on the switch. But still only a couple. What is also really good on the loan is I bung in a few quid in overs now and again and it brings down the interest and term that a lot fiddlier with a PCP. They don't like it! In fact they capped my deposit even below what I wanted to put in!
J4CKO said:
A little but of common sense is all that is required, some miss that but the majority manage just fine.
J - I am so on the same page as you, but mate, many people get screwed here. I'm no massive lefty but it really rankles. Seriously most people haven't half as much of a clue as us chatting here... Then add smoke and mirrors and showroom hard ons... I think its the next big scandal. The market is hugely manipulative, overpriced and funded by over the odds initial pricing. Alphera (BMW) lent me the money to PCP buy my Aston - again I binned them after a few months and nightmares of balloons are long since dead. Still, got me a better showroom deal 
I still prefer it to communism mind
Ken Figenus said:
Thanks for being on topic mate. Seriously guys, I'm no PCP fan or HD fan but all this vitriol? And I just did 2 PCP's for a bit as I worked it out and it suited us... Its just one bloody option in a sea of others... S()d the narkiness.
But dear Elysium.. The PCP was 6% the loan 2.8%.
If someone has the money standing by to pay off a PCP balloon end of term (£18k in my case) I struggle to understand why they would save this capital at low interest but fund that saving at high PCP capital repayment deferment interest? Surely better to pay off the capital as you go? Many may take a loan out to pay the balloon though so yes, you pay interest on two contracts on that balloon amount in that approach. I think that's extremely bad use of funds.
My maths indicated that a £25k 2.8% loan over 54 months v £30k PCP @6% with a balloon of 18k over 48 months meant if I paid an extra £110 a month on the loan deal it killed the £18k balloon dead at a £6k cost. That's my reality - I agree it looks like a huge saving! Am I right?
It was £388pm PCP v £500 loan repayment. I may have chucked in a couple of grand on the switch. But still only a couple. What is also really good on the loan is I bung in a few quid in overs now and again and it brings down the interest and term that a lot fiddlier with a PCP. They don't like it! In fact they capped my deposit even below what I wanted to put in!
You are comparing 2 loans with totally different bases: But dear Elysium.. The PCP was 6% the loan 2.8%.
If someone has the money standing by to pay off a PCP balloon end of term (£18k in my case) I struggle to understand why they would save this capital at low interest but fund that saving at high PCP capital repayment deferment interest? Surely better to pay off the capital as you go? Many may take a loan out to pay the balloon though so yes, you pay interest on two contracts on that balloon amount in that approach. I think that's extremely bad use of funds.
My maths indicated that a £25k 2.8% loan over 54 months v £30k PCP @6% with a balloon of 18k over 48 months meant if I paid an extra £110 a month on the loan deal it killed the £18k balloon dead at a £6k cost. That's my reality - I agree it looks like a huge saving! Am I right?
It was £388pm PCP v £500 loan repayment. I may have chucked in a couple of grand on the switch. But still only a couple. What is also really good on the loan is I bung in a few quid in overs now and again and it brings down the interest and term that a lot fiddlier with a PCP. They don't like it! In fact they capped my deposit even below what I wanted to put in!
2.8% vs 6%
54 months vs 48 months
£ 25k vs £ 30k
Much of the difference is due to the fact that you negotiated a smaller and better loan the second time. Not about PCP vs HP.
The total interest on your 2.8% loan will be £1,637.18
The total interest on your 6% PCP will be £5,847.38
The difference is £ 4,210.2 not £12,000
If you had agreed an HP loan on the same basis as the PCP, the total interest would have been £3,818.44. So the balloon arrangement would have cost you £ 2,028.94. This would have been less if you had negotiated a better rate, as you went on to do.
So ... you are right that refinancing saved you money, but you are overstating the amount saved and not recognising that much of the saving is due to borrowing less at a better rate.
Well done for spotting the opportunity though.
Edited by Elysium on Wednesday 25th October 20:58
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