PCP: How many people actually pay the balloon
Discussion
Ken Figenus said:
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
Now this was a guy who was pretty intelligent (IT, developer), self assured to the point of being belligerent, certainly thought he was pretty smart, he kept saying he only had x more payments, anyway it transpired he had completely overlooked/ignored the Balloon and was almost in tears when he thought his loan was ending but got a bill for like two or three grand or give his prized bike back. He was looking forward to the spare cash each month from not paying the loan to pay his parents back what he owed them (unspecified) and the ten grand he had on credit cards, then think about saving for a house deposit.
If someone like him screws up so badly, makes me wonder how people who arent all that smart cope with it, some people just arent very intelligent, PCP isnt that complex but never underestimate the how behind the door some folk can be.
swerni said:
Really?
I can see if someone isn’t able to read, but outside that, you’d have to be real dumb
It’s hard to regulate agains “real dumb”
Where’s the grey area ?
That's nowadays. Final payment used to be, misleadingly, called GMFV so hardly surprising that a number of even slightly dumb folk misunderstood it. Wasn't that why the vendors were forced to change the description?I can see if someone isn’t able to read, but outside that, you’d have to be real dumb
It’s hard to regulate agains “real dumb”
Where’s the grey area ?
Ken Figenus said:
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?
Not all pcp deals are 6% apr, our rate is 2.8% so pcp gave us some options should circumstances change down the road and they have. We have two cars on pcp due next spring, we intended to keep one and hand the other back and getting a new car but we will now keep both.
Had I known three years ago 100% thats what we would do I might have paid cash but the pcp deal has not cost us anymore than if we had used the capital.
Elysium said:
You are comparing 2 loans with totally different bases:
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.
Thanks for checking that mate - I thought it seemed a bit high 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
. Not having the balloon headache/quandary seems empowering to me - to others it can also mean getting a juicy brand new car at a nett extra £100 a month 'loss' over the term I guess compared to HP/loan results? So in effect I took £4k off the balloon I guess and killed it dead by paying extra capital - which works particularly really well in the latter stages of the term to kill the capital. In summary, its great to have these financial product choices, but tricky to work out
swerni said:
Hang On said:
That's nowadays. Final payment used to be, misleadingly, called GMFV so hardly surprising that a number of even slightly dumb folk misunderstood it. Wasn't that why the vendors were forced to change the description?
My first pcp was a few weeks ago, i was only going on what's available nowEvery day's a school day
I remember having a conversation with my sales guy at the time I signed up for mine and said to him when he mentioned the word 'guaranteed", "don't you mean the price I have to pay to keep the car", he was quite surprised that I knew what it was
A lot of garages will possibly be in trouble if they haven't done their job correctly. Personally cant see why they wouldn't have explained the product correctly and gone through all the FCA paperwork in the correct manner.
We do mainly see customers who are thick and honestly don't understand the product. but I have seen customers who have been told wrong information and also claim they never got any finance documents......
We do mainly see customers who are thick and honestly don't understand the product. but I have seen customers who have been told wrong information and also claim they never got any finance documents......
When we took over the dealership where I work now; about 12 years ago, we encountered evidence of PCP mis-selling or mis-information, on a quite a frequent basis, for a few years.
The main one was in relation to the GMFV/GFV; the term Guaranteed Minimum Future Value can give a skewed impression as to what it actually means, many people thought they were actually going to be given that amount at the end of the term; of course they weren't but many were led to believe they would, plus the terminology can kind of hint in that direction.
Many were encouraged to trade in a car with a decent value and to use all of that value as the deposit without it being explained that; unless they had a similar monetary amount to put down as a deposit the next time, their current low monthly payments will jump a considerable amount, sometimes the term GMFV was used to give the impression that a large deposit would be guaranteed at the end of the term.
Also the whole "at the end of the term your car will, be worth £500/£1000 more then the GMFV, which you can use as a deposit towards your next car" was used frequently too.
Annual mileages were set at 6000m pa when people were doing well in excess of that, many weren't even aware of a mileage limitation.
Yes you could say that people should read up on the whole package but I can understand why it can be confusing for people when it hasn't been explained properly.
I am anal about making sure people know exactly what they are signing up for; I want repeat business, I don't want to upset people, I don't want to deceive people and I don't want a potential legal issue on my lap.
The main one was in relation to the GMFV/GFV; the term Guaranteed Minimum Future Value can give a skewed impression as to what it actually means, many people thought they were actually going to be given that amount at the end of the term; of course they weren't but many were led to believe they would, plus the terminology can kind of hint in that direction.
Many were encouraged to trade in a car with a decent value and to use all of that value as the deposit without it being explained that; unless they had a similar monetary amount to put down as a deposit the next time, their current low monthly payments will jump a considerable amount, sometimes the term GMFV was used to give the impression that a large deposit would be guaranteed at the end of the term.
Also the whole "at the end of the term your car will, be worth £500/£1000 more then the GMFV, which you can use as a deposit towards your next car" was used frequently too.
Annual mileages were set at 6000m pa when people were doing well in excess of that, many weren't even aware of a mileage limitation.
Yes you could say that people should read up on the whole package but I can understand why it can be confusing for people when it hasn't been explained properly.
I am anal about making sure people know exactly what they are signing up for; I want repeat business, I don't want to upset people, I don't want to deceive people and I don't want a potential legal issue on my lap.
swerni said:
J4CKO said:
Ken Figenus said:
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
Now this was a guy who was pretty intelligent (IT, developer), self assured to the point of being belligerent, certainly thought he was pretty smart, he kept saying he only had x more payments, anyway it transpired he had completely overlooked/ignored the Balloon and was almost in tears when he thought his loan was ending but got a bill for like two or three grand or give his prized bike back. He was looking forward to the spare cash each month from not paying the loan to pay his parents back what he owed them (unspecified) and the ten grand he had on credit cards, then think about saving for a house deposit.
If someone like him screws up so badly, makes me wonder how people who arent all that smart cope with it, some people just arent very intelligent, PCP isnt that complex but never underestimate the how behind the door some folk can be.
I can see if someone isn’t able to read, but outside that, you’d have to be real dumb
It’s hard to regulate agains “real dumb”
Where’s the grey area ?
Ken Figenus said:
Elysium said:
You are comparing 2 loans with totally different bases:
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.
Thanks for checking that mate - I thought it seemed a bit high 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.
. Not having the balloon headache/quandary seems empowering to me - to others it can also mean getting a juicy brand new car at a nett extra £100 a month 'loss' over the term I guess compared to HP/loan results? So in effect I took £4k off the balloon I guess and killed it dead by paying extra capital - which works particularly really well in the latter stages of the term to kill the capital. In summary, its great to have these financial product choices, but tricky to work out
http://www.thecalculatorsite.com/finance/calculato...
It let's you quickly understand total interest costs for different scenarios and you can easily see the monthly interest calculations in each case.
All of the above is exactly why I lease.
Confirm a list of cars I like, check for the best deals on each, compare them and then go for whichever fits the requirements best.
For me the cost of leasing a daily is a utility bill like any other. I've got no interest in owning or running a 3+ year old used car after many years of having done so and putting up with restrictive warranties, poor reliability and expensive running costs.
Been leasing the wife a car for almost 10 years now over either 2 or 3 year terms each time, at an easily affordable monthly cost, with no surprise bills or reliability issues whatsoever and no headaches involved in disposal.
Of course it costs more than buying and running used in most circumstances, but not by as much as many seem to assume based on experience of both and the lack of hassle is well worth the outlay for me.
Confirm a list of cars I like, check for the best deals on each, compare them and then go for whichever fits the requirements best.
For me the cost of leasing a daily is a utility bill like any other. I've got no interest in owning or running a 3+ year old used car after many years of having done so and putting up with restrictive warranties, poor reliability and expensive running costs.
Been leasing the wife a car for almost 10 years now over either 2 or 3 year terms each time, at an easily affordable monthly cost, with no surprise bills or reliability issues whatsoever and no headaches involved in disposal.
Of course it costs more than buying and running used in most circumstances, but not by as much as many seem to assume based on experience of both and the lack of hassle is well worth the outlay for me.
DonHorizon said:
Blown2CV said:
surely the only reason people pay the final payment is so they can sell the car privately for more than that figure?
Yes, but what's the issue with just keeping the car? Blown2CV said:
DonHorizon said:
Blown2CV said:
surely the only reason people pay the final payment is so they can sell the car privately for more than that figure?
Yes, but what's the issue with just keeping the car? I think mis-trust is growing around PCP deals. Some are very good, some are horrible. I think we'll see a swing to leasing whereby its all relatively transparent.
Blown2CV said:
DonHorizon said:
Blown2CV said:
surely the only reason people pay the final payment is so they can sell the car privately for more than that figure?
Yes, but what's the issue with just keeping the car? liner33 said:
Blown2CV said:
DonHorizon said:
Blown2CV said:
surely the only reason people pay the final payment is so they can sell the car privately for more than that figure?
Yes, but what's the issue with just keeping the car? Blown2CV said:
i mean i personally flip flop between new and used but only because i tend to lease new and i wait for a really good deal to come up before i go for it. The stop gap car is nearly always the same sort of thing, my go-to, which is a used diesel mondeo! This isn't so much of an issue with PCP as i am pretty sure they are not for deal hunters, they are (and i think this has been asserted elsewhere in the thread) for people who want a specific car and then just pay whatever it is to acquire it. I am not sure these people really scrutinise the price that hard, and tend to be the £500 a month to drive a new small white BMW type people.
On the whole you’re probably correct. In my case I compared the lease costs of my last two cars against the PCP and even assuming no equity at the end in both cases the leases were extortionate by comparison. I did want specific cars though which as you suggest is not the best way to approach a bargain hunt!There is one very distinct advantage of a PCP over a lease and that’s chopping the car in early. If you’ve bought something desirable with low depreciation or used a big enough deposit you can get out of a PCP and into a different car easily. None of my cars have been run to term.
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