Ask a car salesman anything...anything at all.

[4941cc]

HTP99 said:

They are all the same thing:

1. GFV or Guaranteed Future Value
2. Balloon payment
3. OFP or Optional Final Payment

They aren't though.

A balloon payment isn't optional, it is due and will be debited as the final instalment (unless you have made a prior arrangement to contra-settle it against another new deal). Whilst it is generally related to the vehicle's expected return value, the lender is not obliged to take it back, there's no handback clause if the market value is below it.

Optional Purchase Payment is exactly that, only pay it if you want to complete the Hire Purchase (PCPs are a form of HP). It's an amount to pay that is not *necessarily* a guaranteed value for the vehicle, but for the lender's risk reasons it will be close.

Guaranteed (Minimum has mostly been dropped) Future Value is an amount that the finance house has underwritten themselves to potentially be a risk in the event of the consumer exercising their right to handback at end of term.

OPP has mostly superseded GFV in contracts in recent years because many customers were coming back at end of term thinking that was the PX allowance they were getting, so it was effectively their deposit. So lenders rephrased it more accurately.

A few customers have come unstuck when they've found themselves with an HP Balloon agreement instead of a PCP accordingly.

Likewise PCH vs PCP, there's no option to purchase the vehicle at the end of a PCH, it must be sold to a third party (because of tax allowances that generally benefit the lessor and/or lessee).

[The Moose]

ElectricPics said:

You can take a simplified look at balloon finance as three interconnected inflated balloons. The financed amount is equally split between all three - deposit, payments and final payment. Squeeze one of them and the other two increase in size. Squeeze two of them and the other one increases in size a lot, but the amount of air (money) never changes.

What does change is the amount of interest you pay.

[HTP99]

4941cc said:

HTP99 said:

They are all the same thing:

1. GFV or Guaranteed Future Value
2. Balloon payment
3. OFP or Optional Final Payment

They aren't though.

A balloon payment isn't optional, it is due and will be debited as the final instalment (unless you have made a prior arrangement to contra-settle it against another new deal). Whilst it is generally related to the vehicle's expected return value, the lender is not obliged to take it back, there's no handback clause if the market value is below it.

Optional Purchase Payment is exactly that, only pay it if you want to complete the Hire Purchase (PCPs are a form of HP). It's an amount to pay that is not *necessarily* a guaranteed value for the vehicle, but for the lender's risk reasons it will be close.

Guaranteed (Minimum has mostly been dropped) Future Value is an amount that the finance house has underwritten themselves to potentially be a risk in the event of the consumer exercising their right to handback at end of term.

OPP has mostly superseded GFV in contracts in recent years because many customers were coming back at end of term thinking that was the PX allowance they were getting, so it was effectively their deposit. So lenders rephrased it more accurately.

A few customers have come unstuck when they've found themselves with an HP Balloon agreement instead of a PCP accordingly.

Likewise PCH vs PCP, there's no option to purchase the vehicle at the end of a PCH, it must be sold to a third party (because of tax allowances that generally benefit the lessor and/or lessee).

I was taking in terms of a PCP and how the final payment is termed or called, there are other finance options such as lease hire where the balloon isn't guaranteed or there are loans available with a balloon payment, however the finance company won't take the car back at the end of the agreement, it is literally a chunk of money that has to be settled at the end.

You are wrong re PCH, the car is returned to the finance company at the end of the agreement, you are basically hiring the car hence why it is called contract hire, you are getting confused with a lease hire which has the balloon which isn't guaranteed and yes has to be settled, but the car/van has to be sold to a 3rd party and usually, aswell as settling the balloon there is usually a percentage of the selling price that you have to pass to the finance company aswell.

A number of years ago Fiat offered a product which was a loan with a balloon payment as opposed to a PCP, this stopped people VT'ing and the balloon wasn't guaranteed.

Edited by HTP99 on Tuesday 21st May 14:27

[Wooda80]

To my colleagues in car sales:

Wherever I've worked, in whatever location, selling whatever franchise, it's always been "the other garage" the one in the next town that always has a car which is newer / lower mileage / cheaper / less money / better part exchange price ( often a combination of those things ) than mine.

Does anyone here actually worked at one of those "other garages" where they always have the best cars and the best deals? And if so, why do you still let them walk?

[The Li-ion King]

Mexman said:

How many months is the agreement over?
Don't tell me, I'll take a guess.....5 years?

yes... 66 plate Nissan X Trail Tekna. Low miles as the previous owner was elderly. Never missed a payment, full service history. Was looking at an X5 but the equity was pushing £5k

[HTP99]

Wooda80 said:

To my colleagues in car sales:

Wherever I've worked, in whatever location, selling whatever franchise, it's always been "the other garage" the one in the next town that always has a car which is newer / lower mileage / cheaper / less money / better part exchange price ( often a combination of those things ) than mine.

Does anyone here actually worked at one of those "other garages" where they always have the best cars and the best deals? And if so, why do you still let them walk?

LOL, funny as I just ask why are they are here then!

[ElectricPics]

The Moose said:

ElectricPics said:

You can take a simplified look at balloon finance as three interconnected inflated balloons. The financed amount is equally split between all three - deposit, payments and final payment. Squeeze one of them and the other two increase in size. Squeeze two of them and the other one increases in size a lot, but the amount of air (money) never changes.

What does change is the amount of interest you pay.

Simplified being the key word

[4941cc]

Wooda80 said:

To my colleagues in car sales:

Wherever I've worked, in whatever location, selling whatever franchise, it's always been "the other garage" the one in the next town that always has a car which is newer / lower mileage / cheaper / less money / better part exchange price ( often a combination of those things ) than mine.

Does anyone here actually worked at one of those "other garages" where they always have the best cars and the best deals? And if so, why do you still let them walk?

Statistically speaking, we all work at somebody else's other garage.

Or just maybe, customers lie about what other garages have offered.

The simplest answer to which is "So why the f**k are you here pestering me? Get it bought."

[4941cc]

HTP99 said:

You are wrong re PCH, the car is returned to the finance company at the end of the agreement, you are basically hiring the car hence why it is called contract hire, you are getting confused with a lease hire which has the balloon which isn't guaranteed and yes has to be settled, but the car/van has to be sold to a 3rd party and usually, aswell as settling the balloon there is usually a percentage of the selling price that you have to pass to the finance company as well.

They're all forms of hire, I hadn't even gone near lease hire or lease purchase as you're generally into commercial vehicles or corporate customers, having sold in both of those arenas before. With those you get secondary rental periods/peppercorn rentals etc. after the initial term.

Consumer products are usually Hire Purchase, Hire Purchase with Balloon, Personal Contract Purchase (which is still treated as an HP product in terms of early termination rights, halves and thirds etc) and more recently Contract Hire.

Point being that "balloon", GMFV/GFV and OPP don't mean *quite* the same things, semantically or legally. It's enough to confuse most people selling it, let alone consumers, hence the FCA's drive to change terminology so consumers are at less risk of either being deliberately or inadvertently mis-sold an unsuitable finance product.

As monthly payments can be similar or identical between PCP, HP Balloon or PCH, consumers are only focussed really on how little deposit they put in and achieving the lowest monthly payment possible - whilst not really understanding the full ramifications of that - despite us boring them to tears with a SECCI, Adequate Explanations, Pre-Contract Information and so on.

Not the easiest conversation to have when the previous person sold them into HP Balloon for the lowest payment and they think they've got the security of a GFV with the vehicle now in negative equity to PX. We must all have had those by now...

Look forward to a decade of "Have you been mis-sold PCP?" coming up. :facepalm:

[Elroy Blue]

HTP99 said:

Wooda80 said:

To my colleagues in car sales:

Wherever I've worked, in whatever location, selling whatever franchise, it's always been "the other garage" the one in the next town that always has a car which is newer / lower mileage / cheaper / less money / better part exchange price ( often a combination of those things ) than mine.

Does anyone here actually worked at one of those "other garages" where they always have the best cars and the best deals? And if so, why do you still let them walk?

LOL, funny as I just ask why are they are here then!

I’ll answer that. Convenience. My last car was bought from a dealer 100 miles away. Pre-reg with 1000 miles on it. I went into my local dealer, who had an identical car aside from a few less options but £2500 more expensive. . I tried to deal on it, but they wouldn’t come close to the one I bought.
I get that there’s all sorts of reasons and that a car ‘owes’ the dealer a certain amount, but ultimately, they lost a definite sale. I’d like to have bought it locally, but £2500 is a big incentive to travel a couple of hours.
It’s odd to then watch the car you were interested in gradually come down to below what I would have payed for it.

[Fast Bug]

Elroy Blue said:

I’ll answer that. Convenience. My last car was bought from a dealer 100 miles away. Pre-reg with 1000 miles on it. I went into my local dealer, who had an identical car aside from a few less options but £2500 more expensive. . I tried to deal on it, but they wouldn’t come close to the one I bought.
I get that there’s all sorts of reasons and that a car ‘owes’ the dealer a certain amount, but ultimately, they lost a definite sale. I’d like to have bought it locally, but £2500 is a big incentive to travel a couple of hours.
It’s odd to then watch the car you were interested in gradually come down to below what I would have payed for it.

And by matching the price then potentially they would've lost money, I'd rather lose a sale than lose money.

[Elroy Blue]

Fast Bug said:

And by matching the price then potentially they would've lost money, I'd rather lose a sale than lose money.

But they lost money because they eventually reduced the price to below what I paid for the other one

[Butter Face]

Elroy Blue said:

Fast Bug said:

And by matching the price then potentially they would've lost money, I'd rather lose a sale than lose money.

But they lost money because they eventually reduced the price to below what I paid for the other one

That one time they might, not the other 10/20/30/whatever times.

[CharlesdeGaulle]

Butter Face said:

Elroy Blue said:

Fast Bug said:

And by matching the price then potentially they would've lost money, I'd rather lose a sale than lose money.

But they lost money because they eventually reduced the price to below what I paid for the other one

That one time they might, not the other 10/20/30/whatever times.

Whoops. Gap appearing in the rational-logic-that-makes-sense-continuum

[Butter Face]

CharlesdeGaulle said:

Butter Face said:

Elroy Blue said:

Fast Bug said:

And by matching the price then potentially they would've lost money, I'd rather lose a sale than lose money.

But they lost money because they eventually reduced the price to below what I paid for the other one

That one time they might, not the other 10/20/30/whatever times.

Whoops. Gap appearing in the rational-logic-that-makes-sense-continuum

Care to explain further?

My logic is sound, you’re more likely to sell a car and make money by turning away a loss making deal and waiting for another customer than you are to have to reduce the same car to a level below that of the aforementioned deal at a later date. It’s literally how our business works.

[spreadsheet monkey]

Elroy Blue said:

My last car was bought from a dealer 100 miles away. I’d like to have bought it locally, but £2500 is a big incentive to travel a couple of hours.

Same here. Bought a 2 year old CRV from a Honda dealer in Newcastle, 300 miles from me in Surrey. £2000+ price difference between dealer prices in my area vs the North East. Got it delivered (£1 a mile) to a relative's address in the Midlands.

Wouldn't bother with that hassle for a few hundred quid, but £2000 is a big difference. Local Honda dealer does all my servicing and are great to deal with, but I still wouldn't buy a new or newish car from them.

I'd do the same next time I change car. I don't begrudge the dealers in my area charging more - they've got regular (elderly) customers willing to pay their prices, and their overheads are presumably higher.

[4941cc]

It's also quite often that the case that your first profit is your best profit and your first loss is your best loss.

It's a commercial decision as ever, but we do often spend too much time imagining the next punter will do a better deal on something with us than the last.

In 20 years, I've seen it happen a couple of times, but it's very much the exception rather than the rule.

[The Moose]

ElectricPics said:

The Moose said:

ElectricPics said:

You can take a simplified look at balloon finance as three interconnected inflated balloons. The financed amount is equally split between all three - deposit, payments and final payment. Squeeze one of them and the other two increase in size. Squeeze two of them and the other one increases in size a lot, but the amount of air (money) never changes.

What does change is the amount of interest you pay.

Simplified being the key word

Simplified to the point of missing the most important part?!

[Shakermaker]

Butter Face said:

Best to just take it in as is IMO. You’re u likely to get £600 more for it without the light on if you spend £600 on it.

Dealer will auction/trade it regardless.

Thanks, didn't acknowledge this a couple of days ago. I'll leave it as is then, or try and youtube how to do it myself

[Wooda80]

The Moose said:

Simplified to the point of missing the most important part?!

The most important part will be different for everybody.

Once you have selected which 3 balloons you are going to use ( i.e. which particular finance scheme and which particular rate of interest ) most customers will accept the final payment balloon offered by the finance company and adjust the size of deposit and monthly payment to suit their preferred budget.

Of course, the bigger deposit that you pay, and the smaller balloon you choose, then the less £ interest you will pay, but chasing a less expensive car would also have the same effect.

Paying the absolute least amount of interest possible is seldom the over riding consideration.