PCP questions

[Gad-Westy]

I'm pretty new to car finance so excuse the ignorance.

I'm struggling to find any on-line PCP examples that actually look similar to my situation so just trying to get my head around how they work.

This would be a used car by the way if it makes any difference.

Just want to check I'm doing my sums right.

If the sale price of a car is (for example) £20,000 and you have a deposit of £5000 so the balance is £15,000. If the balloon was set at £10,000 then your monthly payments (assume 36 months) would be based on paying off the £5000 capital + the interest on £15,000 over that period? So in that example, and assuming 9% apr, the total interest would be £2,171.86. Added to the £5000 capital and divided over 36 moths the the repayments would be £199.22. Does that sound correct?

The other thing is this, without going into specifics, how do you actually know what sale ticket price cars you can look at within your monthly means? I'm thinking mainly older cars that are at the bottom of their depreciation curve. Is 50% balloon actually acceptable or is it entirely based on the car in question and repayment period or can you more or less choose if its non-guaranteed future value?

[nsmith1180]

Look at 60 month HP and you should be within £20 of the 36 month PCP price on a new car.

Dont know about the used cars, we dont tend to do them. GRFVs are insulting.

[Gad-Westy]

nsmith1180 said:

Look at 60 month HP and you should be within £20 of the 36 month PCP price on a new car.

Dont know about the used cars, we dont tend to do them. GRFVs are insulting.

Assume an HP is much harder to get out of early if need be? I had also assumed that they weren't available on used vehicles but would be interested to know for sure.

[missing the VR6]

Problem with a 60 month HP is that you'll struggle to get out the car early, because of the negative equity which will usually result in taking it for a term that long.
Also be aware that you're £5000 deposit will pretty much be lost if you put it down on a PCP, so unless you can afford to put £5000 down in 3 years on another PCP your monthly payment will sky rocket.
I always suggest to my customers put something like £1 or £2K down as once you realise a bit of equity (hopefully) in the car you wont need to find a huge deposit for next time.

[nsmith1180]

Gad-Westy said:

nsmith1180 said:

Look at 60 month HP and you should be within £20 of the 36 month PCP price on a new car.

Dont know about the used cars, we dont tend to do them. GRFVs are insulting.

Assume an HP is much harder to get out of early if need be? I had also assumed that they weren't available on used vehicles but would be interested to know for sure.

Hp is available on any car, its nice and simple:


To take your example:
20000 car
-5000 deposit
+4500 interest, (based on 6% flat rate, approx 11.9 apr ish)
=1950.00
-
/ term 60 months

= 325.00 p/m ish

PCP is the harder one to do on used cars. Its also harder to get out of a PCP early because you have 30-40% of the purchase price deffered untill the end so you would have at 30 months based on 10k gfv and 6% flat: 11083 owing where as the hp would have 7500 approx outstanding. If I have done my maths right. That is based on changing at 2.5 years into agreement and takes into aocount the rebate of interest.

[Gad-Westy]

nsmith1180 said:

Gad-Westy said:

nsmith1180 said:

Look at 60 month HP and you should be within £20 of the 36 month PCP price on a new car.

Dont know about the used cars, we dont tend to do them. GRFVs are insulting.

Assume an HP is much harder to get out of early if need be? I had also assumed that they weren't available on used vehicles but would be interested to know for sure.

Hp is available on any car, its nice and simple:


To take your example:
20000 car
-5000 deposit
+4500 interest, (based on 6% flat rate, approx 11.9 apr ish)
=1950.00
-
/ term 60 months

= 325.00 p/m ish

PCP is the harder one to do on used cars. Its also harder to get out of a PCP early because you have 30-40% of the purchase price deffered untill the end so you would have at 30 months based on 10k gfv and 6% flat: 11083 owing where as the hp would have 7500 approx outstanding. If I have done my maths right. That is based on changing at 2.5 years into agreement and takes into aocount the rebate of interest.

So HP is the same as just getting a bank loan but I assume its secured against the car?

[nsmith1180]

Gad-Westy said:

nsmith1180 said:

Gad-Westy said:

nsmith1180 said:

Look at 60 month HP and you should be within £20 of the 36 month PCP price on a new car.

Dont know about the used cars, we dont tend to do them. GRFVs are insulting.

Assume an HP is much harder to get out of early if need be? I had also assumed that they weren't available on used vehicles but would be interested to know for sure.

Hp is available on any car, its nice and simple:


To take your example:
20000 car
-5000 deposit
+4500 interest, (based on 6% flat rate, approx 11.9 apr ish)
=1950.00
-
/ term 60 months

= 325.00 p/m ish

PCP is the harder one to do on used cars. Its also harder to get out of a PCP early because you have 30-40% of the purchase price deffered untill the end so you would have at 30 months based on 10k gfv and 6% flat: 11083 owing where as the hp would have 7500 approx outstanding. If I have done my maths right. That is based on changing at 2.5 years into agreement and takes into aocount the rebate of interest.

So HP is the same as just getting a bank loan but I assume its secured against the car?

Correct, dependant on lender and product. A lot of lenders and dealers also offer personal loan, which is unsecured.

Conditional Sale
Hire Purchase
Unit Stocking
Personal Contract Plan
Baloon schemes

All secured.

Personal Loan,
Barclays Motor loan and motorloan baloon.

Unsecured, so they cant repossess the car. Also note, on secured loans, if you have paid more than 33% of the net invoice price - (from memory, someone else in the trade check me on this) they cant repossess without a court order.

[CaptainSlow]

Gad-Westy said:

I'm pretty new to car finance so excuse the ignorance.

I'm struggling to find any on-line PCP examples that actually look similar to my situation so just trying to get my head around how they work.

This would be a used car by the way if it makes any difference.

Just want to check I'm doing my sums right.

If the sale price of a car is (for example) £20,000 and you have a deposit of £5000 so the balance is £15,000. If the balloon was set at £10,000 then your monthly payments (assume 36 months) would be based on paying off the £5000 capital + the interest on £15,000 over that period? So in that example, and assuming 9% apr, the total interest would be £2,171.86. Added to the £5000 capital and divided over 36 moths the the repayments would be £199.22. Does that sound correct?

Not sure how you got the £2,171.86 but remember you have to pay interest on the depreciation before it is paid off. The payment profile also will add complexity ie it a 3 installment upfront arrangement. Assuming one payment upfront a good rule of thumb to calculate the interest is (Balance+Balloon)/2*Int Rate*term(yrs)

[nsmith1180]

CaptainSlow said:

Gad-Westy said:

I'm pretty new to car finance so excuse the ignorance.

I'm struggling to find any on-line PCP examples that actually look similar to my situation so just trying to get my head around how they work.

This would be a used car by the way if it makes any difference.

Just want to check I'm doing my sums right.

If the sale price of a car is (for example) £20,000 and you have a deposit of £5000 so the balance is £15,000. If the balloon was set at £10,000 then your monthly payments (assume 36 months) would be based on paying off the £5000 capital + the interest on £15,000 over that period? So in that example, and assuming 9% apr, the total interest would be £2,171.86. Added to the £5000 capital and divided over 36 moths the the repayments would be £199.22. Does that sound correct?

Not sure how you got the £2,171.86 but remember you have to pay interest on the depreciation before it is paid off. The payment profile also will add complexity ie it a 3 installment upfront arrangement. Assuming one payment upfront a good rule of thumb to calculate the interest is (Balance+Balloon)/2*Int Rate*term(yrs)

The OPs calculation is about right assuming 5% Flat Rate, which would work out about 9% APR approx

[geeeman]

just been to Audi to see the deals for second hand R8s

this was the offer:
car price 61000
initial deposit 5000
39 monthly payments 1200 approx
ballon at end of term is 22000
2 yrs free servicing

so at the end of the term , i either pay the balloon and keep car, or what else are my options'?
If i sell the car for say 40000, i keep the remaining 18k and give them the car back?.

but what if i decide to sell the car after only 1 year(as im not tied in) then what happens??

[jdwoodbury]

missing the VR6 said:

Also be aware that you're £5000 deposit will pretty much be lost if you put it down on a PCP, so unless you can afford to put £5000 down in 3 years on another PCP your monthly payment will sky rocket.
I always suggest to my customers put something like £1 or £2K down as once you realise a bit of equity (hopefully) in the car you wont need to find a huge deposit for next time.

I don't understand this, if you can afford to put in the maximum deposit then why would you not do so, as it reduces the interest payments on the balance surely. If you put in a lower deposit then the overall commmitment as the end of the PCP will be the same due to the high monthly payments. If you pay off the ballon then sell the car on a p/x or private would that not be the best option?

Or am I missing something, my dealer also told me to put in a low deposit, I could not see the advantage of this other than making him money on the finance deal!

[R26Andy]

The dealer told me to do this as well and I thought he was taking the pi$$ but when I went through the calculations the difference is marginal(a couple of £100 quid)on a 30month PCP.

i.e

£5k deposit then 30 months @ 275 = £13250
or
£2k deposit then 30 months @ 380 = £13400

.....the GFV is the same regardless of deposit and thats where most of the interest costs come from so altering the deposit only really changes the monthly repayment but doesnt effect the total payable by a great deal.

I had a large deposit available but I decided I`d rather keep the money in my back pocket and pay extra per month at the cost of £150 extra over 2.5 years.

He said if you put alot of cash into a PCP you might as well to traditional HP.

Edited by R26Andy on Wednesday 26th January 18:11

Edited by R26Andy on Wednesday 26th January 18:13