3rd Party PCP - balloon payment
Discussion
I have searched but I can't seem to find the answer to this.
When using a 3rd party lender for a PCP purchase from a main dealer (not a new car, but almost new), who decides what the GFV or balloon payment is? The dealer or the lender?
For example, Admiral offer 5.9% on their PCP finance, yet because their final value for the car is so low, the monthly ends up costing more than the dealer which offers a higher APR rate but a better balloon.
If the finance is arranged through Admiral, do they still determine the final value of the car after the term, despite the fact that the main dealer state that it'll actually be worth more at the end?
This might be a silly question. If it is, feel free to tell me to stop being an idiot.
When using a 3rd party lender for a PCP purchase from a main dealer (not a new car, but almost new), who decides what the GFV or balloon payment is? The dealer or the lender?
For example, Admiral offer 5.9% on their PCP finance, yet because their final value for the car is so low, the monthly ends up costing more than the dealer which offers a higher APR rate but a better balloon.
If the finance is arranged through Admiral, do they still determine the final value of the car after the term, despite the fact that the main dealer state that it'll actually be worth more at the end?
This might be a silly question. If it is, feel free to tell me to stop being an idiot.
PCP is just hire purchase with an optional balloon at the end. The balloon is forecast at the beginning with a reasonable estimate of what the car will be worth after two, three years.
At the end, you can choose not to pay the balloon, hand the car back and walk away.
If the car is worth more than the balloon, you can pay it and keep the car.
A lower balloon means a *larger* monthly payment, that’s all really. What the car is worth doesn’t make any difference to the product you’ve been sold.
E: correcting a silly mistake
At the end, you can choose not to pay the balloon, hand the car back and walk away.
If the car is worth more than the balloon, you can pay it and keep the car.
A lower balloon means a *larger* monthly payment, that’s all really. What the car is worth doesn’t make any difference to the product you’ve been sold.
E: correcting a silly mistake
Edited by essayer on Thursday 31st May 11:58
Thanks all.
Again, forgive my lack of understanding here, but wouldn't a lower final balloon mean more to pay in the meantime? i.e, higher monthly payments? If the car was £25k with a £10k balloon at the end, there'd be £15k to pay over the term. But if the balloon was £5k, that'd mean £20k to pay over the same term... Or am I missing something?
Again, forgive my lack of understanding here, but wouldn't a lower final balloon mean more to pay in the meantime? i.e, higher monthly payments? If the car was £25k with a £10k balloon at the end, there'd be £15k to pay over the term. But if the balloon was £5k, that'd mean £20k to pay over the same term... Or am I missing something?
If you know you’re going to purchase then it’s worth considering the overall cost. Admiral’s PCP interest will probably be a lot lower than dealers. So whilst the balloon payment will be lower, the overall cost (deposit + contract term + balloon) could be a lot cheaper...
Edited by jam_up on Wednesday 30th May 21:24
5er said:
If the car was £25k with a £10k balloon at the end, there'd be £15k to pay over the term. But if the balloon was £5k, that'd mean £20k to pay over the same term... Or am I missing something?
One thing to add is, of course, you pay interest on the balloon over the whole period. So the lower it is, the less interest you'll pay on that element - but some of it gets shifted to the monthly payment. Overall total cost probably isn't much different.There's a calculator here which you can play around with: https://www.carwow.co.uk/pcp-calculator
Sheepshanks said:
One thing to add is, of course, you pay interest on the balloon over the whole period. So the lower it is, the less interest you'll pay on that element - but some of it gets shifted to the monthly payment. Overall total cost probably isn't much different.
It's very different...unless you live in Venezuela. CaptainSlow said:
It's very different...unless you live in Venezuela.
I just did a comparison using the CarWow calculator above and setting the GFV at £10K made the overall cost £300 dearer than £5K.£20K car, £3500 deposit, 5% interest, 3yr term.
I'm standing by my "not much difference" comment.
I looked at this when buying my Skoda.
Skoda PCP was higher rate, but i didn't get £3k deposit contribution with 3rd party finance so worked out more.
i am guessing 3rd party finance will set final balloon lower as there is obviously no chance of them making any further sales at the end of the PCP (ie using equity against another part ex)
Skoda PCP was higher rate, but i didn't get £3k deposit contribution with 3rd party finance so worked out more.
i am guessing 3rd party finance will set final balloon lower as there is obviously no chance of them making any further sales at the end of the PCP (ie using equity against another part ex)
At 5% interest it may be worth looking at a more traditional loan and stretching the term..
Tesco for example are offering 3%.
so 20K car, borrowing 16.5K (do it over 5 years as to match the balloon in the PCP) at 3% interest.
per month £296.18 and a probability of an early settlement after 36 months of only owing about 8K on the loan. versus a 10K balloon.
The total interest (for the 5 years) is about £1200).
Of course you don't get the option to hand the car back after 3 years and walk away, but if you're purchasing to keep....
S.
Tesco for example are offering 3%.
so 20K car, borrowing 16.5K (do it over 5 years as to match the balloon in the PCP) at 3% interest.
per month £296.18 and a probability of an early settlement after 36 months of only owing about 8K on the loan. versus a 10K balloon.
The total interest (for the 5 years) is about £1200).
Of course you don't get the option to hand the car back after 3 years and walk away, but if you're purchasing to keep....
S.
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