PCP - Cost of Interest vs Cost of Disposal?
Discussion
I've just taken delivery of a Q7, car has a list price of £68k but I ended up paying £54,500 with various discounts / deposit contributions that were available.
I took Audi Finance at 5.9% which was part of the mechanism to achieve the discount and I'm still within the 14 days to clear this without interest or penalty. I tend to buy cars every 4 years and my last car was a private purchase and so I'm really out of the loop with this PCP thing I need a bit of hand holding.
It has a GFV of £36,200 based on 8k miles which means over the next 3 years I'll pay £25,370 on £18,300 depreciation and so thus ~£7k in interest over 3 years.
Now I'm not much of an investor, so while I may have the cash to clear the finance (£49,500 after £5k deposit) that cash isn't earning 5.9% probably closer to 2% at best so you could argue the the cost of finance is only £4k over 3 years or £111/mth.
My friend argues, however, that come year 3 if I do wish to sell the car I won't be able to dispose of it and it'll 'cost me more than £4k' in part-ex or we buy any car etc.
I accept it would unlikely to sell privately, but the GFV seems fairly realistic given that they currently give £29k for an S-Line at 3 years and doing a theoretical WBAC valuation on a 16 plate Q7 S-line gives £34k I can't see that being a problem, you could argue in that scenario the interest is 'paid for'.
If I decide to keep the car beyond 3 years, however, then I have to clear the finance and I've paid £4k out for no reason which I guess is part of the cycle. The salesman seems to think he can get me back in 18mts into the facelift Q7 with the same payments no additional deposit, I can't see it myself.
The general consensus seems to be 'if it's affordable, then what the hell' but if I decide to buy it at the end of the term essentially I've wasted £4k for nothing. Am I missing something obvious? Any words of wisdom PH, or is it just a case of man up and move on?
I took Audi Finance at 5.9% which was part of the mechanism to achieve the discount and I'm still within the 14 days to clear this without interest or penalty. I tend to buy cars every 4 years and my last car was a private purchase and so I'm really out of the loop with this PCP thing I need a bit of hand holding.
It has a GFV of £36,200 based on 8k miles which means over the next 3 years I'll pay £25,370 on £18,300 depreciation and so thus ~£7k in interest over 3 years.
Now I'm not much of an investor, so while I may have the cash to clear the finance (£49,500 after £5k deposit) that cash isn't earning 5.9% probably closer to 2% at best so you could argue the the cost of finance is only £4k over 3 years or £111/mth.
My friend argues, however, that come year 3 if I do wish to sell the car I won't be able to dispose of it and it'll 'cost me more than £4k' in part-ex or we buy any car etc.
I accept it would unlikely to sell privately, but the GFV seems fairly realistic given that they currently give £29k for an S-Line at 3 years and doing a theoretical WBAC valuation on a 16 plate Q7 S-line gives £34k I can't see that being a problem, you could argue in that scenario the interest is 'paid for'.
If I decide to keep the car beyond 3 years, however, then I have to clear the finance and I've paid £4k out for no reason which I guess is part of the cycle. The salesman seems to think he can get me back in 18mts into the facelift Q7 with the same payments no additional deposit, I can't see it myself.
The general consensus seems to be 'if it's affordable, then what the hell' but if I decide to buy it at the end of the term essentially I've wasted £4k for nothing. Am I missing something obvious? Any words of wisdom PH, or is it just a case of man up and move on?
Having seen a colleague lose a grand a month over 24 months on a 66 plate Q7 S-Line he paid cash for, I'd be cautious. That was on a fairly good used deal on a decent spec car - although his mileage was higher than 8K.
If the values tank - and bear in mind generally residuals weaken as the model cycle progresses, and the present anti-diesel agenda, at least you can hand it back and walk away. If values hold firm and you can do a bit better than the GFV from WBAC at the end, then you might get a couple of grand back that way.
For me it would depend if you really envisaged keeping the car significantly beyond 3 years. If you are looking to keep it for 5 years and you've got the money, it would be worth buying it as even if values do take a dip it should level out over the longer period. Even with a facelift or model change, it should still fetch around £25k as a low mileage car in good nick at 5 years old.
If the values tank - and bear in mind generally residuals weaken as the model cycle progresses, and the present anti-diesel agenda, at least you can hand it back and walk away. If values hold firm and you can do a bit better than the GFV from WBAC at the end, then you might get a couple of grand back that way.
For me it would depend if you really envisaged keeping the car significantly beyond 3 years. If you are looking to keep it for 5 years and you've got the money, it would be worth buying it as even if values do take a dip it should level out over the longer period. Even with a facelift or model change, it should still fetch around £25k as a low mileage car in good nick at 5 years old.
quinny100 said:
Having seen a colleague lose a grand a month over 24 months on a 66 plate Q7 S-Line he paid cash for, I'd be cautious. That was on a fairly good used deal on a decent spec car - although his mileage was higher than 8K.
I previously came from a 13 plate Q7 S-Line Plus bought privately for £33k, ran for 4 years and 20k miles and sold for £20k - somehow I don't think this new one will deliver be £270/mth depreciation (plus running costs) over the same period. The present shape doesn't seem to make any sense to buy used, I would have stuck with the old one but because wife. Feel like I might pay it off, but interesting to revisit this thread in 3-4 years and report if I made the right decision
JJ250 said:
The general consensus seems to be 'if it's affordable, then what the hell' but if I decide to buy it at the end of the term essentially I've wasted £4k for nothing. Am I missing something obvious?
If you pay the finance off then the risk is all yours.
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