Are the wheels about to fall of car finance?
Discussion
cptsideways said:
The issues are fairly obvious
Deposit: Its far from that, its an upfront pre-payment that you will not get back.
GFV: Lots of manufacturers bend the figures to make the payments cheaper at the front end. At the end of the term many are in neg equity.
GFV v actual end value. If you are in positive equity eg the car is up in value you usually don't get the extra. So the finance co's are profiting not the customer.
Then you have the insurance products & polishes of which don't get done at some dealerships!
I also think there will some comeback on manufacturers discounting only when "their" finance is offered, essentially locking the customer into their finance deals.
Sometimes wrongDeposit: Its far from that, its an upfront pre-payment that you will not get back.
GFV: Lots of manufacturers bend the figures to make the payments cheaper at the front end. At the end of the term many are in neg equity.
GFV v actual end value. If you are in positive equity eg the car is up in value you usually don't get the extra. So the finance co's are profiting not the customer.
Then you have the insurance products & polishes of which don't get done at some dealerships!
I also think there will some comeback on manufacturers discounting only when "their" finance is offered, essentially locking the customer into their finance deals.
Mostly wrong
Definitely wrong. Of course you get the extra, you sell the car the finance gets cleared and any extra is yours. I've done this several times. That would not be the finance company profiting but the dealer since the dealer would be clearing the finance and keeping the difference.
There is so much made up s
te on these forums about finance.cptsideways said:
Deposit: Its far from that, its an upfront pre-payment that you will not get back. From the dictionary definition - "a sum payable as a first instalment on the purchase of something or as a pledge for a contract, the balance being payable later."
Just like with a house. In fact just like most peoples definition of a deposit.cptsideways said:
GFV: Lots of manufacturers bend the figures to make the payments cheaper at the front end. At the end of the term many are in neg equity.
Sorry but thats rubbish. If its worth less than the GFV you hand it back. Thats the whole point.cptsideways said:
GFV v actual end value. If you are in positive equity eg the car is up in value you usually don't get the extra. So the finance co's are profiting not the customer.
Again, more rubbish. If its worth more than the GFV then by NOT handing it back (eg, trading it in, reselling it yourself, selling to another dealer) you get the extra. Done it many times. In fact its a standard procedure.cptsideways said:
Then you have the insurance products & polishes of which don't get done at some dealerships!
Whats that got to do with PCP / PCH deals? cptsideways said:
I also think there will some comeback on manufacturers discounting only when "their" finance is offered, essentially locking the customer into their finance deals.
Again - rubbish. They dont do that. They're not allowed to. They can put "manufacturers contributions" in to their finance deals, but they cant offer you extra discount off the car itself if you take out the finance.Edited by daemon on Monday 12th June 06:08
daemon said:
OddCat said:
daemon said:
Its not difficult - deposit + monthly payment and options at the end of the term.
Is it a deposit? Like when you bought drink in glass bottles back in the day and you got it back when you returned the bottles? I think not. With PCP, is it not just an initial (non refundable) payment? Lawyers love ambiguity......
Is there a huge massive mortgage mis-selling scandal coming too?
Talk about the rampant onset of fake news.
ToothbrushMan said:
daemon said:
OddCat said:
daemon said:
Its not difficult - deposit + monthly payment and options at the end of the term.
Is it a deposit? Like when you bought drink in glass bottles back in the day and you got it back when you returned the bottles? I think not. With PCP, is it not just an initial (non refundable) payment? Lawyers love ambiguity......
Is there a huge massive mortgage mis-selling scandal coming too?
Talk about the rampant onset of fake news.
I can understand the confusion over the use of the term 'deposit' - and of course it's not in the salesman's interest to clear this up.
I would imagine people mistakenly think it's comparable to a deposit on a rented flat or a rental car - i.e. it's there to fund remedial work to the rented asset if you don't look after it.
Of course there is the other meaning of 'deposit' in the house context, but you do get this back once you pay off the mortgage, which as someone mentioned above is not the case on a PCP if the GFV matches the actual future value very closely.
I would imagine people mistakenly think it's comparable to a deposit on a rented flat or a rental car - i.e. it's there to fund remedial work to the rented asset if you don't look after it.
Of course there is the other meaning of 'deposit' in the house context, but you do get this back once you pay off the mortgage, which as someone mentioned above is not the case on a PCP if the GFV matches the actual future value very closely.
NickCQ said:
I can understand the confusion over the use of the term 'deposit' - and of course it's not in the salesman's interest to clear this up.
I would imagine people mistakenly think it's comparable to a deposit on a rented flat or a rental car - i.e. it's there to fund remedial work to the rented asset if you don't look after it.
Of course there is the other meaning of 'deposit' in the house context, but you do get this back once you pay off the mortgage, which as someone mentioned above is not the case on a PCP if the GFV matches the actual future value very closely.
I've never met a single person who has bought a car on finance that ever thought a 'deposit' is money they would get back, ever. Ever.I would imagine people mistakenly think it's comparable to a deposit on a rented flat or a rental car - i.e. it's there to fund remedial work to the rented asset if you don't look after it.
Of course there is the other meaning of 'deposit' in the house context, but you do get this back once you pay off the mortgage, which as someone mentioned above is not the case on a PCP if the GFV matches the actual future value very closely.
Your mortgage comparison is flawed. You are comparing a repayment mortgage to a PCP when the correct comparison is a interest only mortgage, do you get your deposit (or house) at the end of one of those? Possibly, if the value has held and prices have gone up.
If you want to compare eggs for eggs it's HP - Repayment mortgage, PCP - interest only, Contract Hire - Renting.
PCP offers the purchaser an element of capital protection, or a put option to hand the vehicle back without any mk to mkt loss (the GFV). Capital protected products normally have a premium attached; but this is not being clearly explained. Any talk of a value above GFV is a nonsense and should be treated as white noise / sales-patter. Even if the salesperson seems credible there will be no documentation suggested deposit accrual / rollover above the GFV (individual level for redress is a nonsense you need to find the internal smoking gun mail form the CFO advocating global sharp practice).
The real issue (to the consumer) is the lack of upfront discounting where cars are being financed at full MRRP (so interest is charged over the full list rather than a realistic sale price) – you are borrowing more than you need to (think catalogue purchasing).
The structuring of auto-loan MBS isn’t an immediate consumer problem. If the asset GFVs are below the market rate the manufacturer / finance house is eating the loss. This may eventually feedback into the market – but on a totally different timescale.
The real issue (to the consumer) is the lack of upfront discounting where cars are being financed at full MRRP (so interest is charged over the full list rather than a realistic sale price) – you are borrowing more than you need to (think catalogue purchasing).
The structuring of auto-loan MBS isn’t an immediate consumer problem. If the asset GFVs are below the market rate the manufacturer / finance house is eating the loss. This may eventually feedback into the market – but on a totally different timescale.
stongle said:
The real issue (to the consumer) is the lack of upfront discounting where cars are being financed at full MRRP (so interest is charged over the full list rather than a realistic sale price)
Just so I understand what you're trying to say, are in saying that cars with a deposit contribution means you're financing the full MRRP of the car? Because you're wrong if that's the assumption.Say you have a 15k car with a 2k deposit contribution, the amount financed (which you pay interest on) is 13k, not the 15k list.
Just wanted to clear that up.
NickCQ said:
And also, I think there has been some new guidance on this because I am hearing the phrase 'advance rental' or 'upfront payment' more and more in TV adverts vs 'deposit'.
Advance rental applies to PCH. PCP is generally a deposit. The word deposit does not imply you'll ever get the money back, it's common to pay a deposit for goods and services with the balance due on supply.Butter Face said:
stongle said:
The real issue (to the consumer) is the lack of upfront discounting where cars are being financed at full MRRP (so interest is charged over the full list rather than a realistic sale price)
Just so I understand what you're trying to say, are in saying that cars with a deposit contribution means you're financing the full MRRP of the car? Because you're wrong if that's the assumption.Say you have a 15k car with a 2k deposit contribution, the amount financed (which you pay interest on) is 13k, not the 15k list.
Butter Face said:
stongle said:
The real issue (to the consumer) is the lack of upfront discounting where cars are being financed at full MRRP (so interest is charged over the full list rather than a realistic sale price)
Just so I understand what you're trying to say, are in saying that cars with a deposit contribution means you're financing the full MRRP of the car? Because you're wrong if that's the assumption.Say you have a 15k car with a 2k deposit contribution, the amount financed (which you pay interest on) is 13k, not the 15k list.
Just wanted to clear that up.
I've used PCP and lease for vehicles - and don't have an issue with it. We've a 2017 Touareg R Line plus is on a lease and my man maths says VW is discounting the vehicle by £16k+ (as my 10k p.a. 3 yr deal stands me in 14k). Of course its not the latest London battle bus out there but we need new / warrantied / piece of mind & wives perception of safe.
A white RRS may have been the obvious answer, but I'd rather trouser the 500quid a month difference. PCP and lease can be used to your advantage as long as you know what you are doing (and ignore the must have latest model).
djc206 said:
Advance rental applies to PCH. PCP is generally a deposit. The word deposit does not imply you'll ever get the money back, it's common to pay a deposit for goods and services with the balance due on supply.
I think we are closing in on the issue now. A deposit is either :
1. an immediate part payment towards a purchase. You don't get it back but you own the thing and therefore your deposit is effectively part of the equity / value of the thing you now own (eg house).
2. a payment made which will later be returned (eg a rental deposit for a house which is returned if the house is in good order when the landlord re-takes possession at the end of the rental period).
Even though PCP is touted as a "purchase" how many people actually end up owning a car that they have PCP'd by paying the GFV (or whatever) at the end. PCP seems to me to really be 'rental' in most cases with the individual having no intention of ever buying nor the funding to do so. Just saying.....
Question here: GFV is £10,350 on a 2016 Scirocco R, based on 15K miles/year over 4 years.
if I put 5K into the finance, I've got the option to drop the monthlies form 290 to 173 *or* bring the final payment date forward 23 months. No penalties on overpayment.
Talk of overpaying up until this point to 'build equity' has confused me - but if I bring the final payment date forward nearly 2 years, so the agreement would be due 04/2019, I presume it will be worth more than the GFV. So if I were to hand back the car at that point instead of paying the balloon payment, would VW finance give me the difference between the (then) current market value and the balloon payment? This is how I now understand building equity into it. Would that be correct?
if I put 5K into the finance, I've got the option to drop the monthlies form 290 to 173 *or* bring the final payment date forward 23 months. No penalties on overpayment.
Talk of overpaying up until this point to 'build equity' has confused me - but if I bring the final payment date forward nearly 2 years, so the agreement would be due 04/2019, I presume it will be worth more than the GFV. So if I were to hand back the car at that point instead of paying the balloon payment, would VW finance give me the difference between the (then) current market value and the balloon payment? This is how I now understand building equity into it. Would that be correct?
Ah right, thanks for clarification.
Is that the correct way to view 'building equity' though? I just want to make sure that I understand the concept that was floated very early on in this thread and have struggled to grasp
.
Sorry for appearing appallingly dim, I have a right blind spot sometimes.
Is that the correct way to view 'building equity' though? I just want to make sure that I understand the concept that was floated very early on in this thread and have struggled to grasp
.Sorry for appearing appallingly dim, I have a right blind spot sometimes.
OddCat said:
Even though PCP is touted as a "purchase" how many people actually end up owning a car that they have PCP'd by paying the GFV (or whatever) at the end. PCP seems to me to really be 'rental' in most cases with the individual having no intention of ever buying nor the funding to do so. Just saying.....
That depends very much on personal circumstances , the dealers want a new sale out of you so potentially may give you a very good deal to entice you into another pcp deal, you may of course not have enough equity in the current car to make it worth keeping , lots of different factors just as many as buying a new car If people did the maths and looked in depth at the deals on offer they may see that in some cases pcp offers the best way to finance buying a new car, just because its structured slightly differently to conventional borrowing doesnt make it scary.
defblade said:
My wife just bought a car on PCP, despite me swearing blind we never would.
0% APR and, if you took it on finance, a £1000 dealer contribution towards the deposit. No discount approaching that available for cash.
So we maxed out the term, maxed out the mileage per year allowance (just in case we decide to hand it back at any point) and chose a final payment to buy of £500. Basically a 3.5 year interest free loan.
A Skoda Citigo SEL, in case you're interested.
We did go shopping for a second hand one really, at about £6k (she would have taken the lump from her savings and "paid herself back" over 2 or 3 years anyway), but as my better half keeps her cars for years and years (previous car an '07 Aygo bought new (which we're actually hanging onto as our daughter will be driving in a year or so)) it seemed just as sensible to to go for the new one, includes warranty, we'll know it's been treated and serviced properly, etc, etc.
The ease and price of some of the 'new car' deals often mean that the second hand market is overpriced.0% APR and, if you took it on finance, a £1000 dealer contribution towards the deposit. No discount approaching that available for cash.
So we maxed out the term, maxed out the mileage per year allowance (just in case we decide to hand it back at any point) and chose a final payment to buy of £500. Basically a 3.5 year interest free loan.
A Skoda Citigo SEL, in case you're interested.
We did go shopping for a second hand one really, at about £6k (she would have taken the lump from her savings and "paid herself back" over 2 or 3 years anyway), but as my better half keeps her cars for years and years (previous car an '07 Aygo bought new (which we're actually hanging onto as our daughter will be driving in a year or so)) it seemed just as sensible to to go for the new one, includes warranty, we'll know it's been treated and serviced properly, etc, etc.
In general with a new car you get no rust, no damage, full history, 0 owner, new tyres, brakes, exhaust, engine etc. so these days it's often a better bet. Quite often a more economical engine too - and lower car tax. Also you can decide the colour and spec in many cases. Skoda I have noted tend to offer some of the best deals too.
This does knock on to the second hand market though so the residuals will not be great, but it's still far better than over-paying for a used car. IMO the only second hand cars worth looking at are the bargain minters or classics, it usually makes sense these days to just buy new - so I'd probably so the same. However small economical cars that are nice and cheap to run will always be in demand, it's the barges that sink that fastest.
The problem with car finance will happen when enough people get refused credit, a problem that appears to be steadily building up, but that helps us as the makers get more desperate to shift stock - so people who can afford/qualify are now looking at some excellent deals.
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