PCP: How many people actually pay the balloon

[Sheepshanks]

Kuji said:

Why, do you think that?

is it based on experience, something toy read, or just a feeling?

All of those things, really. Bought wife's current car (VW Tiguan) on PCP to get the deposit contribution and the GFV looked there or thereabouts. I withdrew from the PCP to avoid the £3000 in interest costs. The VW emissions announcement happened just after that and i now reckon the car will be worth less than GFV.

My brother had a Fiesta for his missus and it was worth less than GFV. He had a Golf that was worth less. My admin person had a Renault Clio that was worth less (and she was convinced she was going to get her deposit back).

Plus as mentioned earlier, I have an older Merc and it's a regular topic on the UK MB forums. MB does seem to pitch the GFV's high. This may well be deliberate to "force" people to take a new PCP and, of course, it lowers the monthly payments.

It'd be easy to make sure there was a big surplus by setting the GFV low, but then you've got to pay for it in the deposit and monthly payments, which of course isn't what most people want.

Edited by Sheepshanks on Friday 20th October 15:20

[Zod]

Axionknight said:

Zod said:

Most of those people would not be granted the finance. They resent other people's access to it and console themselves by muttering that it will all come tumbling down.

Really? Consumer credit is hardly difficult to come by in this day and age

I was talking about a small minority of people with low income (probably a pension), no mortgage, no credit cards who fulminate against others buying cars "on the never-never" and who themselves would struggle to get a PCP package.

[48k]

Sheepshanks said:

I think it's pretty unusual for cars on PCP to be worth clearly more than their GFV. VW FS must be very cautious, which of course means your monthly payments are higher.

It may have changed but as of 3 or so years ago the VWFS IT system didn't have the ability to residualise options so the GFV was calculated purely on the vehicle.

That, and of course you are dealing with a German bank who are about as risk averse as they get.

[Sheepshanks]

48k said:

It may have changed but as of 3 or so years ago the VWFS IT system didn't have the ability to residualise options so the GFV was calculated purely on the vehicle.

Doesn't surprise me - same thing generally happens with lease and it put me off that route. Over 2yrs it worked out you'd be paying more for metallic than its list price.

[liner33]

48k said:

It may have changed but as of 3 or so years ago the VWFS IT system didn't have the ability to residualise options so the GFV was calculated purely on the vehicle.

The VWFS doesnt have the ability to take regular payments, some months they dont take it and then the next month they take 2 , they couldnt guarantee that they wouldnt do this whatever date I chose

[smarty156]

Why do people have no issue with someone that pays £300 per month on a lease but someone else paying £300 per month on a PCP is described as "someone that obviously can't afford it"?

Edited by smarty156 on Friday 20th October 16:53

[anonymous-user]

I know some who have. Car worth more than the balloon Why wouldn’t you ?

[scottyfocus]

I hand the car back AND pay the balloon.

YOLO

[DonHorizon]

Piston 'eds, this is my issue. I have no clue what the hell PCP is but it seems like I'm about to 'opt in'.

Checking out an i20 this weekend and already been given figures on what I thought was a straight up finance deal. Can't remember exact numbers but something like a £2k deposit, 3 years worth of £x amount then a final payment of £3500 which I was genuinely intending to pay... I'm guessing this is the 'balloon' that's being referred to and it's actually PCP?

On that note is it a stupid move to pay the car off and keep it? I'm not entirely sure how the trade back/get a new car works...

[Sheepshanks]

Jimboka said:

I know some who have. Car worth more than the balloon Why wouldn’t you ?

I think the basic theory of PCPs is the car is supposed to be worth more and the idea is you p/x and use the surplus as the deposit on your next PCP.

I suppose the other thing is it depends what your plans are. Buying the car hoping to sell it fairly quickly to realise the extra value might not go according to plan - it's very random privately selling used cars.

[MCLARENSLR]

SWoll said:

For me that's far too wide an age gap for their to be any point in comparing the two.

I always used to buy cars at 3 years old and 30-40k mileage or so once they'd take the biggest depreciation hit and then run them for a couple of years. I'd always pay for an extended or good quality warranty at about £1000 over the 2 years + breakdown cover etc.

The issue was that no matter how good the extended or third party warranty there were always issues if needing to make a claim as it's never the same as a new car warranty. Between 40-70k things like brake pads and discs needed paying for as well as major services, MOT's, roadtax etc.

Once I'd actually added up the real cost of ownership over 2 years and 30k in comparison to leasing a brand new comparible car I found the difference to be far smaller than I'd imagined and for me at least well worth the reduction in aggravation of running a second hand car and then trying to sell it on after 2 years (which after a month of time-wasters ended in a reduced price trade in to a WWAC type of outfit)

This was comparing a 3 year old 5 Series to a leased E Class. From memory the figures were something like £750 loan interest, £5k depeciation, £1k warranty, £300 tax, £100 MOT's, £600 servicing, £500 brakes for the 5 series (about £8-8.5K in total) and £9250 for the E class all in at £1800 down and £300 a month over 2 years + a minor service..

It would be an interesting comparison to compare the figures for buying at 3 years and selling at 5 years old versus buying a new car and keeping it for 5 years.

[Elysium]

InitialDave said:

Elysium said:

Baloon payments on PCP are usually set up to be around 80% of the book value at the time. It makes no financial sense to hand it back.

I think the fact that many do shows the success of the sales tactics evolved around it. I know several people who think they have been offered a great deal for a new PCP, without realising the dealer is simply redeplying the excess profit they are making by taking a car back at 80% of it's value.

People like shiny new things and they are easily confused by the 'man maths' techniques the dealers have pretty much perfected.

When the time comes, I'll sell you my car for the balloon payment figure, if you like. Sounds like you're certain there's a 25% profit to be made.

Not profit, just mitigation of cost because the private sale value should be around 20% more than the GMFV. This was not always the case, but seems to be consistent over the last 8 years.

Interested to know why you think your car will be different if you are reasonably in line with predicted mileage?

I think people roll into new deals because it's simple, they potentially do not have the cash to settle and they are either too lazy or nervous to try to sell privately.

[Blown2CV]

it isn't a balloon. If you buy the right car at the right price and really study what the GFV is against what the residual might be, really look after the car etc then you could be paying it off and selling it privately and making money back every single time. I once made £7k back on an E-class. If you're just a who doesn't know anything about cars and either bought the wrong car or paid too much, or indeed can't be arsed then yea hand it back. The big question is that if you really had no intention of every paying the final payment then why the fk didn't you lease it for less money (generally)?

[bad company]

Blown2CV said:

it isn't a balloon. If you buy the right car at the right price and really study what the GFV is against what the residual might be, really look after the car etc then you could be paying it off and selling it privately and making money back every single time. I once made £7k back on an E-class. If you're just a who doesn't know anything about cars and either bought the wrong car or paid too much, or indeed can't be arsed then yea hand it back. The big question is that if you really had no intention of every paying the final payment then why the fk didn't you lease it for less money (generally)?

Because some of us lease/pcp the car WANT which may not be the ‘right car’ in terms of residual value.

I like pcp because that way I know that my costs are capped. At the end of the agreement I can sell or part exchange the car if there is equity in or return it if there isn’t.

[48k]

DonHorizon said:

Piston 'eds, this is my issue. I have no clue what the hell PCP is but it seems like I'm about to 'opt in'.

Checking out an i20 this weekend and already been given figures on what I thought was a straight up finance deal. Can't remember exact numbers but something like a £2k deposit, 3 years worth of £x amount then a final payment of £3500 which I was genuinely intending to pay... I'm guessing this is the 'balloon' that's being referred to and it's actually PCP?

On that note is it a stupid move to pay the car off and keep it? I'm not entirely sure how the trade back/get a new car works...

"The great PCP mis-selling scandal" beautifully summed up in one post.

[bad company]

48k said:

DonHorizon said:

Piston 'eds, this is my issue. I have no clue what the hell PCP is but it seems like I'm about to 'opt in'.

Checking out an i20 this weekend and already been given figures on what I thought was a straight up finance deal. Can't remember exact numbers but something like a £2k deposit, 3 years worth of £x amount then a final payment of £3500 which I was genuinely intending to pay... I'm guessing this is the 'balloon' that's being referred to and it's actually PCP?

On that note is it a stupid move to pay the car off and keep it? I'm not entirely sure how the trade back/get a new car works...

"The great PCP mis-selling scandal" beautifully summed up in one post.

That’s gotta be a new member wind up, it is half term after all.

Nobody’s really that stupid, are they???

[DuraAce]

bad company said:

Nobody’s really that stupid, are they???

Frighteningly I think they are.
Some folk will sign anything without reading /understanding.

I know of two people with PCP disasters, one didnt know it was mileage limited and another was unaware (or thick/not listening to the salesman) of the final payment. The silly sod somehow twisted the facts of the deal in his mind to believe the gfmv was the amount of deposit into his next new car.

[limpsfield]

scottyfocus said:

I hand the car back AND pay the balloon.

YOLO

Under appreciated comment!

[Sheepshanks]

Elysium said:

Not profit, just mitigation of cost because the private sale value should be around 20% more than the GMFV. This was not always the case, but seems to be consistent over the last 8 years.

I reckon that's very unlikely to be the general case. Only a PH used car selling God could reliably achieve that. We get thread after thread on here of people who aren't getting any interest in cars they have for sale.

And don't forget, the GFV in itself is a bit irrelevant. It's easy to have a low figure - but you paid for it with a higher deposit and/or monthly payments.

[nickfrog]

DuraAce said:

bad company said:

Nobody’s really that stupid, are they???

Frighteningly I think they are.
Some folk will sign anything without reading /understanding.

I know of two people with PCP disasters

This applies to any form of payment, whether financed or cash. But I agree that PCP/lease can be a little bit more opaque. Which may help explain why the generalisation about not paying cash occur, as you need to do a bit of rational due diligence before committing to cash or lease/pcp, which some can't be bothered doing and therefore form a pre-conceived opinion. Some pcp/lease deals are terrible. Some cash deals are superb. And vice-versa.

But making assumptions without rational thinking (it actually doesn't take that much) explain why people get shirty at either extremes of the spectrum. And reverse snobbery / envy of course. A bit like Humandoing's visceral hate for the Focus RS and its owners, which is the weirdest thing I have seen of late, even by PH's standards.

Edited by nickfrog on Saturday 21st October 12:10