PCP: How many people actually pay the balloon

[InitialDave]

HumanDoing said:

Oh wow thanks for the oh-so-sincere pity, Christ do you think I was born yesterday? Find someone else to take for a I'm done with this thread. Enjoy your PCP.

He probably was being sincere.

You're acting like an obnoxious child.

[timberman]

HumanDoing said:

I said 'usually', not 'always'. To take your reasons in turn:

1) If people wish to pay a premium for that, it's their business, fine.
2) Possible but as always, it's funny how on here we never get anyone saying 'I took a PCP to keep my money in tracker index funds ... and the market dipped 25% over the 3 year period'. It's always 'yeah I got 12% every year so what sort of mug would not take that risk, I mean come on can't you all see faultlessly in to the future like I can?' I doubt overpaying a mortgage beats PCP interest in most cases either.
3) It is a hassle but we're talking about the best economic outcome, not the most 'hassle-free' economic outcome. If it takes 10 hours of annoyance and graft to flog a car for a grand more, I do hope all these people saying they can't be arsed are on more than £100 per hour ...
4) You could make the same argument about having a phone or toaster on contract 'at least I can control my expenditure'. Never mind the incredible premium paid for doing so.

Also very few PCPs are 0% and even for those that are, we don't know what may have happened before the '0%' figure gets to you as customer to cushion that supposedly interest free deal.



care to elaborate on this point

my last car (Fiesta St3, so similar to yours) was purchased via pcp at a rate of 0.9%

I did a fair bit of research beforehand and had intended buying used looking at cars of approx 6-18 months old,

after looking for several months, cars in the spec and colour I wanted were priced anywhere from £14.5k to over 17k dependant on age and mileage, with most dealers not interested in budging on price,

I also researched buying new,
going thru a broker and taking the pcp I found that I would benefit from (as it turn out) a £1060 deposit contribution (I thought it was £500 but just checked to be sure) which meant I could pick up a brand new car with every single option ticked for just over 16k, (or less than the asking price of most 6 month old cars)

If I hadn't taken out the pcp it would have cost £1060 more and considering at a rate of 0.9% the actual cost of the pcp over 24 months came to less than £200 it was the obvious choice.

I would really like to know where someone paying cash ( which I was quite prepared to do ) would have gotten a better deal.

Edited by timberman on Sunday 22 October 22:16

Edited by timberman on Sunday 22 October 22:17

[Mandat]

HumanDoing said:

Mandat said:

Why do people keep repeating this ignorant nonsense?

There have been so many threads on this subject that you'd think that people would have learnt by now. But no, some people continue to embarass themselves by repeating this crap.

Ok please lead me out of my ignorance, what do people have at the end of the deal? At the end the PCP you have either:

a) Nothing, and hand the car back or
b) A relatively small amount left in the deal to roll up in to another PCP or to fund a private puchase yourself.

Over one three year period, enough money has been widdled up the wall to afford a decent car at 2 or 3 years old. Over two or three PCPs, enough money has been widdled up the wall to afford pretty much anything other than the very highest of high end cars.

I see that you really haven't given this much deep thought, thefore let me give you an example of your flawed thinking.

Upthread

HumanDoing said:

..... I'll lose £11k over 8 years ....

By your reasoning, over 8 years you've forked out £11,000 and have sweet fanny adams to show for it. This is clearly not correct.

Try giving it a bit more though, and you might realise where you've gone wrong.

[Elysium]

daemon said:

Elysium said:

OK, I though that might have been what he was getting at, but could not quite believe that someone would be rude over such a narrow point. You have confirmed that they will.

You were wrong in what you saying. End of.

Elysium said:

For the pedants amongst us:

It wasnt pedantic, it was full on correcting what you were saying as it was wrong.

Elysium said:

The dealers are part of an organisational structure, which also includes the finance houses and the manufacturers who have together agreed working terms for PCPs.

The dealers have considerable flexibility on price and interest rate, That flexibility seems to be enhanced from time to time to achieve better deals, known as 'manufacturer support'.

They dont have little flexibility over the finance rate - at least of the manufacturer backed ones. And thats irrespective anyway to your original point. Which was wrong.

Elysium said:

Someone within that structure determines the GMFV

Agreed. However its not the dealer, which is what you said originally, and you were corrected on.

Elysium said:

and this is set deliberately to ensure that a profit can be made on the resale of the car.

No.

Its set so that the finance company can moreoften than not get that money back if they have to take the car back at the end of term. Secondary to that, its pitched to the customer as potential "equity" in the deal.

Elysium said:

Therefore, in almost all cases, handing back the car is more expensive than completing the purchase and selling the car on privately.

Agreed. However that wasnt what I was correcting you on.

Trading the car in at the end of or close to end of term is the most frequent disposal approach. I dont think relatively speaking big numbers are handed back at the end of term.

And yes, theres potentially money to be saved / made by selling the car on privately. However that can be problematic particularly if the car is worth a fair chunk of money.

Elysium said:

People here were suggesting that could not be achieved. I know from experience that it can and the above sets out the reason why.

It "can" be achieved. I've never said otherwise. Its not always easy though as moreoften people want a dealer backed experience - trade in, warranty, finance etc if they're spending a big chunk of money.

Theres probably scope for reselling the car to an online buyer / local dealer and getting more than the GFV too.

OK. I somewhat lazily referred to 'dealers' and acknowledge that was incorrect. But as I subsequently said, PCP is a contractual arrangement between manucturer, dealer and finance company. Which means it is a narrow point to argue as all three parties have colluded on the various terms.

Two points of order:

1. If we are pointing our 'errors' you wrote: 'They dont have little flexibility over the finance rate' (ie you made a mistake). I think you meant to say that dealers do not have flexibility, which is wrong. I know from experience that they will try to keep the rate as high as possible, but that they can and do beat headline rates advertised as manufacturer offers.

2. For some reason you disagreed with me that the GMFV was designed to allow money to be made on resale, but then wrote: "Its set so that the finance company can moreoften than not get that money back if they have to take the car back at the end of term", which is exactly the same thing.

Bottom line, as I said originally, you are almost always better off if you pay the GMFV and sell the car privately.

Dealers play on this by offering above GMFV at trade in, making people feel that they have a great deal and encouraging them into a new PCP instead of owning the car for a couple more years.

[Elysium]

timberman said:

HumanDoing said:

I said 'usually', not 'always'. To take your reasons in turn:

1) If people wish to pay a premium for that, it's their business, fine.
2) Possible but as always, it's funny how on here we never get anyone saying 'I took a PCP to keep my money in tracker index funds ... and the market dipped 25% over the 3 year period'. It's always 'yeah I got 12% every year so what sort of mug would not take that risk, I mean come on can't you all see faultlessly in to the future like I can?' I doubt overpaying a mortgage beats PCP interest in most cases either.
3) It is a hassle but we're talking about the best economic outcome, not the most 'hassle-free' economic outcome. If it takes 10 hours of annoyance and graft to flog a car for a grand more, I do hope all these people saying they can't be arsed are on more than £100 per hour ...
4) You could make the same argument about having a phone or toaster on contract 'at least I can control my expenditure'. Never mind the incredible premium paid for doing so.

Also very few PCPs are 0% and even for those that are, we don't know what may have happened before the '0%' figure gets to you as customer to cushion that supposedly interest free deal.



care to elaborate on this point

my last car (Fiesta St3, so similar to yours) was purchased via pcp at a rate of 0.9%

I did a fair bit of research beforehand and had intended buying used looking at cars of approx 6-18 months old,

after looking for several months, cars in the spec and colour I wanted were priced anywhere from £14.5k to over 17k dependant on age and mileage, with most dealers not interested in budging on price,

I also researched buying new,
going thru a broker and taking the pcp I found that I would benefit from (as it turn out) a £1060 deposit contribution (I thought it was £500 but just checked to be sure) which meant I could pick up a brand new car with every single option ticked for just over 16k, (or less than the asking price of most 6 month old cars)

If I hadn't taken out the pcp it would have cost £1060 more and considering at a rate of 0.9% the actual cost of the pcp over 24 months came to less than £200 it was the obvious choice.

I would really like to know where someone paying cash ( which I was quite prepared to do ) would have gotten a better deal.

I dont think it is a good idea to rely too much on PCP interest rates. You need to look at the discount and the rate, do the maths and work out the total cost of ownership through the term.

In my experience, low or zero APR deals are sales puff. The finance house will be underwriting the deal with a cost of capital above zero, so you are foregoing some discount to make it look like 0% APR.

In many cases, the 0% APR deals are actually more expensive.

[timberman]

Elysium said:

I dont think it is a good idea to rely too much on PCP interest rates. You need to look at the discount and the rate, do the maths and work out the total cost of ownership through the term.

In my experience, low or zero APR deals are sales puff. The finance house will be underwriting the deal with a cost of capital above zero, so you are foregoing some discount to make it look like 0% APR.

In many cases, the 0% APR deals are actually more expensive.

I don't buy cars based on the APR only on the best price I can get at the time
If it had worked out cheaper to pay cash I would have

In my case the discount I achieved before taking a pcp was the best available anywhere at that time ( I checked all sources )
Incidentally the list price on my car through my local ford dealer came to over £21k, so by going through a broker I had already managed a discount of nearly 20% before even considering finance,
the £1060 deposit contribution was an extra bonus on top of this and wouldn't have been available without the pcp

taking the deposit, my monthly payment + the final balloon payment and adding them together meant if I had kept the pcp going full term I would have paid just over 16.5k which is still about £900 less than the best price without finance.
( the cost of the finance over the term would have been £196 )

so even if the APR was heavily subsidised by the finance company to make it look better it makes no difference, it was still the cheapest option.

[Elysium]

timberman said:

Elysium said:

I dont think it is a good idea to rely too much on PCP interest rates. You need to look at the discount and the rate, do the maths and work out the total cost of ownership through the term.

In my experience, low or zero APR deals are sales puff. The finance house will be underwriting the deal with a cost of capital above zero, so you are foregoing some discount to make it look like 0% APR.

In many cases, the 0% APR deals are actually more expensive.

I don't buy cars based on the APR only on the best price I can get at the time
If it had worked out cheaper to pay cash I would have

In my case the discount I achieved before taking a pcp was the best available anywhere at that time ( I checked all sources )
Incidentally the list price on my car through my local ford dealer came to over £21k, so by going through a broker I had already managed a discount of nearly 20% before even considering finance,
the £1060 deposit contribution was an extra bonus on top of this and wouldn't have been available without the pcp

taking the deposit, my monthly payment + the final balloon payment and adding them together meant if I had kept the pcp going full term I would have paid just over 16.5k which is still about £900 less than the best price without finance.
( the cost of the finance over the term would have been £196 )

so even if the APR was heavily subsidised by the finance company to make it look better it makes no difference, it was still the cheapest option.

Good. I made my post as a general point, which was not aimed directly at your situation. If this was on top of a healthy discount, then it sounds like a very good deal.

[daemon]

Elysium said:

OK. I somewhat lazily referred to 'dealers' and acknowledge that was incorrect. But as I subsequently said, PCP is a contractual arrangement between manucturer, dealer and finance company. Which means it is a narrow point to argue as all three parties have colluded on the various terms.

Its not a narrow point to argue. Its an important point and given how much mis-information there is on PCP deals its best to add clarity so that people are not further confused by something that is wrong - the dealer does NOT set the GFV, the finance company does (which is a separate entity)

Elysium said:

Two points of order:

1. If we are pointing our 'errors' you wrote: 'They dont have little flexibility over the finance rate' (ie you made a mistake). I think you meant to say that dealers do not have flexibility, which is wrong. I know from experience that they will try to keep the rate as high as possible, but that they can and do beat headline rates advertised as manufacturer offers.

Its not wrong. We're talking about new car PCPs here and the quoted figures on manufacturers websites by the manufacturer backed finance companys are the ones that the dealers MUST use. They cant "add a bit on" just for fun. Nor can they discount those rates further. Now, if we're talking about third part PCPs or HP agreements, then yes, "sometimes" there is room for maneuver - thats why i said "at least of the manufacturer backed ones" which is what we're specifically talking about here with new car, manufacturer backed PCP deals.

Elysium said:

2. For some reason you disagreed with me that the GMFV was designed to allow money to be made on resale, but then wrote: "Its set so that the finance company can moreoften than not get that money back if they have to take the car back at the end of term", which is exactly the same thing.

Its primary function is not to allow money to be made on the resale of the car by a dealer - its a figure set that the finance company believe they will at least be able to recover if they have to take the car back at the end of term and resell it. They're protecting their profit margin overall on the deal. That is not the same thing. Sorry you dont see that.

Elysium said:

Bottom line, as I said originally, you are almost always better off if you pay the GMFV and sell the car privately.

Yup. IF you can do that. Its often not that easy when people expect these days to buy a 3 year old car from a dealer, with a warranty, with trade in facilities and with finance available. Particularly once you break say, £10,000+.

Its doable, but rarer than you'd think

Elysium said:

Dealers play on this by offering above GMFV at trade in, making people feel that they have a great deal and encouraging them into a new PCP instead of owning the car for a couple more years.

Agreed. They make it easy for people just to roll in to another deal. Thats their job.

[daemon]

Elysium said:

I dont think it is a good idea to rely too much on PCP interest rates. You need to look at the discount and the rate, do the maths and work out the total cost of ownership through the term.

[b]In my experience, low or zero APR deals are sales puff. The finance house will be underwriting the deal with a cost of capital above zero, so you are foregoing some discount to make it look like 0% APR.

In many cases, the 0% APR deals are actually more expensive. [/b]

Not on new car manufacturer backed finance deals that we're discussing here.

Neither the dealer nor the manufacturer can offer one discounted price for not using 0% finance and another less discounted price for using it. They would be hauled over the coals for doing that.

On used cars, and being offered by some back street garage, then yes, the 0% finance is often subsidised by the dealer themselves out of their profit margin, but not in the case of the manufacturer backed deals on new cars being discussed here.

[daemon]

timberman said:

Elysium said:

I dont think it is a good idea to rely too much on PCP interest rates. You need to look at the discount and the rate, do the maths and work out the total cost of ownership through the term.

In my experience, low or zero APR deals are sales puff. The finance house will be underwriting the deal with a cost of capital above zero, so you are foregoing some discount to make it look like 0% APR.

In many cases, the 0% APR deals are actually more expensive.

I don't buy cars based on the APR only on the best price I can get at the time
If it had worked out cheaper to pay cash I would have

In my case the discount I achieved before taking a pcp was the best available anywhere at that time ( I checked all sources )
Incidentally the list price on my car through my local ford dealer came to over £21k, so by going through a broker I had already managed a discount of nearly 20% before even considering finance,
the £1060 deposit contribution was an extra bonus on top of this and wouldn't have been available without the pcp

taking the deposit, my monthly payment + the final balloon payment and adding them together meant if I had kept the pcp going full term I would have paid just over 16.5k which is still about £900 less than the best price without finance.
( the cost of the finance over the term would have been £196 )

so even if the APR was heavily subsidised by the finance company to make it look better it makes no difference, it was still the cheapest option.

Exactly how i would expect it to be.

[daemon]

Elysium said:

Good. I made my post as a general point, which was not aimed directly at your situation. If this was on top of a healthy discount, then it sounds like a very good deal.

Its how it is. The manufacturer backed deals are independent of any discount you negotiate on the car, not instead of

Sorry you didnt know that either.

[covmutley]

Overall cost of ownership and what you are willing to pay. That is all that matters.

I pay more for my car than I probably should. But I commute 90 miles a day. I think it is worth paying £150 or so a month to be in a new car with all the benefits that brings and I really do not want to hate my commute.

[daemon]

covmutley said:

Overall cost of ownership and what you are willing to pay. That is all that matters.

I pay more for my car than I probably should. But I commute 90 miles a day. I think it is worth paying £150 or so a month to be in a new car with all the benefits that brings and I really do not want to hate my commute.

Thats exactly it for a lot of people. My niece but a new car for her first job at 19. It might have seemed an extravagance at the time but it enabled her to do a 50 mile return commute safely and reliably. Shes had 3 promotions now too so it was worth the effort over a minimum wage local job.

[anonymous-user]

Assuming you want to run a decent, well spec'd, new car and change it every 3 years or so (which most folk seem to want to do) it really doesn't matter which financing method is used.

Lease/PCP/Bank Loan/ Cash.... they all work out about the same out of pocket so long as you shop for a good deal. Only stealing has a significantly different cost of ownership.

If you do a total cost of ownership calculation, taking the mid-point of depreciation estimates and include a risk-free opportunity cost then there is seldom more than a pint of beer per week's difference between the methods of finance.

So the argument is kind weird really and usually, I suspect, just a proxy for an underlying real argument.

[InitialDave]

Hang On said:

So the argument is kind weird really and usually, I suspect, just a proxy for an underlying real argument.

Pretty much.

[anonymous-user]

HumanDoing said:

Oh wow thanks for the oh-so-sincere pity, Christ do you think I was born yesterday? Find someone else to take for a I'm done with this thread. Enjoy your PCP.

Bang out of order.

No idea why you feel the need to behave this way.

[anonymous-user]

Hang On said:

Assuming you want to run a decent, well spec'd, new car and change it every 3 years or so (which most folk seem to want to do) it really doesn't matter which financing method is used.

Lease/PCP/Bank Loan/ Cash.... they all work out about the same out of pocket so long as you shop for a good deal. Only stealing has a significantly different cost of ownership.

If you do a total cost of ownership calculation, taking the mid-point of depreciation estimates and include a risk-free opportunity cost then there is seldom more than a pint of beer per week's difference between the methods of finance.

So the argument is kind weird really and usually, I suspect, just a proxy for an underlying real argument.

Far too sensible, accurate and thoughtful.

What are you doing on a PCP thread on PH ?

[anonymous-user]

RSK21 said:

Far too sensible, accurate and thoughtful.

What are you doing on a PCP thread on PH ?

Can't help myself. Some pretty entertaining stuff when it doesn't go completely off the rails. There are often posts that make me smile on PH, regardless of topic.

Besides, how else is a moderately-wealthy early-retiree to fill his days

[carparkno1]

Quite the controversial thread eh.

I'll take a stab and say my situation represents Joe average. I have a mk 5 gti, bought for £5000 cash a year ago. It's cost me absolutely nothing bar a £30 mot, fuel and insurance. I'll keep it another year and sell it for maybe £4000. In that time I'll have done 20000 miles. Might need some tyres, might sell it for a bit more or a bit less. Who knows. What I do know is it's a relatively low cost within a fairly small band. If the car explodes tomorrow the absolute maximum loss is £5k. Just a very pie in the sky example but that's what I can enjoy with a used car right? Cheap-ish motoring with risks that comes with an older car and I can swap when I want.

On the other side, we're 2 years into a PCP on a Ford focus which expires in a year. Well specced, safe family car that is a hoot to drive with the little ecoboost engine. We have a fixed monthly amount, the servicing was chucked in, the Apr is 0% and we got £6800 off the rrp via drivethedeal. We're gonna have equity in the car at year 3 when the "optional final payment" comes because we've done less miles than expected. When we took the PCP we knew we had the cash in the bank to buy the car outright at the end. We could have bought it cash at the door but why do that when we can run it monthly, interest free, with a nice hefty discount from Ford and have our own money working for us elsewhere in an account?

We're not worried, we're secure, knew what we were doing, we just used PCP to suit us and our financial situation. Some people on here seem to think that no matter what, that's a bad thing and we're being dangled like puppets by the big bad car finance corporations.

Can't say I'm worried, we live within our means and the view that people on PCP deals aren't is somewhat ridiculous. For a few the final payment may come as a surprise but I highly doubt the majority get caught in it as generally people are smart and know what they are doing. If people want to roll into a new car every three years then so what?

The view that irritates me is the 'get it at one year old and save loads. New cars are for mugs'. They tend to ignore the hefty new car financing, the better Apr, the inclusive servicing deals and the chance to spec their own motor, and end up buying something a year old that financially comes in close to the same as going new. I've got a guy like that at work, smug as anything, and he had a bit of a shock when I showed him a couple of broker sites. He's basically paid out for a used Audi A7 that is going to be more expensive than a new one with a better spec!

[liner33]

carparkno1 said:

The view that irritates me is the 'get it at one year old and save loads. New cars are for mugs'. They tend to ignore the hefty new car financing, the better Apr, the inclusive servicing deals and the chance to spec their own motor, and end up buying something a year old that financially comes in close to the same as going new.

A phrase my old boss used to use "You cant educate pork" come to mind with a lot of these posters, they just wont be told just open your eyes and do the maths before jumping to any conclusions