PCP: How many people actually pay the balloon

PCP: How many people actually pay the balloon

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TartanPaint

2,981 posts

138 months

Tuesday 24th October 2017
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CraigyMc said:
If I understand your numbers correctly, you have been sinking £414 per month into the car.
If instead of buying it after 36 months of that, you had rolled over into a new PCP on another car with the same pricing, you'd be paying £414 per month indefinitely, for a new car every 3 years.
(£23600 - £8700 = £14900. £14900 over 36 months is £414 per month, give or take pennies - is this what you were paying?)
If I'm missing something, what am I missing?

In any case, you're also not accounting for the effect having credit tied up in the car has on your credit rating (other credit gets more expensive, the closer to your personal limits you get - so while you might go from PCP to PCP, don't expect it to have no effect on new mortgage deal pricing).
The total financed amount was less than the purchase price, because I had a trade in (call it a deposit of £5600). Approx £18k was the 3 year PCP component at £266/month.

I'm nowhere near the limits of the credit I could get (I don't have much money, so I like it to work hard) but your point is valid for the general case. For me, car finance is always the most expensive thing I have going on in terms of the interest %, so that's what gets paid off the quickest. Hence 3 cars and 1 bike, all paid for. Not to show off or think that's the only way to do things, but because the % rate is higher than anything else I have, so gets targeted first.

BUT, that "pay off the cars first" logic only applies if you treat the car as an asset and not an expense. If you're handing it back then it was just an expense, so what portion of the TCO is made up with interest doesn't really matter. A Range Rover could be 29% APR, but if the monthly was still only £400 on a 1+23 we'd all have one anyway.

Edited by TartanPaint on Tuesday 24th October 09:57

CraigyMc

16,326 posts

235 months

Tuesday 24th October 2017
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TartanPaint said:
The total financed amount was less than the purchase price, because I had a trade in (call it a deposit of £5600). Approx £18k was the 3 year PCP component at £266/month.
It doesn't matter if you paid for it in pounds sterling, an old car, or bananas. It's still the same price.

You can account for it differently if you want (£5600+36x £266). The effective monthly price for those 36 months is still well over £420/month.

J4CKO

41,287 posts

199 months

Tuesday 24th October 2017
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Good example, and confirms my theory that if you buy a new car, it costs.

The thing is,in the past, if we perhaps didnt have enough spare to buy a new car, we defaulted to buying a secondhand one, but times have changed and the various packages have been a big enabler to get people who ordinarily couldn't stretch to a new car into one.

This is fine if they can meet the payments, after all a supermini for £800 down and £120 a month, for a lot of the population is do-able and frees people from some older car pitfalls, trouble is it is easy to get mesmerized by all the offers, that £120 becomes £220 for the Mini, becomes £350 for that Evoque, where in the past that was just an impossibility.

That is where the problem lies, not the actual financial products, most manage fine and the flexibility suits even if it costs a bit more, but if people get over committed then that is where problems may arise, I would just say be realistic and be honest with ourselves, do we need a new car, can we truly afford it and the main, one, what is our motivation, adequate, reliable and safe transport or making a statement ?

I have been here, when there is the sniff of getting something nice, and you dont have to have all the cash its a bit "shut up and take my money", especially when I was younger, we just all need to exercise restraint and keep a little in reserve just in case.




liner33

10,642 posts

201 months

Tuesday 24th October 2017
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J4CKO said:
Good example, and confirms my theory that if you buy a new car, it costs.
That shouldnt really come as news to anyone


Edited by liner33 on Tuesday 24th October 10:15

TartanPaint

2,981 posts

138 months

Tuesday 24th October 2017
quotequote all
CraigyMc said:
TartanPaint said:
The total financed amount was less than the purchase price, because I had a trade in (call it a deposit of £5600). Approx £18k was the 3 year PCP component at £266/month.
It doesn't matter if you paid for it in pounds sterling, an old car, or bananas. It's still the same price.

You can account for it differently if you want (£5600+36x £266). The effective monthly price for those 36 months is still well over £420/month.
Ah, yes, I see what you mean, and we're agreeing on that. The first years are very expensive, front loading the costs to pay off the full value of the vehicle instead of just the depreciation. No different to getting a 3 year loan for the full whack.

Ken Figenus

5,678 posts

116 months

Tuesday 24th October 2017
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Good post Tartan.

I'm not as thorough as you but my maths that made me kill the PCP and swap it to a loan were more on the lines of channelling the fixed PCP interest only payments into capital repayments too.

Loaded new F11 535d £57k. Deal £41k (newbiggrin). Strong PX too. PCP cost per month with £10k down over 4 years = £388 at 6%.

I now pay £104 a month more on a 2.8% loan than I did on the PCP (having just checkedread) and for an extra 6 months term - this is about £5724 extra. This then kills the £18,264 balloon dead.

Have I potentially saved about £12k? I also look forward to a couple of years with no bl00dy repayments at all!

TartanPaint

2,981 posts

138 months

Tuesday 24th October 2017
quotequote all
liner33 said:
J4CKO said:
Good example, and confirms my theory that if you buy a new car, it costs.
That should really come as news to anyone
Playing with the spreadsheet, it's hard to find any tweaks that make a big long-term impact either way on the monthly cost of ownership of the new car.

Beating the dealer down another £1000 on the sale price would have saved another £8/month over 10 years.

A major bill of £1200 for an unexpected gearbox failure or something adds £10/month over 10 years.

I think what I'm showing here is that, as long as you're talking about new cars, there is no major saving to be made by buying, leasing or anything in between. If you want a new car, it all costs the same unless you're willing to keep the car for 10, 12, 15 years and extract every penny of value out of it.


However, what if I hadn't bought a new car? What if I'd bought the 3 year old version of my car from myself for £8,700 instead? That's probably LOADS cheaper because other me has taken the hit on the first 3 years of depreciation, right?

So what does it cost us based on how long we keep it now?

I've used a slightly faster depreciation curve because it's a 2 owner car now, but not much. I haven't added any extra costs for bills/servicing that weren't in the original buy-new plan for those years of age of the vehicle.

1 year: £279/month
2 yeas: £231/month
3 years: £217/month
4 years: £200/month
5 years: £177/month
6 years: £165/month
7 years: £153/month

Better. Not as much of a bargain as I'd expected to be honest, but significant savings when added up over the owership.

So, it seems that the only thing that really makes a significant impact on how much it costs to run a car is how old that car is when you buy it. Not the few quid you haggle off the purchase price (that's lost when averaged out monthly) and not the big bills (again, not a lot monthly).


EDIT; Just redid the sums again for the 3 year old used car, only based on paying £10k from a dealer instead of £8700 private book value. Call it peace of mind because we're buying used, so want a good approved car. 3 years into that (6 year old car) it's £250/month. 6 years in (9 year old car) we're down to £183/month. Again, the purchase price has had the biggest impact on the long-term monthly average.

If you want a cheap car, get a cheap car. Buying an expensive car and keeping it longer doesn't really seem to work, no matter how you twist it.




Edited by TartanPaint on Tuesday 24th October 10:44

Zod

35,295 posts

257 months

Tuesday 24th October 2017
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HumanDoing said:
I'm fully fking aware that buying a car outright isn't 'free', the point is (as should be obvious to anyone who doesn't have their head totally up their arse with a picture of a naked woman with her legs splayed and 'PCP' shooting out of her reproductive system tattooed on their inner sphincter) that the cost of that is less than a PCP.
Well, that sentence tells us an awful lot about you. I'm sure a psychologist would get even more out of it.

liner33

10,642 posts

201 months

Tuesday 24th October 2017
quotequote all
Ken Figenus said:
Good post Tartan.

I'm not as thorough as you but my maths that made me kill the PCP and swap it to a loan were more on the lines of channelling the fixed PCP interest only payments into capital repayments too.

Loaded new F11 535d £57k. Deal £41k (newbiggrin). Strong PX too. PCP cost per month with £10k down over 4 years = £388 at 6%.

I now pay £104 a month more on a 2.8% loan than I did on the PCP (having just checkedread) and for an extra 6 months term - this is about £5724 extra. This then kills the £18,264 balloon dead.

Have I potentially saved about £12k? I also look forward to a couple of years with no bl00dy repayments at all!
PCP at 6% with no dealer contribution will work out more than a loan, of course getting the pcp if there is a dealer discount and then using a loan to settle makes a lot of sense.

Looks like you did the maths smile





J4CKO

41,287 posts

199 months

Tuesday 24th October 2017
quotequote all
Ken Figenus said:
Good post Tartan.

I'm not as thorough as you but my maths that made me kill the PCP and swap it to a loan were more on the lines of channelling the fixed PCP interest only payments into capital repayments too.

Loaded new F11 535d £57k. Deal £41k (newbiggrin). Strong PX too. PCP cost per month with £10k down over 4 years = £388 at 6%.

I now pay £104 a month more on a 2.8% loan than I did on the PCP (having just checkedread) and for an extra 6 months term - this is about £5724 extra. This then kills the £18,264 balloon dead.

Have I potentially saved about £12k? I also look forward to a couple of years with no bl00dy repayments at all!
My son bought a Fiesta ST on a PCP, we did it in a bit of a hurry as his car was knackered, I was wary of the PCP deal, however, with all these things you have the cooling off period, got home, weighed it up properly and got a Personal loan at 3 percent, paid the PCP off and it is overall £2500, maybe a little more, cant remember, cheaper over the term, it is a significant difference.

Think it is easy to just focus on the monthlies and this is how they tempt you, but the longer term thinking like you have done makes it cheaper in the long term, borrowing is cheap at the moment, for standard personal loans but PCP's tend to skew the picture as the monthlies are similar or lower but the elephant in the room is the balloon on which you are paying interest, but not any capital, usually at a much higher APR than the personal loan.

Not saying PCP's are bad, but like your example Ken, if you play the long game, it works out quite a bit cheaper.

Some people arent bothered, they just pay it and dont fixate about it like us on here biggrin





bad company

18,484 posts

265 months

Tuesday 24th October 2017
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HumanDoing said:
Jesus this again. It's quite simple.

Owning outright = the car will depreciate. Depreciation is an unavoidable fact of life for almost all cars.

PCP = paying the same depreciation, plus interest, and have shat-all at the end of it.

'Wow yeah sign me up for the PCP, that sounds much the better deal' - PCP enthusiast.
Yes the car depreciates however you buy it. My point is that with pcp the depreciation is effectively capped thus limiting the risk. As I said further up the thread my preference is buy new on pcp and either return or part exchange the car at the end depending on the equity.

Yes you can pay cash for a used car and that will probably by cheaper. It’s also cheaper to buy your clothing from the charity shop if that’s your choice.

liner33

10,642 posts

201 months

Tuesday 24th October 2017
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I got a decent dealer contribution AND 2.8% apr on my Skoda , struggling to get anywhere near that now, I'm getting offers from Skoda of £500 dealer contribution and 4.9% apr.


Rawwr

22,722 posts

233 months

Tuesday 24th October 2017
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HumanDoing said:
Jesus this again. It's quite simple.

Owning outright = the car will depreciate. Depreciation is an unavoidable fact of life for almost all cars.

PCP = paying the same depreciation, plus interest, and have shat-all at the end of it.

'Wow yeah sign me up for the PCP, that sounds much the better deal' - PCP enthusiast.
I'm confused. At the end of my PCP term, I'll own the vehicle. I'll also have paid no interest and received a ~25% discount. Which bit am I doing wrong?

liner33

10,642 posts

201 months

Tuesday 24th October 2017
quotequote all
Rawwr said:
I'm confused. At the end of my PCP term, I'll own the vehicle. I'll also have paid no interest and received a ~25% discount. Which bit am I doing wrong?
You are trying to educate the ignorant

HumanDoing

540 posts

125 months

Tuesday 24th October 2017
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liner33 said:
You are trying to educate the ignorant
The argument is based on 0% finance and the residuals tanking. Neither guaranteed to happen and if it did what does it say about the car?

Do you buy it and immediately say wow i hope this depreciates massively so i can hand it back and prove my hedge against depreciation was worth it! Yayy i have a car noone wants, thank god for that it proves how financially smart i am yayy etc.

InitialDave

11,856 posts

118 months

Tuesday 24th October 2017
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HumanDoing said:
The argument is based on 0% finance and the residuals tanking. Neither guaranteed to happen and if it did what does it say about the car?

Do you buy it and immediately say wow i hope this depreciates massively so i can hand it back and prove my hedge against depreciation was worth it! Yayy i have a car noone wants, thank god for that it proves how financially smart i am yayy etc.
That's called assessing what you think the market will do and including this in your decision as to how you should pay for it.

This is what an intelligent person does.

Rawwr

22,722 posts

233 months

Tuesday 24th October 2017
quotequote all
HumanDoing said:
The argument is based on 0% finance and the residuals tanking. Neither guaranteed to happen and if it did what does it say about the car?

Do you buy it and immediately say wow i hope this depreciates massively so i can hand it back and prove my hedge against depreciation was worth it! Yayy i have a car noone wants, thank god for that it proves how financially smart i am yayy etc.
Why would I care about residuals? I'm keeping it. It's mine. It's not being handed back. It's not being traded in.

Please explain to me what I'm doing wrong. I'm prepared to listen.

djc206

12,245 posts

124 months

Tuesday 24th October 2017
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HumanDoing said:
The argument is based on 0% finance and the residuals tanking. Neither guaranteed to happen and if it did what does it say about the car?

Do you buy it and immediately say wow i hope this depreciates massively so i can hand it back and prove my hedge against depreciation was worth it! Yayy i have a car noone wants, thank god for that it proves how financially smart i am yayy etc.
This precise scenario occurred after the crash. There were people handing back performance cars because the GFV's they'd been offered had been set too high. Manufacturers had underestimated depreciation, PCP shielded people from that, cash buyers were oftenworse off. It's not the usual way it plays out but it has happened in recent history.

carparkno1

1,432 posts

157 months

Tuesday 24th October 2017
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Rawwr said:
HumanDoing said:
The argument is based on 0% finance and the residuals tanking. Neither guaranteed to happen and if it did what does it say about the car?

Do you buy it and immediately say wow i hope this depreciates massively so i can hand it back and prove my hedge against depreciation was worth it! Yayy i have a car noone wants, thank god for that it proves how financially smart i am yayy etc.
Why would I care about residuals? I'm keeping it. It's mine. It's not being handed back. It's not being traded in.

Please explain to me what I'm doing wrong. I'm prepared to listen.
He can't. He's absolutely fixated with arguing against the collective PH consensus... rather than just logging off and getting on with life.

You're not dealing with the full ticket when someone says "yayyyyy bahahahaha" etc.

Rawwr

22,722 posts

233 months

Tuesday 24th October 2017
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I honestly think he just doesn't understand the difference between PCP and PCH.