PCP help/maths homework
Discussion
marcg said:
H
2. PCP with £500 deposit
Deposit £500 + 2yrs 1.5% interest lost on this = £650
This line is wrong, isn't it? 1.5% over 2yrs on £500 is £15.2. PCP with £500 deposit
Deposit £500 + 2yrs 1.5% interest lost on this = £650
marcg said:
But the dealer has put in writing to me that I can terminate at month 24?
You can terminate any time - but if you do it before you've paid half then you have to pay the difference. Dealers can roll this negative equity into a new agreement.If the dealer said (or even implied) you can terminate and walk away with nothing to pay then that's outrageous.
The dealer is correct, you can VT at 24 months in fact you can VT at anytime IF you make up the payments to 50% of the whole package. If it were a simple HP agreement the normally you have paid 50% half way through so can VT with no more to pay. On a PCP u have to take into account the ballon payment. Have a look at the figures the dealer is giving you and find out what the total amount payable is including interest and balloon, divide it by 2, divide this figure by the monthly payment and you will have what month you have paid 50%.
Sounds like the dealer is slighty bending the truth to get the sale
Sounds like the dealer is slighty bending the truth to get the sale
marcg said:
Month 24 would be half the amount so that makes sense.
On a 44 month PCP I can't imagine how that could be correct. The chunky Optional Final Payment will move the 50% point towards the end of the term.To be able to terminate half-way in time, you'd have to pay a deposit that was similar in value to the Optional Final Payment.
If you're set on running the car and then walking away after two years, then leasing might be worth consideration.
marcg said:
If I understand correctly (and the dealer has just emailed me the terms and conditions so I haven't checked yet), vt is possible at half the original financed amount, not half the amount plus the interest. So £211 x 24 needs to be greater than 10500/2. Which it is.
"It's the total amount including interestAs long as you repay 50% of the Total Amount Payable (not the total amount borrowed, as you need to include interest and fees), you are entitled to terminate the agreement and return the car to the finance company. As long as there are no “damages if you have failed to take reasonable care of the goods (over and above normal wear and tear)”, you have nothing further to pay."
Maybe as the op suggests why not look at leading for 2 years.
2012 VW Beetle 2.0 TDi Sport. But I've paid the deposit now so I don't think withdrawal is possible? I suppose there is the cooling off period...
The T&Cs from VW are as clear as mud. They don't explain the finance calculation method nor the consequences of withdrawal on "special offers". I'm wondering if all of that is standard across the industry. This guide seems good:
http://www.which.co.uk/consumer-rights/regulation/...
I'm noting that the T&Cs don't include anything about penalties for early repayment. I'll come back when I've read up more but I think there are two things at play here: 1 the ability to repay the lender early and 2 the ability to hand back the car. The first one seems easy at any point (once I figure out the effect on interest payable) and the second may be the VT (voluntary termination) that keeps cropping up on various forums.
The T&Cs from VW are as clear as mud. They don't explain the finance calculation method nor the consequences of withdrawal on "special offers". I'm wondering if all of that is standard across the industry. This guide seems good:
http://www.which.co.uk/consumer-rights/regulation/...
I'm noting that the T&Cs don't include anything about penalties for early repayment. I'll come back when I've read up more but I think there are two things at play here: 1 the ability to repay the lender early and 2 the ability to hand back the car. The first one seems easy at any point (once I figure out the effect on interest payable) and the second may be the VT (voluntary termination) that keeps cropping up on various forums.
Right, I've reviewed the Consumer Credit (Early Settlement) Regulations 2004
http://legislation.data.gov.uk/cy/uksi/2004/1483/m...
There is a formula explaining how it is calculated that is beyond my memory of A-level maths but the worked example beneath looks like if you want to repay early then you owe the original amount plus the interest accrued to that point (so NOT the full interest to the end of the loan period) less the amounts already repaid, including the interest they represented. Then there is a bit of additional interest due to cover the delay from you telling the company you want to end early to actually sending them the money.
It's fair really - a lender lends you some money, its starts accruing interest on day 1, you pay it back clearing some capital and interest then, if you want to settle up, you pay them what's left of the capital plus the interest that capital accrued. Front loading is therefore illegal.
http://legislation.data.gov.uk/cy/uksi/2004/1483/m...
There is a formula explaining how it is calculated that is beyond my memory of A-level maths but the worked example beneath looks like if you want to repay early then you owe the original amount plus the interest accrued to that point (so NOT the full interest to the end of the loan period) less the amounts already repaid, including the interest they represented. Then there is a bit of additional interest due to cover the delay from you telling the company you want to end early to actually sending them the money.
It's fair really - a lender lends you some money, its starts accruing interest on day 1, you pay it back clearing some capital and interest then, if you want to settle up, you pay them what's left of the capital plus the interest that capital accrued. Front loading is therefore illegal.
So I can refinance on to better terms at any time, paying only the cost of the money during the time I borrowed it.
I'm going to ask the dealer tomorrow if I decide to pay up early and go back to being a cash purchase, do I keep the warranties? Nothing to say I couldn't get PCP elsewhere instead of that cash.
Now I just need to understand why borrowing that money is cheaper than spending it.
I'm going to ask the dealer tomorrow if I decide to pay up early and go back to being a cash purchase, do I keep the warranties? Nothing to say I couldn't get PCP elsewhere instead of that cash.
Now I just need to understand why borrowing that money is cheaper than spending it.
Edited by marcg on Monday 1st May 21:49
You can Withdraw within 14 days of signing the agreement (which the dealer may ask you to do a few days before delivery) or Settle anytime.
If you Withdraw you only pay daily interest for the days before you say you're Withdrawing so the amount will be tiny. There are no fees to pay although they've largely been done away with anyway. The position on keeping the incentives is unclear - I recently Withdrew on a deal for a new VW and kept the £3K deposit contribution. The car had a servicing deal but we'd paid towards that so no issue in my case.
If you Settle then the max interest penalty is a month but you have to give a month's notice too so it ends up being two months - IIRC it's actually 58 days. Anyway, it's not a massive amount, You do still have to pay the doc etc fees - they used to be a couple of hundred quid but as said earlier, I think they're less now. You keep all the incentives.
If you Withdraw you only pay daily interest for the days before you say you're Withdrawing so the amount will be tiny. There are no fees to pay although they've largely been done away with anyway. The position on keeping the incentives is unclear - I recently Withdrew on a deal for a new VW and kept the £3K deposit contribution. The car had a servicing deal but we'd paid towards that so no issue in my case.
If you Settle then the max interest penalty is a month but you have to give a month's notice too so it ends up being two months - IIRC it's actually 58 days. Anyway, it's not a massive amount, You do still have to pay the doc etc fees - they used to be a couple of hundred quid but as said earlier, I think they're less now. You keep all the incentives.
TooMany2cvs said:
1.5% APR interest on the savings you're accessing to pay for the monthlies? Where...? Don't forget that you'll be paying income tax on that interest.
Strange how attractive the finance looks from the illustrations given by the people selling you the finance...
The new Personal Savings Allowance should ensure no tax on the interest for many people. Strange how attractive the finance looks from the illustrations given by the people selling you the finance...
https://www.gov.uk/government/publications/persona...
marcg said:
So I can refinance on to better terms at any time, paying only the cost of the money during the time I borrowed it.
I'm going to ask the dealer tomorrow if I decide to pay up early and go back to being a cash purchase, do I keep the warranties? Nothing to say I couldn't get PCP elsewhere instead of that cash.
Now I just need to understand why borrowing that money is cheaper than spending it.
If you mean your example 2 is cheaper then I'm sure that's wrong - you won't be able to walk away at that point.I'm going to ask the dealer tomorrow if I decide to pay up early and go back to being a cash purchase, do I keep the warranties? Nothing to say I couldn't get PCP elsewhere instead of that cash.
Now I just need to understand why borrowing that money is cheaper than spending it.
I'd also suggest you don't be too brazen with the sales guy about pulling out of the finance as he'll lose a chunk of his commission so might not be too keen - especially if any of the incentives are coming from the dealer rather than VW.
Yes, that's what I read in the legals.
I think I've cracked why PCP is cheaper than cash. It's not if you run it to full term. £10500 at 1.5% on the decreasing amount is negligible. So the cost to buy a car for cash would be £10600 or so. If you buy it PCP it would be £211x44 +balloon of £4400 = £13684.
BUT
PCP is like a loan that you are refinancing every month. Whereas a traditional personal loan for £11k over 48 months will cost you 6% per annum (say) = 11000 x 1.06 x 1.06 x 1.06 x 1.06 = £13887, PCP will cost you 10.9 APR = 0.86% per month for the full £11k for only the first month = £11094.60. The second month will be 0.86% on (£11094.60 MINUS £211 monthly payment) + 0.86% = £10977.20 and so on with each monthly payment reducing the capital by an increasing amount as you get closer to the end of the loan. The last payment of £211 is £173 of capital and £38 of interest for the last month as compared to the first month which is £121 capital and £90 interest.
The effect of this is that you don't really pay off much capital in the beginning. If voluntary termination at 24 months is a true thing, you can walk away from more debt than the car is worth. By my calculations, you owe about £7500 on a car which has depreciated quicker to £6500. And 2 years free servicing warranty etc, worth £650 to me. So, by spending £211 x 24 = £5064, you have financed £4000 + 650 of depreciation/servicing/warranty. Add some creative interest to the money still sat in the bank and you've got nearly a zero sum game. But it all relies on being able to walk away from the finance package without settling the £7500 outstanding.
So I need to be sure VT at 24 months is real.
I think I've cracked why PCP is cheaper than cash. It's not if you run it to full term. £10500 at 1.5% on the decreasing amount is negligible. So the cost to buy a car for cash would be £10600 or so. If you buy it PCP it would be £211x44 +balloon of £4400 = £13684.
BUT
PCP is like a loan that you are refinancing every month. Whereas a traditional personal loan for £11k over 48 months will cost you 6% per annum (say) = 11000 x 1.06 x 1.06 x 1.06 x 1.06 = £13887, PCP will cost you 10.9 APR = 0.86% per month for the full £11k for only the first month = £11094.60. The second month will be 0.86% on (£11094.60 MINUS £211 monthly payment) + 0.86% = £10977.20 and so on with each monthly payment reducing the capital by an increasing amount as you get closer to the end of the loan. The last payment of £211 is £173 of capital and £38 of interest for the last month as compared to the first month which is £121 capital and £90 interest.
The effect of this is that you don't really pay off much capital in the beginning. If voluntary termination at 24 months is a true thing, you can walk away from more debt than the car is worth. By my calculations, you owe about £7500 on a car which has depreciated quicker to £6500. And 2 years free servicing warranty etc, worth £650 to me. So, by spending £211 x 24 = £5064, you have financed £4000 + 650 of depreciation/servicing/warranty. Add some creative interest to the money still sat in the bank and you've got nearly a zero sum game. But it all relies on being able to walk away from the finance package without settling the £7500 outstanding.
So I need to be sure VT at 24 months is real.
Edited by marcg on Monday 1st May 23:30
VT doesn't work like that,
At the beginning everything is added up - deposit, amount financed (which includes the final payment) interest and fees.
In your case that's going to come to something like £15K.
You can't VT until you've paid half - ie £7.5K. So with a £500 deposit and £211/mth, you're going to be at month 33 before you can VT.
You can Settle at any time, but then the critical thing is how much the car will be worth (assuming you want to get rid of it).
At the beginning everything is added up - deposit, amount financed (which includes the final payment) interest and fees.
In your case that's going to come to something like £15K.
You can't VT until you've paid half - ie £7.5K. So with a £500 deposit and £211/mth, you're going to be at month 33 before you can VT.
You can Settle at any time, but then the critical thing is how much the car will be worth (assuming you want to get rid of it).
I've done the maths. The total cost of the finance is £211 x 44 +4400 = £13684.
VT is possible at 50% of that = £6842
At completion of payment in month 24, £7458 is due. So VT is not possible. VT is only possible from month 28 where £6865 is due.
Let's assume the dealer's maths is off and he meant month 28 and run the numbers cash vs PCP again.
Cash:
£11k down. Sell in month 28 at £6500. Cost £4500 plus £650 servicing and warranty. = £5150.
PCP
£500 down. Return in month 28. Cost £211 x 28 plus deposit = £6408.
Upward variation in the value of the car has no effect on the PCP unless it exceeds the outstanding amount. But it reduces the cost of the cash.
Downward variation in the value of the car increases the cost of the cash.
But for the cash to cost more than the PCP, the car would need to be worth <£5300.
IF it were possible at month 24 then the above remains true albeit that if the estimate of £6500 was right it would be nicer to have most of the £11k in the bank for more of the time.
So I need to pin down why the dealer thinks I can walk away at month 24.
VT is possible at 50% of that = £6842
At completion of payment in month 24, £7458 is due. So VT is not possible. VT is only possible from month 28 where £6865 is due.
Let's assume the dealer's maths is off and he meant month 28 and run the numbers cash vs PCP again.
Cash:
£11k down. Sell in month 28 at £6500. Cost £4500 plus £650 servicing and warranty. = £5150.
PCP
£500 down. Return in month 28. Cost £211 x 28 plus deposit = £6408.
Upward variation in the value of the car has no effect on the PCP unless it exceeds the outstanding amount. But it reduces the cost of the cash.
Downward variation in the value of the car increases the cost of the cash.
But for the cash to cost more than the PCP, the car would need to be worth <£5300.
IF it were possible at month 24 then the above remains true albeit that if the estimate of £6500 was right it would be nicer to have most of the £11k in the bank for more of the time.
So I need to pin down why the dealer thinks I can walk away at month 24.
Or.
Take out the VW PCP. Cancel within cooling off period but keep the £650's worth of goodies. Pay on a credit card. Move the debt on to 48 month 0% cards for usual 3% transaction fee and repay for a total cost of £11k +3% = £330. Plus interest from cooling off period - £70? Monthly repayments of £11400/48 = £237.50
Sticking with my usual illustrations, sell in month 24 for £6500. Total cost to own £11400-6500 = £4900.
So somehow find out what happens to the goodies if I cancel. Somehow.
At the end of the day, its all about those goodies. If I have to pay for them, it increases the cost of the cash purchase towards the cost of the PCP.
Take out the VW PCP. Cancel within cooling off period but keep the £650's worth of goodies. Pay on a credit card. Move the debt on to 48 month 0% cards for usual 3% transaction fee and repay for a total cost of £11k +3% = £330. Plus interest from cooling off period - £70? Monthly repayments of £11400/48 = £237.50
Sticking with my usual illustrations, sell in month 24 for £6500. Total cost to own £11400-6500 = £4900.
So somehow find out what happens to the goodies if I cancel. Somehow.
At the end of the day, its all about those goodies. If I have to pay for them, it increases the cost of the cash purchase towards the cost of the PCP.
Edited by marcg on Tuesday 2nd May 00:18
Obviously this has all been done before:
https://www.pistonheads.com/gassing/topic.asp?t=15...
Another question though - if I withdraw within 14 days, the credit agreement is scrapped but am I paying the dealer or the finance company the £11k. And can I pay either using a credit card? I assume the dealer would be fine but using a credit card to pay a finance company feels like using a credit card to pay an overdraft which never worked when I was a student.
I need the debt to be on the credit card so I can move it to the 0% cards.
I'm feeling confident enough about all this that I will risk losing the goodies.
https://www.pistonheads.com/gassing/topic.asp?t=15...
Another question though - if I withdraw within 14 days, the credit agreement is scrapped but am I paying the dealer or the finance company the £11k. And can I pay either using a credit card? I assume the dealer would be fine but using a credit card to pay a finance company feels like using a credit card to pay an overdraft which never worked when I was a student.
I need the debt to be on the credit card so I can move it to the 0% cards.
I'm feeling confident enough about all this that I will risk losing the goodies.
I'm actually a bit annoyed about all this. I was told you could walk away from a £7500 debt using a £6500 car. Worse, in fact - I was told if the car was worth any more than that, the extra would be mine to keep.
So screw them. I'll cancel the day after I get the finance agreement confirmation through.
So screw them. I'll cancel the day after I get the finance agreement confirmation through.
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