PCP help/maths homework

[jw673]

marcg said:

So I need to pin down why the dealer thinks I can walk away at month 24.

marcg said:

I was told you could walk away from a £7500 debt using a £6500 car.

It really is simple - the salesman wanted you to buy the car, and he'll get the greatest benefit from this transaction if you take the 10.9% APR PCP and whatever else he can tack onto the finance (maybe add super-duper paint protection onto the paperwork). If this means bamboozling you with similar sounding terms and giving you the (false) impression you can get away with only making 24 payments into a 44 month, 10.9% APR, PCP and you're guaranteed to be able to walk away with no more costs - no problem! - he gets paid. You would be the one signing the HP contract where the actual facts will all be there in black and white.<PH>It isn't the salesperson’s fault that he may have ‘misspoken’ or given you the impression that a 10.9% APR PCP is a good deal cheaper than paying for it by other methods. You have plainly misunderstood everything that was said to you; car finance salesmen do not lie! - that’s fake news!</PH>.

If VWFS would have let you pay the difference, at month 24, between your payments and the Voluntary Termination point - then you could VT at month 24. It would however still cost you the same VT@50% (incl. initial payment) over the 24 month term. You could also settle the PCP at any point although this would not be invoking the Voluntary Termination you would have been relying on to walk away.

If you withdraw within the 14 days then I believe (TBC) you're then on the hook directly to the dealer to pay for the car. If you're intending to pay entirely on a credit card you'll also need to take into account a) if they'll be ok with this and b) the credit card transaction charge applied by the dealer (i.e. in addition to whatever percentage is applied when eventually moving the debt to a 0% card).

Note: Your repayment example/working above is incorrect*. A PCP is basically a loan of two halves running in parallel - in your case a "normal" repayment loan (i.e. repayment + interest) of £6100 (or £6600 if including the 'deposit' as the initial payment), and an interest only loan of £4400 (the GFV). It is for this reason a PCP compared to "normal" HP, given the same underlying funding cost (e.g. 5.7% flat), will always have a higher % APR. This does not however account for the difference between your ~6% APR (~2.9% flat) loan/HP example and 10.9% APR PCP - this particular PCP is just an expensive way to finance the car.

* See: OFT144 "Credit Charges and APR" under "An ‘option’ hire-purchase agreement"

It's lucky you've posted on a bank holiday - you're only hours away from being in the middle of a 20-page, PH cliché, PCP/car finance/consumer credit/no pension bloodbath. You should add something in about McLaren for the full PH trifecta in the morning.

[DuraAce]

I took 48 month PCP to get the incentives (2x services and £1500 deposit contribution in my case). Repaid PCP after one month with 48 month personal loan at much better rate. All incentives retained (this was with VWFS as well)

Result? Car was fully paid off after those 48 months, no balloon. Monthlies weren't much higher with the loan.

There is only one winner when you sign a 11% PCP and it isn't the customer!

If for whatever reason you only want a car for a fixed period of 2 years then lease one instead. I bought mine as I want to keep it long term.

[marcg]

I wonder if PCP makes more sense with new cars - maybe the depreciation outstrips the PCP so the 50% point is worth something. Whatever. That's not relevant to me.

[rsbmw]

The trick to take out the PCP for the goodies and then pay it off is not to withdraw from the finance (at which point you owe the dealer), but to pay it off directly to the finance company, as is your right.

Also, you can negotiate on interest rate in this type of deal, I would be surprised if you couldn't get it to at least 7.9%.

[Sheepshanks]

jw673 said:

If you withdraw within the 14 days then I believe (TBC) you're then on the hook directly to the dealer to pay for the car. If you're intending to pay entirely on a credit card you'll also need to take into account a) if they'll be ok with this and b) the credit card transaction charge applied by the dealer (i.e. in addition to whatever percentage is applied when eventually moving the debt to a 0% card).

You pay the finance company. You can't pay with a credit card.

If you Withdraw, VWFS freeze the interest charge from the point you say "I want to Withdraw" and you then have 30 days to pay. I found VWFS almost bizarrely helpful during the process.

[Sheepshanks]

marcg said:

I wonder if PCP makes more sense with new cars - maybe the depreciation outstrips the PCP so the 50% point is worth something. Whatever. That's not relevant to me.

PCP is intended to keep car factories busy churning out new cars by getting people on a treadmill of changing their car every 3yrs. For the unwary, and those who are crap with money, it's a bit of a trap.

Often on new cars there will be a deposit contribution and subsidised interest rate. When you get to the end of the deal the car is likely to be worth about the same as Optional Final Payment. If you have to borrow the money to pay the final payment then for about the same monthly you could get a new PCP - guess what most people do?

The more switched on dealers will often call people at 2 yrs or so and offer to get them into a new car for a similar monthly payment - people usually jump at that.

So in both cases the car factory gets to build a new car and the customer is kept on the treadmill.

It doesn't really work for used cars as there aren't the same levels of support available.

[hornetrider]

marcg said:

I wonder if PCP makes more sense with new cars

It does because you generally get a better APR rate and also a manufacturer deposit contribution.

I would avoid a PCP on a used car like the plague. Either buy it outright with cash you have, or get a low cost loan from a proper bank and buy the car with that.

Edit: all this stuff you were adding in earlier about opportunity costs for the cash in terms of interest rates on savings is just confusing flannel.

[daemon]

hornetrider said:

marcg said:

I wonder if PCP makes more sense with new cars

It does because you generally get a better APR rate and also a manufacturer deposit contribution.

I would avoid a PCP on a used car like the plague. Either buy it outright with cash you have, or get a low cost loan from a proper bank and buy the car with that.

Edit: all this stuff you were adding in earlier about opportunity costs for the cash in terms of interest rates on savings is just confusing flannel.

+1

The VW used car PCP plan is at a particularly high APR - something like 10.9%. This completely destroys any hope of benefit from going down the PCP route.

[marcg]

hornetrider said:

Edit: all this stuff you were adding in earlier about opportunity costs for the cash in terms of interest rates on savings is just confusing flannel.

Yup.

Sheepshanks said:

You pay the finance company. You can't pay with a credit card.

If you Withdraw, VWFS freeze the interest charge from the point you say "I want to Withdraw" and you then have 30 days to pay. I found VWFS almost bizarrely helpful during the process.

That's good to know - the dealer is unlikely to be able to get involved in withdrawing the goodies if I am talking directly to VWFS.

Is there a best-practice process for this? Is it better to withdraw in the cooling off period or after a month?

[Scootersp]

"Recent car sales (well over last 10 years): £8k 320d sold for £1500 after two years, £3500 RX8 sold for £1000 after 18 months, £5500 mini about to be sold for £2000 after three years. None of these cars had problems and were all bought trade and couldn't sell privately even at trade-in value. I might be rubbish at selling cars or it might be my taste in cars is too niche. Whatever, I'm going to assume it's not going to change.
Next, I like warranties, especially manufacturers' ones. I usually take out a 1 year warranty from an aftermarket company but have never claimed yet. But still, I like the comfort."

I would focus on the above, you seem to have done well buying cars (if you had no major problems), every used car was someone's private car (they probably struggled to sell!) with dealer profit added on. If you have access to personal loan finance maybe take a punt on a private buy (even if you get an inspection done for peace of mind). It doesn't always work out but you can be a good grand or two to the good before you even start?

[marcg]

I don't know if my taste is too fussy or if I'm in the wrong part of the world for used cars but I always seem to have a difficult spec to look for which ends up being either in the hands of a dealer or private but at an asking price similar once you add on the warranty.

The cheapest beetle in my search - black, sport, any engine apart from the 1.2TSI, <40k miles - was £10k and 90 minutes away. The dealer one was £11k, 40 minutes away and came with the goodies worth £650 to me.

So £350 to buy it from a dealer - I never saw the £10k one but the £11k one is basically a new car - no scratches, nothing.

[Sheepshanks]

marcg said:

Is there a best-practice process for this? Is it better to withdraw in the cooling off period or after a
month?

You've got to Withdraw within 14 days of signing the documents.

After that you're Settling.

I signed a couple of days before getting the car, then waited about a week to make sure the car was OK (if there's an issue with the car and you wanted to reject it, it can be helpful if the car is on finance) and then called VWFS and got them to confirm how much I'd have to pay if I Withdrew. Then I said I wanted to go ahead. Interest is just charged for the few days you've had the car until you Withdraw. On a £25K deal at 4.9% APR I paid about £30.

I think I said earlier that an advantage in Withdrawing is you avoid the Document and Final Payment fees which used to be a couple of hundred quid. On the deal we had they were only £10.

So there's probably not a great deal of difference now. Obviously if you let the finance run a month and then you ask to Settle then you'll end up paying about 3 months interest. I'm guessing here, but I'm thinking somewhere in the £2-300 kind of area.

With Settling you will definitely keep any incentives such as free servicing etc. It's a bit less certain if you Withdraw. Really, it's a bit odd that they let you keep the deposit contribution when Withdrawing, but they do.

[marcg]

I've got the final documents through for signing. There is one clause I think I'm clear on but would appreciate second opinions:

"Termination: Your Rights
You have a right to end this agreement. To do so, you should write to the person you make your payments to. They will then be entitled to the return of the goods and to half the total amount payable under this agreement, that is £6,996.50. If you have already paid at least this amount plus any overdue instalments and have taken reasonable care of the goods, you will not have to pay any more."

This is voluntary termination, not early settlement, right?

I haven't reviewed this, but there is a Right to settle, isn't there? As in, VW can't refuse to accept early settlement or force me to hand back the car?

[marcg]

Actually, settling would cost me 3 months interest ~£300 which, with the additional cost of trade over private would pretty much negate the goodies. So I will withdraw instead.

[markstev0]

marcg said:

I've got the final documents through for signing. There is one clause I think I'm clear on but would appreciate second opinions:

"Termination: Your Rights
You have a right to end this agreement. To do so, you should write to the person you make your payments to. They will then be entitled to the return of the goods and to half the total amount payable under this agreement, that is £6,996.50. If you have already paid at least this amount plus any overdue instalments and have taken reasonable care of the goods, you will not have to pay any more."

This is voluntary termination, not early settlement, right?

I haven't reviewed this, but there is a Right to settle, isn't there? As in, VW can't refuse to accept early settlement or force me to hand back the car?

As it says, it is termination. When taking out any finance agreement you can settle at any time you wish all you need to do is ring the finance company and they will give you a settlement figure. If you settle the finance with your own funds then the car is yours, If you wait till you have paid half and VT then the finance company get the car back. So if you are paying £211 a month then you will be able to VT at approx month 33. If you see through the full agreement and then pay the final balloon the £11000 car will in effect of cost you £13993.

Getting a personal loan of £11K over 44 months works out at £265 monthly(£54 per month more). paying back £11663 so only £663 interest and you have the benefit of being able to do what you please with the car, sell it at anytime.

I know what id be doing