4 year PCP catch
Discussion
I'm looking at a car on PCP, intending to keep it for 3 years. The salesman says it's best to get a 4 year PCP deal, even if I intend to hand back at the end of year 3 (and walk away). He's shown me the numbers, and the monthly payments work out lower than 3 year deal.
Surely there's a catch to this?
Thanks
Surely there's a catch to this?
Thanks
VWW said:
I'm looking at a car on PCP, intending to keep it for 3 years. The salesman says it's best to get a 4 year PCP deal, even if I intend to hand back at the end of year 3 (and walk away). He's shown me the numbers, and the monthly payments work out lower than 3 year deal.
Surely there's a catch to this?
Thanks
Of course the payments will be lower! Same amount borrowed over a year longer = lower payments. As previous poster said, you will pay more interest though, unless 0% APR. Surely there's a catch to this?
Thanks
You won't be able to walk away at year 3 without penalty unless your car is worth more than what is owed on finance (unlikely). If you want to give the car back at year 3, stick to a 3 year PCP or look at leasing a car.
VWW said:
Surely there's a catch to this?
Yes - you!From the dealer / manufacturer point-of-view, they want to get you hooked by PCP and then at 3yrs offer you a deal to switch to a new car (and new PCP, of course) at a price that make it a no-brainer.
I guess where this might go wrong is if market conditions meant the offer wasn't attractive. You're then having to VT out of the car, or stick with it until the end of the deal.
nmd87 said:
I had a car on a 48 month PCP and VTed at 30 months so it is possible. Depends on the GFV of course as that determines how much you would have paid at 36 months.
That’s rare though. Most PCPs are now set up (deliberately or otherwise) that on a 4yr Deal the VT point is around month 42. OP - I’d only do such a long deal if I had every intention of keeping the car long-term, otherwise it’s a false economy. Pay the extra and do the 3yr if you can.
Yes it is possible.
Look at the total amount payable. When you reach the 50% point of this figure then you are able to Voluntary Terminate (VT).
Example:
Term of agreement 48 months
47 monthly payments £249
On the road cash price £24,600
Your deposit £4,549
Deposit contribution £2,621.33
Total deposit £7,170.33
Total amount of credit £17,429.67
Optional final payment £8,208.45
Total amount payable £27,079.78
In this example, total payable is (47 * £249) + £8,206.45 + £7,170.33 = £27,079.78
50% is £13,539.89
As you have already paid a deposit of £7,170.33 then the balance is £19,909.45.
£19,909.45 - £13,539.89 = £6369.56.
If you divide this figure by your monthly payment amount (£249) you get 25 i.e. it will take 25 months to have paid half the balance therefore you can VT at this point.
In this example though you would have put in a deposit of £4549 so if you add this to the fact you've then paid 25 x £249 = £6369 then the total you will have paid will be £10,918. Divide this figure by 25 means you will effectively have paid £436/month for the car.
Bear in mind if you VT you are handing it back; you''ll never see your deposit again so you need to weigh up whether you feel that amount per month is worth it for the car you are buying.
Look at the total amount payable. When you reach the 50% point of this figure then you are able to Voluntary Terminate (VT).
Example:
Term of agreement 48 months
47 monthly payments £249
On the road cash price £24,600
Your deposit £4,549
Deposit contribution £2,621.33
Total deposit £7,170.33
Total amount of credit £17,429.67
Optional final payment £8,208.45
Total amount payable £27,079.78
In this example, total payable is (47 * £249) + £8,206.45 + £7,170.33 = £27,079.78
50% is £13,539.89
As you have already paid a deposit of £7,170.33 then the balance is £19,909.45.
£19,909.45 - £13,539.89 = £6369.56.
If you divide this figure by your monthly payment amount (£249) you get 25 i.e. it will take 25 months to have paid half the balance therefore you can VT at this point.
In this example though you would have put in a deposit of £4549 so if you add this to the fact you've then paid 25 x £249 = £6369 then the total you will have paid will be £10,918. Divide this figure by 25 means you will effectively have paid £436/month for the car.
Bear in mind if you VT you are handing it back; you''ll never see your deposit again so you need to weigh up whether you feel that amount per month is worth it for the car you are buying.
- edited to correct figures / calculations!*
Edited by snorkel sucker on Tuesday 19th February 10:26
Edited by snorkel sucker on Tuesday 19th February 10:28
snorkel sucker said:
Yes it is possible.
Look at the amount of credit i.e. the finance figure after deposits. When you reach the 50% point of this figure then you are able to Voluntary Terminate (VT).
Example:
Term of agreement 48 months
47 monthly payments £249
On the road cash price £24,600
Your deposit £4,549
Deposit contribution £2,621.33
Total deposit £7,170.33
Total amount of credit £17,429.67
Optional final payment £8,208.45
Total amount payable £27,081.78
Rate of interest 4.9% Fixed
So total amount of credit is £17,429. If you divide this by half you get £8,714. If you divide this figure by your monthly payment amount (£249) you get 35 i.e. it will take 35 months to have paid half the balance therefore you can VT at this point.
In this example though you would have put in a deposit of £4549 so if you divide this figure by 35 also to get £130/month so add this to £249 and you will effectively have paid £379/month for the car.
Bear in mind if you VT you are handing it back; you''ll never see your deposit again so you need to weigh up whether you feel £379/month is worth it for the car you are buying.
Is it not £27,081.78 minus £7170.33 = £19,911.45/2 = £9955.73/ £249 = 40 months?Look at the amount of credit i.e. the finance figure after deposits. When you reach the 50% point of this figure then you are able to Voluntary Terminate (VT).
Example:
Term of agreement 48 months
47 monthly payments £249
On the road cash price £24,600
Your deposit £4,549
Deposit contribution £2,621.33
Total deposit £7,170.33
Total amount of credit £17,429.67
Optional final payment £8,208.45
Total amount payable £27,081.78
Rate of interest 4.9% Fixed
So total amount of credit is £17,429. If you divide this by half you get £8,714. If you divide this figure by your monthly payment amount (£249) you get 35 i.e. it will take 35 months to have paid half the balance therefore you can VT at this point.
In this example though you would have put in a deposit of £4549 so if you divide this figure by 35 also to get £130/month so add this to £249 and you will effectively have paid £379/month for the car.
Bear in mind if you VT you are handing it back; you''ll never see your deposit again so you need to weigh up whether you feel £379/month is worth it for the car you are buying.
I’am probably wrong and will be corrected shortly!
Camelot1971 said:
Of course the payments will be lower! Same amount borrowed over a year longer = lower payments.
It's not the same ... you're funding 4 year's depreciation, not 3, although the fourth year's depreciation tends to be less steep.I've done exactly this - taken a 4 year PCP deal and plan to change / VT after 3.
You need to pay off 50% of the total value borrowed (should be shown clearly on your paperwork) which includes any deposits (dealer and personal), but not discounts.
I was fortunate enough to get a deal on 0% with a generous discount and dealer deposit (and put £5k in myself) and am able to VT before I'm 3 years in.
I don't really want to, but I have a hankering for an Alfa again.
It isn't 50% of the total amount borrowed, it is 50% of the total amount payable; borrow £10,000 but with interest you would have paid back £12,000 at the end of the agreement, this means when you have paid back £6000 then the car can be VT'd, not £5000 (which is 50% of what was borrowed).
Barga said:
Is it not £27,081.78 minus £7170.33 = £19,911.45/2 = £9955.73/ £249 = 40 months?
I’am probably wrong and will be corrected shortly!
If we take the legal requirement literally then ‘half of the total amount payable’ is £27,081.78 / 2 is it not? Should not the deposit count towards the half you need to pay? Your approach is giving credit for only half of the deposit paid.I’am probably wrong and will be corrected shortly!
Hang On said:
Barga said:
Is it not £27,081.78 minus £7170.33 = £19,911.45/2 = £9955.73/ £249 = 40 months?
I’am probably wrong and will be corrected shortly!
If we take the legal requirement literally then ‘half of the total amount payable’ is £27,081.78 / 2 is it not? Should not the deposit count towards the half you need to pay? Your approach is giving credit for only half of the deposit paid.I’am probably wrong and will be corrected shortly!
Hang On said:
If we take the legal requirement literally then ‘half of the total amount payable’ is £27,081.78 / 2 is it not? Should not the deposit count towards the half you need to pay? Your approach is giving credit for only half of the deposit paid.
Hang On is correct.VT point on this is 26 months.
TAP is £27081.78
Half is £13540.50
Deposit counts towards the "half", so VT point is (13540.50 - 7170) / 249 = 25.58
More importantly, a deposit of that size will be largely if not entirely burned whether you take a 3 year agreement or settle a 4 year agreement early.
Let me have the 4 year figures and I'll calculate the settlement figure at month 36 for you.
If your intended change date is 3 years then advantage of taking the 4 year deal over the 3 year deal is that you have the flexibility to wait until month 39 ( or 42, or 48 ) if there is a delay in delivery or the promise of a new model or a better deal shortly after your preferred change date.
ETA - Acknowledgment to HTP who posted just before I started my reply
Edited by Wooda80 on Tuesday 19th February 09:49
HTP99 said:
Hang On said:
Barga said:
Is it not £27,081.78 minus £7170.33 = £19,911.45/2 = £9955.73/ £249 = 40 months?
I’am probably wrong and will be corrected shortly!
If we take the legal requirement literally then ‘half of the total amount payable’ is £27,081.78 / 2 is it not? Should not the deposit count towards the half you need to pay? Your approach is giving credit for only half of the deposit paid.I’am probably wrong and will be corrected shortly!
snorkel sucker said:
Yes it is possible.
Look at the amount of credit i.e. the finance figure after deposits. When you reach the 50% point of this figure then you are able to Voluntary Terminate (VT).
Example:
Term of agreement 48 months
47 monthly payments £249
On the road cash price £24,600
Your deposit £4,549
Deposit contribution £2,621.33
Total deposit £7,170.33
Total amount of credit £17,429.67
Optional final payment £8,208.45
Total amount payable £27,081.78
Rate of interest 4.9% Fixed
So total amount of credit is £17,429. If you divide this by half you get £8,714. If you divide this figure by your monthly payment amount (£249) you get 35 i.e. it will take 35 months to have paid half the balance therefore you can VT at this point.
In this example though you would have put in a deposit of £4549 so if you divide this figure by 35 also to get £130/month so add this to £249 and you will effectively have paid £379/month for the car.
Bear in mind if you VT you are handing it back; you''ll never see your deposit again so you need to weigh up whether you feel £379/month is worth it for the car you are buying.
In this example, total payable is (47 * £249) + £8,206.45 + £7,170.33 = £27,079.78Look at the amount of credit i.e. the finance figure after deposits. When you reach the 50% point of this figure then you are able to Voluntary Terminate (VT).
Example:
Term of agreement 48 months
47 monthly payments £249
On the road cash price £24,600
Your deposit £4,549
Deposit contribution £2,621.33
Total deposit £7,170.33
Total amount of credit £17,429.67
Optional final payment £8,208.45
Total amount payable £27,081.78
Rate of interest 4.9% Fixed
So total amount of credit is £17,429. If you divide this by half you get £8,714. If you divide this figure by your monthly payment amount (£249) you get 35 i.e. it will take 35 months to have paid half the balance therefore you can VT at this point.
In this example though you would have put in a deposit of £4549 so if you divide this figure by 35 also to get £130/month so add this to £249 and you will effectively have paid £379/month for the car.
Bear in mind if you VT you are handing it back; you''ll never see your deposit again so you need to weigh up whether you feel £379/month is worth it for the car you are buying.
50% is £13,539.89
VT point is (£13,539.89 - £7,170.33) / £249 = Month 26
The amount of credit is irrelevant when calculating VT
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