Quick PCP Question

[MattyD803]

Evening all,

I’ve spent the last few weeks looking into various PCH deals, having obtained my last few vehicles this way.

Without beating around the bush, despite its Marmite looks and crazy pricing, and after a lot of umming and arring (used gtis, octy vrs, 128ti etc) I’ve decided I’m after a Golf 8 GTi DSG.

The PCH deals being offered up, even direct with decent contacts in the industry, are nothing short of horrendous, compared to my previous deals. For reference, 2yr, 10k are over 30% for the spec I want (Pure white but with reverse cam and heated seats).

By speaking to the guys at Drive the Deal and another dealer, I’ve very quickly become engaged in and open to the “PCP” world, which is all very new to me. Between the two of them, I appear to be getting offered around £5k off list price of the car, which I *think* seems decent enough.

I won’t bore you with the rest of the finer PCP details, but ultimately I’m being quoted a GFV of £14.5k after 42 months on said vehicle. (RRP new is c.£35.5k, dealer has got this down to £30.5k)

Now I know that the GFV is nothing more than a conservative estimate by the dealer, but if after 42 months, the car of that spec and condition is worth say £20k (going by what I can see of 2017/18 mk7.5 cars), am I right in thinking I can buy the car at the fixed GFV and sell it privately in order to recoup some of the previous outlay? And/or use that ‘equity’ for the next deal?

By doing this, I feel a little more comfortable with the monthlies being about £100-120 higher than what I am used to on a lease, on the proviso I am building up a little £5k equity pot over the term.

Is there anything I am missing here? Any thoughts appreciated (assuming it’s not just a general comment against buying a Golf 8 GTi!)

Thanks in advance
Matt

[Sc0tchland]

In my opinion, you will not be in positive equity after the term.

[MrOrange]

Sc0tchland said:

In my opinion, you will not be in positive equity after the term.

But, if you are, you can as you suggested, settle the finance and sell it for more. Be aware, just because a car is up on AT for £X that doesn’t mean you’d get that fugure when you sell. Dealers live on margin and the “£5k equity” is easily evaporated by the spread between buy and sell. Mileage often makes the difference.

Moons ago I bought an Aston and when it came to trade it it was worth £10k more than the settlement due to the finance company. Go figure.

Edited by MrOrange on Wednesday 25th November 22:09

Edited by MrOrange on Wednesday 25th November 22:11

[MattyD803]

Sc0tchland said:

In my opinion, you will not be in positive equity after the term.

Thanks & Noted. Can I ask why you think this? Gut feel? Or something that I have overlooked in my calcs?

Because for reference, I cannot for the life of me find a 3 year old GTi for sale with 25k miles and nice spec for less than £19/20k privately....?

[Sheepshanks]

MattyD803 said:

Now I know that the GFV is nothing more than a conservative estimate by the dealer,

It's a very carefully calculated figure by VWFS. They want it as high as possible as it makes the monthies cheaper. They don't usually get it wrong.

[MattyD803]

MrOrange said:

But, if you are, you can as you suggested, settle the finance and sell it for more. Be aware, just because a car is up on AT for £X that doesn’t mean you’d get that fugure when you sell. Dealers live on margin and the “£5k equity” is easily evaporated by the spread between buy and sell. Mileage often makes the difference.

Edited by MrOrange on Wednesday 25th November 22:09

Ok good point.

[Macneil]

car costs 30k, GFV is 15k, you pay 15k plus interest over the term

Car costs 30k GFV is 20k you pay 10k plus interest over the term

You're paying it either way, you're just paying in advance in your scenario

[MattyD803]

Sheepshanks said:

It's a very carefully calculated figure by VWFS. They want it as high as possible as it makes the monthies cheaper. They don't usually get it wrong.

However, the higher the GFV, the lower monthlies, no? I would actually prefer the GFV to be say £18/19k, as my monthlies would reduce and I wouldn’t need to worry about recouping any costs, just be safe in the knowledge I would walk away at the end with zero equity, if you see what I mean?

[Sheepshanks]

MattyD803 said:

However, the higher the GFV, the lower monthlies, no?

Yes - that's what I said?

[MattyD803]

Macneil said:

car costs 30k, GFV is 15k, you pay 15k plus interest over the term

Car costs 30k GFV is 20k you pay 10k plus interest over the term

You're paying it either way, you're just paying in advance in your scenario

So my rough and ready thinking / assuming & hoping that COVID, Brexit and the drive to electric vehicle don’t completely skew the car buying world in the next 3 years and my GTI is worth £20k, there may well be up to £5k in the pot, based on the figures we’ve discussed...?

[MattyD803]

Sheepshanks said:

Yes - that's what I said?

But that’s not what I’m seeing. I’m seeing a very conservative GFV, meaning I’m effectively paying more per month....? Which I guess is there to cover their risk? As i type this, it is all starting to make more sense....

[Sheepshanks]

MattyD803 said:

But that’s not what I’m seeing. I’m seeing a very conservative GFV, meaning I’m effectively paying more per month....? Which I guess is there to cover their risk? Now this all starts to make sense....

You might be right but for years it been unusual for cars to be worth more than the GFV.

In a perfect world, it'd be worth a couple of £K more and the dealer would use that as a deposit on your next PCP. What's supposed to happen is the dealer calls you 6 months or so before the deal ends and does a deal to roll you into a new car - few people run to the end of longer PCPs. So the lower the GFV the more you'll have paid off and the easier it is to move you into a new car.

[MattyD803]

Sheepshanks said:

You might be right but for years it been unusual for cars to be worth more than the GFV.

In a perfect world, it'd be worth a couple of £K more and the dealer would use that as a deposit on your next PCP. What's supposed to happen is the dealer calls you 6 months or so before the deal ends and does a deal to roll you into a new car - few people run to the end of longer PCPs. So the lower the GFV the more you'll have paid off and the easier it is to move you into a new car.

Thanks. That makes alot of sense.

[Sheepshanks]

A common complaint from people who've got (or had) PCP is the use of the word "Guarantee" in GFV - when the value of the car itself isn't guaranteed at all. The only thing guaranteed is that if you want to keep the car the GFV is the amount you'll have to pay.

So they get to the end of the deal and want to keep the car and they get annoyed because it's only worth £16K but they have to pay the GFV of £18K to keep it.

Hence GFV generally isn't used now - it's called Optional Final Payment.

There's always corner cases where you could come out ahead though - so maybe it would work for you.

[MattyD803]

Sheepshanks said:

A common complaint from people who've got (or had) PCP is the use of the word "Guarantee" in GFV - when the value of the car itself isn't guaranteed at all. The only thing guaranteed is that if you want to keep the car the GFV is the amount you'll have to pay.

So they get to the end of the deal and want to keep the car and they get annoyed because it's only worth £16K but they have to pay the GFV of £18K to keep it.

Hence GFV generally isn't used now - it's called Optional Final Payment.

There's always corner cases where you could come out ahead though - so maybe it would work for you.

Thanks for your response.

This is a big part of my own doubt / confusion of what potentially lies in front of me.

Because I’ve spent quite some time looking at nearly new and up to 3 year old Golfs of similar spec, I think I have convinced myself that a 3.5 year old Mk8 ‘must’ be worth at least £20k by the time I have finished my term...? However, this could well be skewed by the fact that the used car market is unusually strong at the moment...?

The another part of me says, sod it....YOLO

[Chestrockwell]

Can I ask what the deal is, monthlies & mileage?

I’m thinking about going to PCP after my PCH runs out as I went for a car that had the best value for money but I’m not particularly happy with the car and I can’t wait to give it back.

Golf’s are very good cars with strong residuals so I was considering a GTI/R next but I have no idea what the figures are.

[anonymous-user]

MattyD803 said:

But that’s not what I’m seeing. I’m seeing a very conservative GFV, meaning I’m effectively paying more per month....? Which I guess is there to cover their risk? As i type this, it is all starting to make more sense....

You are paying more each month in the scenario with the lower GFV as you are paying off more capital over the term of the agreement - fine if you want to buy the car at the end anyway, not so good if you intend to hand it back at the end of the term. That is assuming the purchase price and interest rate charged is the same in both scenarios.

If you plan to hand the car back, lower monthlies and higher GFV makes sense, unless there is a chance you may want to part-exchange the car midway through your term. If you do that you'll have paid back less capital so there is a higher chance of negative equity.

Just note also that you'll pay interest on the full £30k over the term of your agreement, no matter where the GFV is set.

[anonymous-user]

Chestrockwell said:

Can I ask what the deal is, monthlies & mileage?

I’m thinking about going to PCP after my PCH runs out as I went for a car that had the best value for money but I’m not particularly happy with the car and I can’t wait to give it back.

Golf’s are very good cars with strong residuals so I was considering a GTI/R next but I have no idea what the figures are.

You can get a finance quote example direct from the VW website. Then enter the details into a pcp calculator e.g. CarWow site and use the broker price from Drive the Deal.

The VW quote will only give you the GFV excluding any desired options but will you give you a ballpark figure to run with.

[MattyD803]

yellowbentines said:

You are paying more each month in the scenario with the lower GFV as you are paying off more capital over the term of the agreement - fine if you want to buy the car at the end anyway, not so good if you intend to hand it back at the end of the term. That is assuming the purchase price and interest rate charged is the same in both scenarios.

If you plan to hand the car back, lower monthlies and higher GFV makes sense, unless there is a chance you may want to part-exchange the car midway through your term. If you do that you'll have paid back less capital so there is a higher chance of negative equity.

Just note also that you'll pay interest on the full £30k over the term of your agreement, no matter where the GFV is set.

Many thanks.

[Chestrockwell]

RaymondVanDerDon said:

Chestrockwell said:

Can I ask what the deal is, monthlies & mileage?

I’m thinking about going to PCP after my PCH runs out as I went for a car that had the best value for money but I’m not particularly happy with the car and I can’t wait to give it back.

Golf’s are very good cars with strong residuals so I was considering a GTI/R next but I have no idea what the figures are.

You can get a finance quote example direct from the VW website. Then enter the details into a pcp calculator e.g. CarWow site and use the broker price from Drive the Deal.

The VW quote will only give you the GFV excluding any desired options but will you give you a ballpark figure to run with.

Thanks, I just checked and it’s very pricey!

4500 down, 411 per month, final payment being 14k.

I could get a BMW M2 comp with those figures