PCP finance.

fits

Just thinking on this further. When committing to the PCP deal, the deposit you put down on the car, you don't get any of this back unless you buy it outright at the end of the term. So if you hand back the car at the end of the deal, in Gavman's example, you are essentially paying an astonishing 24,700 for three years of motoring. over 8000 euro a year with no asset at the end of it.

If you refinance the balloon payment (14,500) at current rates with AIB over 3 years, you are paying another 2000 euro in interest. So the car costs in total 4500 euro in interest over 6 years. But you have some asset left at the end.

If you continue with another deal, you never get your deposit back.

Whoever thought up PCP is a genius, it really obfuscates the real costs of car ownership, and locks people into paying interest for years.

bidiots

Agreed.
But what about a scenario with a minimum deposit, 0% rate, slightly higher monthly? PCP may be a viable option if you want to roll the contract into another similar deal in 3 years.

air

I don't think there's anything wrong with PCP so long as you realise you are effectively leasing the car with an option to purchase (at a possible discount to market value) at the end of the lease.

Owning a new car is expensive in depreciation and the cost of the car needs to be financed for the period of ownership.
PCP doesn't change any of this, these are facts of life.

In simple terms PCP is a lease with a deposit required at the start and a mileage cap.
Just keep in mind that you need to save for your next deposit while you pay your monthlies.

Soarer

bidiots wrote: »

Agreed.
But what about a scenario with a minimum deposit, 0% rate, slightly higher monthly? PCP may be a viable option if you want to roll the contract into another similar deal in 3 years.

In an ideal scenario, PCP would definitely work.

But all it takes is something to happen, like having a crash, to scupper everything.

All in all

The main issue is the mis-selling of PCP, it seems you are not able to go into a main dealers to buy a second hand car without PCP being pushed, with the promise of the same monthly payments as you would have with a 2/3 year old car. The options after 3 years are glossed over.

With the high car sales this year, I believe in 3 years the second hand market will be flooded with 2016 cars and prices that people are using as a base of 3 year old cars will be irrelevant (2013 cars now where sales were low and the demand is met imports and supply can be controlled), which will seriously dent the equity that people have in their car if they wish to roll on to 2019 car, which seems to be the majority of peoples preferred option.

bidiots

All in all wrote: »

The main issue is the mis-selling of PCP, it seems you are not able to go into a main dealers to buy a second hand car without PCP being pushed, with the promise of the same monthly payments as you would have with a 2/3 year old car. The options after 3 years are glossed over.

With the high car sales this year, I believe in 3 years the second hand market will be flooded with 2016 cars and prices that people are using as a base of 3 year old cars will be irrelevant (2013 cars now where sales were low and the demand is met imports and supply can be controlled), which will seriously dent the equity that people have in their car if they wish to roll on to 2019 car, which seems to be the majority of peoples preferred option.

That's what I've been saying the last 3 pages... Think I need a trumpet.

sheff the ref

Soarer wrote: »

In an ideal scenario, PCP would definitely work.

But all it takes is something to happen, like having a crash, to scupper everything.

Or putting up a huge amount of mileage!!!

vintagevrs

Soarer wrote: »

In an ideal scenario, PCP would definitely work.

But all it takes is something to happen, like having a crash, to scupper everything.

Can you explain to me how having a crash whilst financing a car using pcp is any worse than someone who is financing it under a different type of package or bought the car with cash?

Lantus

vintagevrs wrote: »

Can you explain to me how having a crash whilst financing a car using pcp is any worse than someone who is financing it under a different type of package or bought the car with cash?

Mileage won't affect it but a crash would lower the real world value potentially wiping out any equity. Insurance companies will pay out a PCP adjustment settlent to account for the loss of value.

fits

fits wrote: »

Just thinking on this further. When committing to the PCP deal, the deposit you put down on the car, you don't get any of this back unless you buy it outright at the end of the term. So if you hand back the car at the end of the deal, in Gavman's example, you are essentially paying an astonishing 24,700 for three years of motoring. over 8000 euro a year with no asset at the end of it.

If you refinance the balloon payment (14,500) at current rates with AIB over 3 years, you are paying another 2000 euro in interest. So the car costs in total 4500 euro in interest over 6 years. But you have some asset left at the end.

If you continue with another deal, you never get your deposit back.

Whoever thought up PCP is a genius, it really obfuscates the real costs of car ownership, and locks people into paying interest for years.

I remarked some weeks ago that a seemingly intelligent colleague was similarly confused regarding the deposit.

The deposit and all of the payments are to cover the PCP period, the GFMV is just what you'll owe at the end if you want to keep the car, the car might & should be worth more so you could have some equity however that's far from guaranteed.

Conisdering the numbers of PCP financed cars out there, 2019 might be interesting when folks who don't fully understand what they've signed up to find out they won't be getting their deposit back & they might not be getting a new one if there isn't enough equity on their 2016 reg.

vintagevrs

Lantus wrote: »

Mileage won't affect it but a crash would lower the real world value potentially wiping out any equity. Insurance companies will pay out a PCP adjustment settlent to account for the loss of value.

The real world value of the car would be lower if it was bought with cash or alternative finance arrangement. Pcp is irrelevant, you are no worse or better off if you crash the car because of the way the car was bought.

bidiots

vintagevrs wrote: »

The real world value of the car would be lower if it was bought with cash or alternative finance arrangement. Pcp is irrelevant, you are no worse or better off if you crash the car because of the way the car was bought.

If you are handing the car back after 3 years, of course it will have an effect.

grogi

vintagevrs wrote: »

The real world value of the car would be lower if it was bought with cash or alternative finance arrangement. Pcp is irrelevant, you are no worse or better off if you crash the car because of the way the car was bought.

A bit of mind spliting? You claim PCP is irrelevant for future value yet the car will have better value if bought on PCP?

Interesting...

vintagevrs

I should have included the word "also". The real world value of the car would also be lower on non pcp bought cars.

Soarer was implying if you are using a pcp package to finance your car, and you have a crash then you're in bother. I am making the point that the method of finance does not have an impact on how much a crash will cost you. If it devalues the car by 5k, then you'll be out that 5k regardless of pcp or whatever way the car was bought.

Lantus

vintagevrs wrote: »

The real world value of the car would be lower if it was bought with cash or alternative finance arrangement. Pcp is irrelevant, you are no worse or better off if you crash the car because of the way the car was bought.

It has a significant bearing because you are in a contract. Take the three options. Buy, roll over, hand it back.

In a normal PCP deal each one should not be detrimental to the consumer. However a car that has devalued due to a crash would require the customer to reinvest potentially thousands to make up for this.

You have no choice but to do this.

Different to having bought a car outright where ideally you can keep the car beyond 3 years. You still see drop in value but you don't hit a contract deadline where you have to do something. At least you can wait it out.

Lantus

As far as I can see PCP deals tend to fall into two main categories.

1/ you want a new car every three years. Keep a low deposit as possible that matches the predicted equity after three years. That way monthly payments remain steady. Use near to zero interest rates as possible.

2/ if you want to keep the car Max out the deposit to reduce payments to reduce interest impact over three years. Again the zero rates are even better. Use that time to ideally save for the final payment. Or prepare for how you will finance the outstanding bit. If you can buy half the car at zero interest then that is a good deal although the repayment period is longer. (5 to 6 years say)

Where PCP falls down is where you use a good valued car as the deposit with the intention to get a new car after three years. Your monthly will rise unless you change car or re invest.

Also some interest deals are especially poor on higher value cars.

Again you have to compare the total running costs of your cars over three years like for like with loans, credit unions etc. Only then will you see the complete picture. Even small improvements in tax, insurance and fuel use can tip the favour towards a newer car in some cases. But not all. It will be specific to your needs and the particular car you want or need.

Soarer

vintagevrs wrote: »

I should have included the word "also". The real world value of the car would also be lower on non pcp bought cars.

Soarer was implying if you are using a pcp package to finance your car, and you have a crash then you're in bother. I am making the point that the method of finance does not have an impact on how much a crash will cost you. If it devalues the car by 5k, then you'll be out that 5k regardless of pcp or whatever way the car was bought.

But if you're using PCP and looking to trade up after 3 years, surely you can see the problem with the car being worth less than the GMFV?

vintagevrs

Of course I can. But that is not unique to pcp was my point. If you buy a car with a case full of cash, or on hp, if you go to change in 3 years time it will be the same scenario. Your trade in will be worth less, that is all.

grogi

Soarer wrote: »

But if you're using PCP and looking to trade up after 3 years, surely you can see the problem with the car being worth less than the GMFV?

Well - in that case a PCP is a brilliant option. Hand it back without any hassle and buy something similar on the open market for less.

monkeysnapper

I'm a person that's always buys cheaper cars straight out , no loans .

I'm thinking of buying my next car now (171) , I want a petrol because I do a lot of small runs to work but with having dogs , children,bikes ect plus a drive to UK once or twice a year want something decent and reliable .

With selling my car private and getting around 2 k plus adding another 2/3 k to deposit I was for the 1st time ever considering buying a new car. A dacia Logan( approx 11.5k)

From what I can see at end of 3 year PCP the car would be paid off and still have another 2 years warranty.

Now I don't see me changing it at year 3 , with my lot can't see car being in any condition

The interest rates seem better than any credit union and there won't be any further loan at end of PCP period .

In people in the knows opinion is this the cheapest route.

Soarer

vintagevrs wrote: »

Of course I can. But that is not unique to pcp was my point. If you buy a car with a case full of cash, or on hp, if you go to change in 3 years time it will be the same scenario. Your trade in will be worth less, that is all.

That's my point.

If you don't use PCP, you don't have a mandatory decision to make in 3 years' time. With PCP, you do.

Therefore, to my mind, you've more freedom with a regular loan.

Soarer

grogi wrote: »

Well - in that case a PCP is a brilliant option. Hand it back without any hassle and buy something similar on the open market for less.

Don't think you understand what happens when you try hand back a car when you haven't met the conditions of the PCP contract.

Do you actually think you can rag the car for 3 years, and you can just hand it back?

Soarer

@ monkeysnapper. Have a look at Nissan. Think they'll still give you €4k for your old car, so with your deposit, you'll have €7k off whatever the sticker price is.

fits

monkeysnapper wrote: »

From what I can see at end of 3 year PCP the car would be paid off and still have another 2 years warranty.

Now I don't see me changing it at year 3 , with my lot can't see car being in any condition

The interest rates seem better than any credit union and there won't be any further loan at end of PCP period .

In people in the knows opinion is this the cheapest route.

It might be. It might not. Calculate the actual interest you will be charged and compare with hire purchase, credit union etc. using the same deposit against the principal. Also 0% deals often have a more expensive purchase price so factor that in as well.

Edit the car wouldn't be paid off at year 3 unless you come up with final balloon payment

26000 Elephants

vintagevrs wrote: »

Of course I can. But that is not unique to pcp was my point. If you buy a car with a case full of cash, or on hp, if you go to change in 3 years time it will be the same scenario. Your trade in will be worth less, that is all.

The difference is that you are forced to settle your position at end year 3. You will have to crystalise the loss, or use your insurance to do so.

If you owned the car you could have postponed that for a few years and reduce its impact.

By financing/paying yourself, you give yourself several more options than PCP.

vintagevrs

But if you owned the car you would have paid the full amount for the car already. It's 6 of one.

Lantus

Soarer wrote: »

@ monkeysnapper. Have a look at Nissan. Think they'll still give you €4k for your old car, so with your deposit, you'll have €7k off whatever the sticker price is.

Interest rates are high though. Your cost of credit could easily exceed 4k on all the cars I looked at. They run a special 4% PCP deal but the mileage is 10k a year which is a trip to the shops and a short run to the country once a week. Not for anyone who needs to drive anywhere presumably.

Just run the numbers over and over. Personally I couldn't make it stack up.

mickdw

26000 Elephants wrote: »

The difference is that you are forced to settle your position at end year 3. You will have to crystalise the loss, or use your insurance to do so.

If you owned the car you could have postponed that for a few years and reduce its impact.

By financing/paying yourself, you give yourself several more options than PCP.

But you can just op to keep the car via another couple of years finance and wait it out as you would be doing if you owned the car from the start.

Zonda999

http://www.independent.ie/life/motoring/car-news/10-things-you-still-need-to-understand-about-pcps-before-you-buy-a-new-car-34970473.html

I'm genuinely surprised the independent actually have documented some of the truth about PCP in the above piece, because whether it be a property boom or whatever, I always assume they're only prerogative is to encourage its continuation.

4. Equity is NOT the GMFV. Lots of people think it is. Equity is whatever the car is worth, or you can get, over and above the Guaranteed Minimum Value at a particular point in time. Say the car has a GMFV of €10,000. Say the market happens to be strong when you come to renew and you can get €13,000.

Your equity is the GMFV minus the market value - which is €3,000. That's the bit that can go towards your next deposit.

5. It follows from this that it is vital your PCP is structured in such a way that you are not left with a huge gap to bridge when you come to sign up for another car. That is where you have to make sure you are getting a realistic GMFV.

The above here is the most important thing, which I think an awful lot of people are confused about.

bidiots

As I said before, if people use the term Balloon payment rather than GMFV, that gets rid of a lot of confusion.

26000 Elephants

mickdw wrote: »

But you can just op to keep the car via another couple of years finance and wait it out as you would be doing if you owned the car from the start.

You certainly could - but if you PCP'ed in the first place, you more than likely will be itching for a new car in 3 years. Isn't that the idea?

GavMan

https://www.facebook.com/LindersRenault/videos/1086595284751529/

Is he being economical with the truth here when explaining where you're paying interest? I thought you were paying interest on the invoice price minus deposit and/or trade in. Here he seems to suggest you're not paying interest on the GFMV amount either

Zonda999

GavMan wrote: »

https://www.facebook.com/LindersRenault/videos/1086595284751529/

Is he being economical with the truth here when explaining where you're paying interest? I thought you were paying interest on the invoice price minus deposit and/or trade in. Here he seems to suggest you're not paying interest on the GFMV amount either

That is indeed what he seems to be mplying.

In fairness, he's at least being honest when he says that he and the manufacturer would want you to get a new car in three years time, as if we ever needed any confirmation of that. But IMHO, there's also something of a contradiction when they mentioned the "equity you've built up" while also mentioning that you have certainty over the depreciation by way of the GMFV. It doesn't work both ways, ether you'll be paying another lump sum toward the deposit or facing higher monthly repayments on the next PCP term

spuddy

GavMan wrote: »

https://www.facebook.com/LindersRenault/videos/1086595284751529/

Is he being economical with the truth here when explaining where you're paying interest? I thought you were paying interest on the invoice price minus deposit and/or trade in. Here he seems to suggest you're not paying interest on the GFMV amount either

Saying that you're effectively leasing a 1/3 of the car, but still owe the GFMV, so are being charged interest on 2/3's of it, is no great secret. I actually found him quite refreshing. Considering how frank is he otherwise, I can't help but feel he's let himself down by skipping over this point.

jca

spuddy wrote: »

Saying that you're effectively leasing a 1/3 of the car, but still owe the GFMV, so are being charged interest on 2/3's of it, is no great secret. I actually found him quite refreshing. Considering how frank is he otherwise, I can't help but feel he's let himself down by skipping over this point.

Maybe that's how he thinks it works. That's how I thought it worked until I started following this thread.

grogi

I don't know why, but I felt it deserves a place in this thread...

NIMAN

Perhaps some experts could drop me some advice on my current predicament.

I own a 13 Focus, and was thinking of changing up to a 15 car, more than likely a Golf.

Now my original plan was to just trade-in the Focus, add cash and take the newer car. My current car is valued at €14k, and I would have to add approx €7k to change.

I saw VWs 0% finance plans on their Highline models, and decided to enquire about that option, taking a new 162 Golf.

So there is a max deposit, which would mean the dealer would take the Focus but give me back approx €5000.
Then I'd pay €290 / month for 36 months (€10450), with a balloon payment of €10200.

So I'm trying to work out if it would be better for me to buy a 15 car with cash thats already depreciated, or avail of 3yrs of 0% finance and get a new car? In 3 years time, say the Golf is worth €15k, then that means I would have approx €5k to carry into a new deal (considering I am also getting almost €5k back now as a refund from the dealer).

So what would you choose? Go 2nd hand with cash or new with PCP?

vintagevrs

New golf is gonna cst you 29k and 2nd hand one 21k? The newer one will depreciate harder than the year old car.

Were you going to finance the 7k or do you have that? If you have it i would buy the 15 plate.

grogi

NIMAN wrote: »

Perhaps some experts could drop me some advice on my current predicament.

I own a 13 Focus, and was thinking of changing up to a 15 car, more than likely a Golf.

/.../

So what would you choose? Go 2nd hand with cash or new with PCP?

The most fundamental question is - why do you want to change the Focus? If you got bored of it and want to try something else, you feel it is too old now, your Fold dealer is a wanker but VW guys are sound etc.?

IMHO if you will want to get another car when the one you get now turns 3 years old, get the PCP deal. You'll get have three years of motoring with predictable costs. Can you put those €5k the dealer will give you back against your mortgage (if you're not on tracker of course...)

But if you just get bored with cars very fast, don't get new cars - unless you really can afford it and really want to. You'd be financing the biggest depreciation for the next buyer.

NIMAN

I am looking to change mainly to keep a fresh car, which will likely give me less bother, need less repairs, not need NCT, etc.

We made the mistake a while back of buying a car and keeping it til it was giving a lot of bother, so I would always like to keep a car thats pre-NCT if possible, so maybe up to 4 yrs old max. So by this logic, maybe PCP is the way to go? If I always want to change every 2 or 3 yrs, perhaps changing to a new car is best idea? I was just wondering if I would end up losing the collateral I have built up in the 13 car I now own outright faster going new with PCP than secondhand with cash?

I bought the 13 Focus in Jan 2015, so trading to a 15 now seems the logical thing to do.

As for VW over Ford, no Ford gave me no bother, but I was a Golf driver in the past and think its a better car than the Focus and would like to get back to the Golf. Hence that reason.

Soarer

Heard on the radio there that Renault are offering 0% PCP on new Clios.

Might suit.

Lantus

NIMAN wrote: »

Perhaps some experts could drop me some advice on my current predicament.

I own a 13 Focus, and was thinking of changing up to a 15 car, more than likely a Golf.

Now my original plan was to just trade-in the Focus, add cash and take the newer car. My current car is valued at €14k, and I would have to add approx €7k to change.

I saw VWs 0% finance plans on their Highline models, and decided to enquire about that option, taking a new 162 Golf.

So there is a max deposit, which would mean the dealer would take the Focus but give me back approx €5000.
Then I'd pay €290 / month for 36 months (€10450), with a balloon payment of €10200.

So I'm trying to work out if it would be better for me to buy a 15 car with cash thats already depreciated, or avail of 3yrs of 0% finance and get a new car? In 3 years time, say the Golf is worth €15k, then that means I would have approx €5k to carry into a new deal (considering I am also getting almost €5k back now as a refund from the dealer).

So what would you choose? Go 2nd hand with cash or new with PCP?

If your going to max the deposit then I'd be looking to keep the car. Remember your monthly payments are determined by the deposit. So after 3 years the equity in the car (real world value vs gmfv) will be the same whether you started with a 10,20 or 30℅ deposit.

The equity is probably equal to around 10-15℅ deposit. So if you started with that then your monthly payments will be similar moving into your second 3 year deal. But with the 30℅ deposit your monthly will jump massively unless you inject more deposit the second time around.

Run the numbers with a lower deposit and push dealer for real world equity examples. Then be a little conservative based on their answer. If it still makes sense and you want a new car every 3 years then go for it.

Ultimately you need to compare the second hand route with the PCP route and compare everything over 3 to 6 years. Interest, capital payments, running costs etc. That will give you the financial answer. Then you need to ask what it is you really want to drive and if your willing to pay for it.

Edit: with say 4500 equity moving forward your monthly payment will be around 420 a month on the same car.

It's only 290 because you have given the dealer more cash up front. That also assumes zero interest in three years time. Is 420 affordable?

GavMan

Soarer wrote: »

Heard on the radio there that Renault are offering 0% PCP on new Clios.

Must be a new model due out

lawred2

Deleted User wrote: »

I used to think that blowing savings on a car was mad, which maybe it is but if you're buying a car I think it's better to use money that you got than to borrow and pay interest however on VW low interest it would probably make more sense to just borrow the money and pay as you drive.

I think I agree with bpmull though that pcp is made to look attractive for people that don't have the money. I'm not sure if garages are making ultra clear that after the 3 years you got to come up with the same deposit again.

I think a lot of the advertised pcp deals deliberately try to make people think that they will have much more than the gfv to use as a deposit but they will need to come up with much more even if you do get more than the gfv.

In other words your cheap 300 a month turns into 500-550 because you got to add up what you'll need to pay to be able to come up with the deposit in 3 years.

I was under the impression that the car you were returning was that deposit

Now I always buy with at least 60% deposit so I never do PCP but still I thought that's how it was supposed to work.

grogi

lawred2 wrote: »

I was under the impression that the car you were returning was that deposit

No, it is not.

The deposit is formed from the difference between the value of the car you are returning (or how much the dealer wants to pay for it) and the money you still owe (also called Guaranteed Future Value).

acronym Chilli

lawred2 wrote: »

I was under the impression that the car you were returning was that deposit

Now I always buy with at least 60% deposit so I never do PCP but still I thought that's how it was supposed to work.

That's not how it works, and Grogi has it right in the following post.

However, it's how i imagined it worked the first time I saw it described.

So many times, here and on other forums, folk say that "everyone knows how PCP works, it's just another alternative to finance a car". It is just a financing instrument, but this post and others highlight that lots of people don't get it, and I don't think many car dealers are going to work hard to disabuse people of a faulty interpretation.

lawred2

acronym Chilli wrote: »

That's not how it works, and Grogi has it right in the following post.

However, it's how i imagined it worked the first time I saw it described.

So many times, here and on other forums, folk say that "everyone knows how PCP works, it's just another alternative to finance a car". It is just a financing instrument, but this post and others highlight that lots of people don't get it, and I don't think many car dealers are going to work hard to disabuse people of a faulty interpretation.

Well in my defence I never needed to get informed about it... I don't like starting with less than 50% equity in anything.

My house on the other hand broke that rule

In fact most cars I've bought have been with cash. It's just the last one was needed a little sooner than I'd have liked. An extra addition to the family rendered the previous unsuitable.

NIMAN

NIMAN wrote: »

...... My current car is valued at €14k, and I would have to add approx €7k to change.

.....

So there is a max deposit, which would mean the dealer would take the Focus but give me back approx €5000.
Then I'd pay €290 / month for 36 months (€10450), with a balloon payment of €10200.
.....
So what would you choose? Go 2nd hand with cash or new with PCP?

Are the VW dealer valuing your Focus at 14k? If so a 29.5k highline golf is a serious upgrade on a Focus.

Late in the year though.... could you push for a 171 with same figures?

bazz26

The Golf is getting a mid life facelift towards the end of this year and they recently upgraded the Highline spec on existing models so I'd imagine there is a push now by VW to sell existing stock. Spec on the facelifted Highline model could also potentially end up reduced for MY17. If it were me I'd try and get a current model Highline now as spec wise it is very good value.

Toyotafanboi

They are similar to the figures we got on our Golf, 162 Highline on 0%, it's working out @ €260 x 36 and €9500 final payment. Got €500 cash back for the old car too as it was valued over the max deposit.

Couldn't have went 171 for the same money. It was made clear that there's a good incentive to move current stock and get it reg'd asap.