PCP finance.

Falcon L

Stallingrad wrote: »

I'm suspicious of anything that suits the car manufacturers and lenders so well. While interest rates are low now, what happens in three years if you want to roll onto another PCP contract and the interest rate gets hiked up to 6%?

I think PCP is a cheap credit scam to entice people into effectively renting new metal, it suits manufactures long term as people get hooked into 'renting' their cars, and customers short term, who in three years time may well have no car, no deposit, and will have no option but to use their GMV to continue with another contract.

There's nothing to stop you arranging your own finance at the end of the PCP term and using it to pay off the outstanding balance, keeping the car and ending your PCP experience.

Stallingrad

Nonoperational wrote: »

Calling it a scam is ridiculous. It's all perfectly clear. It's really not a difficult concept. Whether you deem it suitable for you or not is a different matter, but it's not a scam.

You are right of course, I was being bit colorful. Lets call it a 'device'.

Drummerboy08

Stallingrad wrote: »

You are right of course, I was being bit colorful. Lets call it a 'device'.

It's not really any different to Hire Purchase really bar the GFV.

Somewhere along the line you have to pay for the full car, so it makes no odds.

Not quite sure you grasp the who working of a PCP agreement.

Stallingrad

Falcon L wrote: »

There's nothing to stop you arranging your own finance at the end of the PCP term and using it to pay off the outstanding balance, keeping the car and ending your PCP experience.

True, but realistically how many will do that? Payments on an 3 year old car, or payments on new car? Instead they will choose a new car, and to stay in hock to the lender, which is what all banks want. A steady supply of people hooked on paying them interest.

I also think the low rates we see now are designed to entice people into this process, rates will not stay this low.

The upside for people who are not fussed about that new car feeling is that the market will be awash with decent three year old cars.

Stallingrad

Drummerboy08 wrote: »

It's not really any different to Hire Purchase really bar the GFV.

Somewhere along the line you have to pay for the full car, so it makes no odds.

Not quite sure you grasp the who working of a PCP agreement.

Is they key difference not the process by which the lenders want to you stay on PCP, keep renewing keep buying their marque?

Whereas on HP once paid for you are out with your car, and they may not see you or your business again for years.

It's an enticing hook, no?

Falcon L

Stallingrad wrote: »

Is they key difference not the process by which the lenders want to you stay on PCP, keep renewing keep buying their marque?

Whereas on HP once paid for you are out with your car, and they may not see you or your business again for years.

It's an enticing hook, no?

Again, nothing stopping you bringing your 3 year old Ford to a Toyota dealer to use as deposit on one of their cars. The finance isn't with the dealer.

Stallingrad

Falcon L wrote: »

Again, nothing stopping you bringing your 3 year old Ford to a Toyota dealer to use as deposit on one of their cars. The finance isn't with the dealer.

Take a VW, is the finance not with their bank? So in that case you have to clear the loan with them before trying to trade in elsewhere?

If you intend to change your car in 3 years time then PCP makes perfect sense, if you can't decide now what you want to do in 3 years then PCP makes sense because it gives you 3 years to think about whether you want to keep the car or not, as suggested above you always have the option to refinance the balance of the loan.

Some people are quiet happy to change after 3 years, it's my understanding that you can also get PCP on some 2nd hand cars.

If you intend to change your car in 3 years time then PCP makes perfect sense, if you can't decide now what you want to do in 3 years then PCP makes sense because it gives you 3 years to think about whether you want to keep the car or not, as suggested above you always have the option to refinance the balance of the loan.

Some people are quiet happy to change after 3 years, it's my understanding that you can also get PCP on some 2nd hand cars.

Ron Burgundy II

Stallingrad wrote: »

Take a VW, is the finance not with their bank? So in that case you have to clear the loan with them before trying to trade in elsewhere?

Same as any car finance really. Get a loan from the Credit Union or Bank this most be cleared prior to shifting the car. No one is going to buy a car with outstanding finance attached to it. If you decide to trade in then the garage will take the value of the finance from the trade in value and pay off the outstanding finance balance.

zizou_

Stallingrad wrote: »

Is they key difference not the process by which the lenders want to you stay on PCP, keep renewing keep buying their marque?

Whereas on HP once paid for you are out with your car, and they may not see you or your business again for years.

It's an enticing hook, no?

I'm not overly keen on the terminology used when describing PCP deals. In my eyes the final payment after 3 years is simply a balloon payment (a term most people understand) whereas most manufacturers and people here call it GMFV (a term specific to PCP). IMO this could mislead people not familiar with financial products if not adequately covered by the seller.

The second issue is talking about how much equity you have in the car after 3 years. In reality there is no way to release this equity after 3 years - the only way would be to offload your 3 year old car privately with finance owed which will be pretty hard. Obviously the car can be handed back but in this case the equity would not be realised.

A traditional HP arrangement is much more straightforward but people are attracted by the promise of low monthly payments with PCP.

Bigcheeze

The whole pcp thing is moving the market towards the U.S. car market. If you watch U.S. Television every second ad is either for prescription medicine(illegal to advertise in Ireland) or new cars. The purchase price of the car is never quoted in a U.S. car ad, just the monthly repayment.

EDit

I am 2 yrs into a PCP, but I would say that the way they are advertised (be it on TV or in papers, or even in the dealerships) is at best disingenuous. The example advertised is always with the max initial deposit and the minimum monthly payments, with the former usual well hidden in small print and the latter massively emphasised. Most people just see that, for example, you can have a 5 series for just €300 a month and get sucked in without realising they need something like 15 grand upfront to get that kind of monthly repayment plan.

In my case, we went for low deposit (<5% of car value) and higher monthly payments (but within a stress-tested personal budget)...ultimately, it's clearly not for everyone and is a personal choice based on your circumstances

EDit

EDit wrote: »

The example advertised is always with the max initial deposit and the minimum monthly payments, with the former usual well hidden in small print and the latter massively emphasised. Most people just see that, for example, you can have a 5 series for just €300 a month and get sucked in without realising they need something like 15 grand upfront to get that kind of monthly repayment plan.

This is to get people into the showroom where they can be talked into a sale.

This is why I don't go to dealers and communicate only by E-mail, I know what I want so unless I want an actual test drive I don't bother going near the showroom.

digiman

Any thoughts to going with PCP when you already own your existing car which would be worth say 70% of the price of a new car when trading in. When I asked about this I was been given about €20k back as cash and then paying this back on low interest over the next 3 years. Affectively it is a low interest 3 year loan.

I would have better use for the €20k now to work on a house rather than have in the value of a car

vintagevrs

Sounds like a fair plan. You are effectively borrowing the 20k at a lower rate than you'll get else where. No issue doing what you are suggesting. Just make sure you are getting a fair price for your current car.

zizou_

digiman wrote: »

Any thoughts to going with PCP when you already own your existing car which would be worth say 70% of the price of a new car when trading in. When I asked about this I was been given about €20k back as cash and then paying this back on low interest over the next 3 years. Affectively it is a low interest 3 year loan.

I would have better use for the €20k now to work on a house rather than have in the value of a car

What % deposit will you be placing on the new car once you've got the 20k back?

If you spent the 20k on your house you will still owe the finance company after 3 years for the car. Your realistic options are to pay them the balloon/GMFV payment or refinance for a further 3 years. Either way you're not getting a low interest loan for 3 years.

Lantus

If your car has a very high value then I'd run the numbers of traditional finance. You don't want to lose all your equity in your existing car. It may be best selling it privately. PCP works best I feel when the deposit matches the projected equity after three year.

digiman

zizou_ wrote: »

What % deposit will you be placing on the new car once you've got the 20k back?

If you spent the 20k on your house you will still owe the finance company after 3 years for the car. Your realistic options are to pay them the balloon/GMFV payment or refinance for a further 3 years. Either way you're not getting a low interest loan for 3 years.

I would probably put down 15k deposit, car is worth 35-40k and car I would buy it 50-55k

zizou_

digiman wrote: »

I would probably put down 15k deposit, car is worth 35-40k and car I would buy it 50-55k

Thats a fairly big % deposit for PCP - close to 30%. This will reduce your monthly payments but at year 3 you will have to stump up a further €7.5k to keep the same monthly payments for the next 3 years if you go again.

Only you can decide if PCP is for you but it sounds like a big change from how you currently pay for your car.

vintagevrs

Digiman is right though.

He currently owns a car worth 35 to 40k.

If he goes pcp with a 15k deposit on a 50K car he is effectively taking out a loan for 35k at a very low rate compared to the bank. If the garage value his car at 35k he will get a cheque for 20k. 35k minus his deposit.


He will get his loan for his extension at the low rate.

Obviouslyhe needs to have money in three years to keep his options open.

zizou_

vintagevrs wrote: »

Digiman is right though.

He currently owns a car worth 35 to 40k.

If he goes pcp with a 15k deposit on a 50K car he is effectively taking out a loan for 35k at a very low rate compared to the bank. If the garage value his car at 35k he will get a cheque for 20k. 35k minus his deposit.


He will get his loan for his extension at the low rate.

Obviouslyhe needs to have money in three years to keep his options open.

There's a lot for Digiman to consider because he's mixing his car financing with the house extension so we'll never work it out here.

Maybe it's the terminology we disagree on but a traditional loan/HP finance for 20k over 3 years will be repaid in full after the three years. In this case Digiman is getting the 20k at a low rate but he still has a liability after 3 years unless he hands his 55k car back.

I don't think you can decide if PCP is actually a good option in this scenario unless you decide where you will be at after 3 years.

I'd just go with the lowish deposit, low monthly payments, keep the cash in case it's needed.

Senecio

I can't see any garage giving a cheque for the difference. Surely you'll have to sell it privately and that could be a challenge at that value.

Drummerboy08

Senecio wrote: »

I can't see any garage giving a cheque for the difference. Surely you'll have to sell it privately and that could be a challenge at that value.

Everygarage will write a cheque for the balance. That's how it works.

vintagevrs

I know someone who did just that. If your trade in is greater than max deposit amount. Makes no odds to garage. They get paid by finance company.

JoeA3

Senecio wrote: »

I can't see any garage giving a cheque for the difference. Surely you'll have to sell it privately and that could be a challenge at that value.

That's exactly what they'll do.

I bought a new VW on PCP last year. My trade in was fully paid for and worth approx 29k. However the max deposit I could give was 15k. So on collection day, the dealers wrote me a cheque for 14k and I drove away in my new wheels.

The key is, I need to be careful to stow away that 14k in order to ensure I've plenty to cover the balloon / GMFV in 2018...

jca

JoeA3 wrote: »

That's exactly what they'll do.

I bought a new VW on PCP last year. My trade in was fully paid for and worth approx 29k. However the max deposit I could give was 15k. So on collection day, the dealers wrote me a cheque for 14k and I drove away in my new wheels.

The key is, I need to be careful to stow away that 14k in order to ensure I've plenty to cover the balloon / GMFV in 2018...

How much was the new car? Why didn't you use the full 29k as a deposit and pay the remainder on traditional finance, at the end you'll own your car rather than trying to "sit" on 14k for 3 years.

Drummerboy08

jca wrote: »

How much was the new car? Why didn't you use the full 29k as a deposit and pay the remainder on traditional finance, at the3 end you'll own your car rather than trying to "sit" on 14k for 3 years.

You'll pay a lot more in interest for a start. Like, 4k more over the course of a loan.

PCP the car on a low APR and put the funds for the GFV away into a locked account for 3 years.

Pay GFV in 3 years time, own car, have availed of a low APR rate, everyone is happy.

jca

Drummerboy08 wrote: »

You'll pay a lot more in interest for a start. Like, 4k more over the course of a loan.

PCP the car on a low APR and put the funds for the GFV away into a locked account for 3 years.

Pay GFV in 3 years time, own car, have availed of a low APR rate, everyone is happy.

That makes sense alright. I hope others entering into these pcp deals are as sensible. I can see a lot of unhappy people in 2018/19 when they think they can just stroll down to their dealer and pick their new car without putting their hand in their pocket. I think there will be a lot of higher interest refinancing deals being done instead.

JoeA3

jca wrote: »

How much was the new car? Why didn't you use the full 29k as a deposit and pay the remainder on traditional finance, at the end you'll own your car rather than trying to "sit" on 14k for 3 years.

Because it would have cost more. I did all the numbers at the time. The 1.9% APR could not be beaten. I've locked the 14k away in a post office 3-year savings account where it'll earn a few quid in interest.
New car was approx €49k.

vintagevrs

There is a saving in the example above doing pcp as vw pcp rate is/was 1.9%, but it nowhere near 4k!

Max deposit was 15k so let's assume the car is 45k ish as max deposit is about a third. Borrowing 30k at 1.9% is not 4k cheaper than borrowing 16k at 5.9%.

Saving of approx 700 euro at a guess. Still a saving mind you and that excludes the benefit of having cash in your own account or working for you in some way.

JoeA3

Yeah the saving was nowhere near 4K, but it was significant enough, near 1k or thereabouts anyway.

zizou_

vintagevrs wrote: »

Max deposit was 15k so let's assume the car is 45k ish as max deposit is about a third. Borrowing 30k at 1.9% is not 4k cheaper than borrowing 16k at 5.9%.

Not sure if I've picked you up wrong but you're not borrowing 30k in this example. Under PCP the finance amount is 30k - GMFV @ 1.9%. This could explain the 4k difference mentioned above but it's like comparing apples and oranges.

JoeA3

zizou_ wrote: »

Not sure if I've picked you up wrong but you're not borrowing 30k in this example. Under PCP the finance amount is 30k - GMFV @ 1.9%. This could explain the 4k difference mentioned above but it's like comparing apples and oranges.

You don't subtract the GMFV. That's part of the total overall borrowing. That lump on the end is just another loan repayment, albeit a big one.

For example... The loan repayment is agreed as follows:
36 * 400 + 1 * 14k.

zizou_

JoeA3 wrote: »

You don't subtract the GMFV. That's part of the total overall borrowing. That lump on the end is just another loan repayment, albeit a big one.

For example... The loan repayment is agreed as follows:
36 * 400 + 1 * 14k.

Maybe i wasn't clear. The point i was making is that the interest rate is only charged on 30k - GMFV in that example.

If the GMFV is paid after 3 years it should be included in the overall cost of borrowing.

Senecio

JoeA3 wrote: »

That's exactly what they'll do.

I bought a new VW on PCP last year. My trade in was fully paid for and worth approx 29k. However the max deposit I could give was 15k. So on collection day, the dealers wrote me a cheque for 14k and I drove away in my new wheels.

The key is, I need to be careful to stow away that 14k in order to ensure I've plenty to cover the balloon / GMFV in 2018...

I learn something new every day. I really wouldn't have thought they would write a cheque for the difference.

vintagevrs

Iv read that about 4 times now and I still can't make any sense of what you just said. Your last two posts contradict themselves.

zizou_

vintagevrs wrote: »

Iv read that about 4 times now and I still can't make any sense of what you just said. Your last two posts contradict themselves.

I presume you mean me - my second post is edited now thanks. I may be wrong but at least I'm consistent!

vintagevrs

Still not making sense to me. However you pay interest on the balloon payment or gfv as it's known in pcp.

The finance is separate from the dealer even if it's all labeled under the same marque.

Buy a car for 30k. Pay 10k deposit on pcp and sort out whatever monthlies and final payment.

Dealer still needs 30k day one, so you finance the full 20k and the APR applies to that amount. Hope that makes sense

flamegrill

vintagevrs wrote: »

Still not making sense to me. However you pay interest on the balloon payment or gfv as it's known in pcp.

The finance is separate from the dealer even if it's all labeled under the same marque.

Buy a car for 30k. Pay 10k deposit on pcp and sort out whatever monthlies and final payment.

Dealer still needs 30k day one, so you finance the full 20k and the APR applies to that amount. Hope that makes sense

That's not correct.

Look back a few pages where I explained how PCP works, exactly.

It's Total Car Value - GMFV - Deposit = finance amount. This is the _entire_ reason PCP is much cheaper than HP.

It's also the reason why the GMFV is a baloon payment at the end as 1 of your 3 options. You'll pay interest on that if you finance it, but not during the 3 years of PCP.

Simples.

zizou_

flamegrill wrote: »

That's not correct.

Look back a few pages where I explained how PCP works, exactly.

It's Total Car Value - GMFV - Deposit = finance amount. This is the _entire_ reason PCP is much cheaper than HP.

It's also the reason why the GMFV is a baloon payment at the end as 1 of your 3 options. You'll pay interest on that if you finance it, but not during the 3 years of PCP.

Simples.

That's the only way that makes sense tbh. The industry definition for 'finance amount' is Total Car Value - Deposit which just confuses things.

E.g. Kia http://www.kiacredit.ie/

Rusky rusky

flamegrill wrote: »

That's not correct.

Look back a few pages where I explained how PCP works, exactly.

It's Total Car Value - GMFV - Deposit = finance amount. This is the _entire_ reason PCP is much cheaper than HP.

It's also the reason why the GMFV is a baloon payment at the end as 1 of your 3 options. You'll pay interest on that if you finance it, but not during the 3 years of PCP.

Simples.

Interest is paid on total car value - deposit. GMVF is the same for any deposit, but the interest will decrease with a bigger deposit. My car is on pcp.

flamegrill

Rusky rusky wrote: »

Interest is paid on total car value - deposit. GMVF is the same for any deposit, but the interest will decrease with a bigger deposit. My car is on pcp.

This is not correct.

You can't pay interest on the GMFV. It's not part of the finance equation when it comes to interest.

It's value - deposit - GMFV / 36 monthly payments + interest.

As the GMFV is a balloon payment to own the car after 3 years there is no interest on it. It's like a settlement figure for HP. There is no interest.

Just so we are clear, not every pcp contract is identical.

mickdw

Ah for gods sake.
you borrow the full price of the car less deposit. You pay interest on everything you borrow. Just cause you don't pay back a portion of it til the end doesn't mean that you are not paying interest on it.
Who do you think is funding the car people are stocking around in? Do you think it hasn't actually been paid for up front. Of course it has.

flamegrill

flamegrill wrote: »

Lets break down PCP once again, from the beginning.

Car (SV) is 30,000 euro. Deposit (DP), 10%, 3000 euro.
GFV: 12,500 euro
Finance cost (FC): 1,500 euro
Term: 36 months
We do the following math to get the finance amount.

(SV - DP - GFV + FC) / Term.

So in this example:

30000 - 3000 - 12500 + 1500 / 36 = 445 euro

Essentially, the finance is not for the 'amount financed' that the quotes say, it's essentially the depreciation or the 'worst depreciation possible' that the finance house is willing to accept.

It's not quite a lease, but it's not quite a loan either. It's a hybrid of the two. It allows a consumer to 'have use of a car' for 3 years that could probably be too expensive for them to own on hire purchase. it also means that manufacturers are guaranteeing churn on new cars every 3 years and thus making a market for new cars.



I hope this helps.

Example above. Based on Skoda pcp.

sunnysoutheast

flamegrill wrote: »

That's not correct.

Look back a few pages where I explained how PCP works, exactly.

It's Total Car Value - GMFV - Deposit = finance amount. This is the _entire_ reason PCP is much cheaper than HP.

It's also the reason why the GMFV is a baloon payment at the end as 1 of your 3 options. You'll pay interest on that if you finance it, but not during the 3 years of PCP.

Simples.

No.

The "GMFV" or balloon payment is an interest-only loan with no capital repayment element, which is the reason the monthly payments are lower.

For this reason a PCP will actually work out more expensive over a given term than a straightforward loan, but with a lower monthly payment amount.

Of course the balloon payment is the kicker which effectively means most people roll over into a new PCP.

Rusky rusky

flamegrill wrote: »

This is not correct.

You can't pay interest on the GMFV. It's not part of the finance equation when it comes to interest.

It's value - deposit - GMFV / 36 monthly payments + interest.

As the GMFV is a balloon payment to own the car after 3 years there is no interest on it. It's like a settlement figure for HP. There is no interest.

Just so we are clear, not every pcp contract is identical.

From consumer hire purchase agreement
1. cash price
2. Deposit/ part exchange
3. Settlement
4. Amount financed (1-2)+3
5. Interest charge
6. Document fee
7. Completion fee
8. Total repayable (4+5+6+7)
9. Hire purchase price (1+5+6+7)

Schedule of payment
1 instalment including document fee
35 monthly instalments
1 instalment - ballon payment + completion fee

flamegrill

Rusky rusky wrote: »

From consumer hire purchase agreement
1. cash price
2. Deposit/ part exchange
3. Settlement
4. Amount financed (1-2)+3
5. Interest charge
6. Document fee
7. Completion
8. Total repayable (4+5+6+7)
9. Hire purchase price (1+5+6+7)

Schedule of payment
1 instalment including 6
35 instalments monthly
1 instalment - ballon payment

Pcp is not hire purchase. You never own the car. You're essentially leasing it for a term.

Rusky rusky

flamegrill wrote: »

Pcp is not hire purchase. You never own the car. You're essentially leasing it for a term.

I'm fully aware that I don't own the car until I clear the last payment. Pcp is a form of hire purchase. Can't post any urls but the first link in Google when searching for pcp leads to the consumer help site. Have a look