PCP Details

dubliniift

Hi all,

Bought an EV and PCP amount was 42000. Noticed my statement they have added interest and showing opening balance as 42000 plus 5k as interest.

I cannot get my head around how can they show opening balance as 47k? Interest is 5k over next 40 months. They are reducing EMI from 47k and after 8 months I'm around 42k in outstanding which should have been opening balance. Rate of interest is 4.99%

ELM327

Was it advertised as zero % interest or something?

dubliniift

https://www.boards.ie/discussion/comment/121756733#Comment_121756733

It was 4.90. But 5k is interst over 40 months. How can they add it to opening balance?

yllw.ldbttr

https://www.boards.ie/discussion/comment/121756873#Comment_121756873

That's just the way it's accounted for as technically that's what you're liable for.

If you were to request a mid term settlement value it would usually include a discount on the total interest to reflect the shortened period of the agreement.

Miscreant

I thought this was normal? I have had car finance in the past that front loaded all the interest into the opening balance and then I paid it off as usual. The repayment should still be what you agreed with the PCP provider anyway. Has your repayment changed as a result? If not, then I would not worry about it. I bet there is something in the agreement you signed that states this will be done.

It is a little sneaky with a standard car finance loan though (not PCP) as there is then no incentive for you to pay the loan back earlier to save on interest as you have already been charged for it.

JVince

That's how most fixed rate loans are calculated.

As there are no variables, they know the full cost for the entire period of the loan from day one.

If you paid off early they would give a rebate on some of the interest. Its not sneaky in any way, it just how it is done and has been done for decades.

If anything it is very transparent as you know precisely how much interest and fees you are paying. Nothing hidden. No surprises.

ELM327

I suspect the way it's laid out like that is to a) provide clarity on the loan structure, b) to show the payments over the fixed term and c) to inflate the total at the start to aid with combatting the "half rule" on finance agreements.

EG where C is the capital and I is the total compound interest owing on the term, it is better (for the finance compay) for the total owing at the start to be C+I as opposed to C, then you need to repay ((C+I)/2) instead of just C/2, to hand the car back - excluding any PCP hand backs.

ted1

https://www.boards.ie/discussion/comment/121756900#Comment_121756900

Both interest doesn’t really work like that

say you pay €500 amomth

1 at month is 4.9% of 40,000

2nd month is 4.9% of 39,500

3rd month it’s 4.9% of 39,000

4th month it’s 4,9% of 38,500

and so on

ted1

https://www.boards.ie/discussion/comment/121756900#Comment_121756900

..

Rusky rusky

PCP has a front loaded interest with majority of it coming from GMFV lump sum. Your montly repayments cointain the interest paid on the 42k from day 1. Some serious amount of interest though.

ELM327

https://www.boards.ie/discussion/comment/121757106#Comment_121757106

There's a misconception out there that the PCP interest doesn't include the GFMV. The interest is compound and is assessed on the total amount outstanding which includes the GFMV. As you say, serious interest.

Rusky rusky

https://www.boards.ie/discussion/comment/121757239#Comment_121757239

Yep, low monthly payments is the lure. I just had a discussion with a colleague about pcp vs hp. She is paying ab 4k in interest on a 18k car on HP. She had no idea how both of these financial products work. BTW VW ads for ID range have now 4.9% pcp with repayments under 400pm. The devil is in detail - 30% deposit, 50% GMFV and 3.5k in interest. FML. And the montly also includes a service plan....

2smiggy

PCP = paddy can't pay

ELM327

https://www.boards.ie/discussion/comment/121757441#Comment_121757441

Is that why it's popular in UK and is the only real way cars are financed in the US too?

ted1

https://www.boards.ie/discussion/comment/121757441#Comment_121757441

Paddy can pay. But doesn’t see the point in tying up cash. And is protected from depreciation unlike cash buyers

2smiggy

https://www.boards.ie/discussion/comment/121757497#Comment_121757497

indeed, it's there for people who can't afford the cars they are driving

ELM327

https://www.boards.ie/discussion/comment/121757580#Comment_121757580

So.. no one can afford their cars?

2smiggy

no, but PCP is there for people who can't afford the cars they are driving, not that all people using PCP cannot afford their cars

Ev fan

Per definitelynotaguru (UK) leasing can be a very affordable way of having a car - provided of course you can get the right type of reasonable lease deal. Also apparently some lease companies will quote you a figure if you wanted to buy the car off them at the end of the lease period. I have no idea what leasing is like in the Irish market

aaronder

https://www.boards.ie/discussion/comment/121757888#Comment_121757888

Outdated POV - PCP is useful for lots of people. Most people wouldnt have 40 or 50k lying around for a car, but can easily afford PCP payments?

liamog

PCP is just a mix between a lease where all the equity is held by the leasing company, and a hire purchase agreement where you end up owning the car. It always makes me laugh when people will judge others over the use of financial instruments that both the seller and purchaser are happy with.

ted1

https://www.boards.ie/discussion/comment/121758537#Comment_121758537

If you had 50k in cash you’d be better off putting to use and buying on PCP, especially when 0% offers are around.

how many cash buyers have lost out because of depreciation where PCP folks are safe

also 50k off a 30 year mortgage at 3% gives a much use if it

2smiggy

https://www.boards.ie/discussion/comment/121758561#Comment_121758561

not judging at all. it enables people to drive cars they would be unable to afford normally.

eastie17

I had the money (well tradein plus cash) but went PCP as I was getting an EV and wasnt sure how the whole EV thing was going to go over the life of the PCP, plus the interest was 2.9%. My concern was that the government might mess up rolling out infra and EV value would drop due to lack of interest, didnt anticipate the manufacturer price wars but its the same result as regards depreciation

dubliniift

https://www.boards.ie/discussion/comment/121756890#Comment_121756890

That is unsual as mortgage accounting is different. Thanks for the explain. Gives me comfort

staples7

https://www.boards.ie/discussion/comment/121757530#Comment_121757530

Think that’s bull for the most part, money isn’t there for the car full stop but the 3 or 400 euro monthly payment capacity is. Kick the can down the road with the final payment. Shock horror 3 years down the road your pulled into another PCP as why would you want to stump up a lump sum for an old smelly car 🙈 and so on the cycle of goes.

now you can say oh I but I wanted the 50k to invest or put the money to work in some other way. But I think if your that way inclined you wouldn’t be wasting money on highly depreciating asset in the first place.

just4klix

Hi All,

I looked into the PCP thread on the main motors forum but could not find much about EV specific situations. Since the price of new cars has dropped significantly compared to 212/221 reg cars prices, I want to how did people here manage at the end of PCP? I have an M3 financed by finance ireland. It does not say anything about GFMV just says 'balance payment' at the end of 36 months. Many years ago OH's Toyota's PCP offer had two separate entries - GFMV and Balance payment, where the GFMV was 6k more than balance amount. I understand the difference between the two will be equity for next PCP contract. I am unable to figure out how it works in Tesla's case. I wanted to know how yous got on with the PCP at the end?

liamog

https://www.boards.ie/discussion/comment/121787316#Comment_121787316

At the end of a PCP you have 3 options, buy the car for the final payment (aka GMFV). Sell the car to a dealer, any value over the GMFV can be used as a trade in or returned to you as cash. The final option is to just hand the car back and pay any overage fee's if you went over the agreed annual mileage.

If you don't want to keep the car and the dealer offer is below the amount of the GMFV + overage fees you are better off going with the hand it back option.

At the end of the PCP term, GMFV and balance payment are exactly the same thing. I'm not sure why Toyota were listing them as different on your previous PCP deal.

RK73

Is that with BoI? I've queried my early settlement amount with them, as they seem to do likewise. Works out about €600 more than a straightforward compound interest calculation.

...Ghost...

https://www.boards.ie/discussion/comment/121758670#Comment_121758670

That really is an outdated view. What you are saying is most people can't afford to buy a house, because they borrow from the bank and pay monthly for 20-40 years. Would you say the same for people paying more on rent than a mortgage payment? Both are paying to have a roof over their head. Only one ends up with the deeds of the property.

One can't afford something when their regular income is not enough to cover the payments. It's silly to tie up cash in savings that have ultra low returns below inflation.

Soarer

Delighted with 0% PCP on our ID.3. Car is far from perfect, and don't know if we'll keep it at the end of the deal, but for now it suits us perfectly.

Gave the absolute minimum up front, as what's the point in them having our money when we're not saving anything, and paying the balance monthly.

Free charging in work sweetens the deal even further.

Clo-Clo

https://www.boards.ie/discussion/comment/121791487#Comment_121791487

Just thinking about this, if you have 0% PCP is it best just to pay the minimum deposit and holding the money yourself?

mickdw

If on zero percent, it has no bearing on overall cost which way you go in terms of deposit so yes better keep your money and go small deposit.

.....Assuming the zero percent is legit and you are not over paying to get on the zero percent deal.

Soarer

https://www.boards.ie/discussion/comment/121817477#Comment_121817477

That's what we think anyway.

Everything going to plan, it'll be the same amount of money whether you pay at the start or the end. But why should they have our money before they need it?!

Clo-Clo

https://www.boards.ie/discussion/comment/121818042#Comment_121818042

Plus if you stick the money into a 6/12 month saving via Raisin you will earn a few quid on interest and help pay off the car :-)

staples7

https://www.boards.ie/discussion/comment/121788955#Comment_121788955

Not a great analogy, at the end of your mortgage are you left with 3 options, go again, pay a large lump sum to stay in your house or hand the keys in. I don't think so.

I wouldn't touch a PCP with a barge poll (0% or not). Its basically weighted like a trap to keep you in PCP for good.

Anyone that can't afford the car would be much better off clearing existing debt or investing/saving so that you can afford it. Like it or not thats good advice, its not what people want to hear but hey....

mickdw

https://www.boards.ie/discussion/comment/121831164#Comment_121831164

I would make one point after reading your post.

You make valid points in general but pcp on zero percent really can be an excellent way to buy a car provided that person buys the car they can afford.

So a person buys a new golf every few years. Now they decide to buy a new golf on zero percent pcp. Nothing at all wrong with that as they can afford it regardless.

The issue is when your long time golf buyer gets talked into buying a mire expensive car because the monthly may be low on 1st pcp due to their fully owned trade in. These are the people that get into bother.

...Ghost...

https://www.boards.ie/discussion/comment/121831164#Comment_121831164

At the end of a mortgage, of course you can go again. Sell the old house and buy a newer, maybe larger with good energy rating in a different area. Use the proceeds of the old house plus a mortgage to buy the new one. Or you could stay and build an extension or renovate the old house, borrowing money for the work. Or you might be divorced and need to buy out the OH after the kids move out 🤣.

Maybe I could be more specific and bring shared equity mortgages into the conversation. Same idea and closer to PCP without the buy or return at the end option. The repayments are affordable to the person(s) buying the home. At the end, if they want to own the home outright, they need to buy the outstanding equity and that will almost certainly involve credit and affordable repayments.

All the semantics aside, I stand by what I said about repayments. If they are affordable, then you can afford to buy the car, albeit usually at a cost of credit premium. The balloon payment at the end is the same deal. If the person hasn’t included this in their overall repayments cost, then they will extend the repayment term by another couple of years.

If I was doing PCP, I would only do it if it was cheaper than HP, or a straight loan. I would look at the monthly repayments and then take the final payment and divide that by the number of payments to find the monthly amount I would need to set aside in a separate account to pay it off at the end. This would be my true repayment cost per month, because I wouldn’t want to pay over 7 or 8 years when I could pay over 5.

Some prefer to change every couple of years and PCP suits them.