Car Finance: PCP

[jimmybell]

Anyone had regular experience of taking out PCP agreements on new (or nearly-new) cars?

Trying to fully understand all the tips, tricks, pitfalls and risks associated with it - especially as something like ~90% of all new cars sold now are sold via finance - rendering RRP and the sticker price largely irrelevant.

Especially interested in buying out of your PCP length early, and experience of valuations at the end of the period (in terms of what they will offer above GMFV as equity for a deposit on the next car).

As an example, i've spent a bit of time in various hyper-hatch manufacturers garages and whilst i understand the premise of the finance, i'm not entirely sure i understand what they have to gain from the various ways they all want to arrange the deposit/'contribution'/GMFV/monthly/period etc. I'm strongly considering an RS3 as a second car (winter car/runaround/practical comfrotable long distance boat with all the toys) to the Z4, but i've always bought cars with cash historically.

To start - something i found useful thus far: http://www.pcpcal.co.uk/

EDIT: Maybe a more specific question - is there any benefit to paying down more Deposit other than simply reducing monthly?

 

[Angie4m]

PCP is basically sold to those who want go change cars on a more frequent basis. The guaranteed values isn't always going to leave you with any equity in the car as some folk found out during the recession and if it does you really need to be chopping the car back into the same brand, so in this case Audi. So say three years down the line your not happy, fancy a change you might not have that equity to play with.

Basically your paying the depreciation of the car.

If your sure this is the car you want then possibly a more traditional HP agreement is more suited or is there is incentives to take a PCP then do it, but possibly look at paying it off ASAP. Also remember that nowadays they can't 'front load' the 'loan' with the interests for the term and it's applied monthly so the sooner it's paid off the more you save in interest.

If your paying a bigger deposit it will reduce the monthly payments but it's money you will never see again. You would need to see how much that would 'save you' over the course of the agreement but again no guarantee you'll have any money left in it after 2/3years. So the question is, is it better to just keep that extra in the bank 'just incase'

 

[Ewazix]

If however you buy USED wisely e.g. something that's had a depreciation spanking in the first year or two then it can work. Highly specified and or top range models often fall in this bracket as you lose most of the value of most extras or engine upgrades immediately, this leaves you paying off the much reduced depreciation slice. This might work for the type of motor you are after?

I had a year old top spec VW Golf TDi on a used PCP and the GFMV was very low so I bought it out at the end as it was well below market value.

 

[jimmybell]

Thanks for the reply

Also remember that nowadays they can't 'front load' the 'loan' with the interests for the term and it's applied monthly so the sooner it's paid off the more you save in interest.

Why is this? If you're trying to pay it off early (you mean pay the entire value of the finance off?) then doesn't that kind of defeat the point of the PCP? Essentially then it's just a loan?

Looking at the GMFV and used prices they're estimating quite a bit less than i'd expect it to be worth after 36 months.

I'm surprised i've had no 'if you can't afford to buy the car with cash you can't afford it' comments

 

[jimmybell]

If however you buy USED wisely e.g. something that's had a depreciation spanking in the first year or two then it can work. Highly specified and or top range models often fall in this bracket as you lose most of the value of most extras or engine upgrades immediately, this leaves you paying off the much reduced depreciation slice. This might work for the type of motor you are after?

I had a year old top spec VW Golf TDi on a used PCP and the GFMV was very low so I bought it out at the end as it was well below market value.

Understood - but the RS3 is so new the only ones really on the second hand market are ex dealer demos (up to 5k miles of launch control and test drive ragging...), and dealer finance on used seems to be terrible rates compared to new (presumably to encourage new purchases).

Sadly RS products arent cheap - so nowhere near within reach of low rate loans.

 

[Angie4m]

Thanks for the reply

Also remember that nowadays they can't 'front load' the 'loan' with the interests for the term and it's applied monthly so the sooner it's paid off the more you save in interest.

Why is this? If you're trying to pay it off early (you mean pay the entire value of the finance off?) then doesn't that kind of defeat the point of the PCP? Essentially then it's just a loan?

Looking at the GMFV and used prices they're estimating quite a bit less than i'd expect it to be worth after 36 months.

I'm surprised i've had no 'if you can't afford to buy the car with cash you can't afford it' comments

Some people buy on PCP not expecting to keep the car and maybe love it so much they don't want to get rid or like I've said some of the incentives being offered are only there if the car is bought on PCP so people may decide to buy the car this way and pay the car off. Or I've known people to pay it off when they get a bonus within the year. Then it's up to them what they do with the car, especially if they wish to 'modify' it any way which isn't allowed under a PCP.

But a lot of people buy on PCP because it makes it easier to drive a better car.

As for the values what your looking at is second hand prices which may or may not be achieved. Like I said when the markets took a tumble there were people who bought on PCP and the value of the car was worth less trade than the GMFV. You'll only get what the dealer values it at unless you choose to buy it and sell it on privately.

Imagine you bought a VW say last January on a PCP given the recent events and the fact prices have already been impacted it may mean the GMFV is not reached never mind exceeded. At least your not asked for the difference. But then if there is an excess unless you want the same brand, you'll not get that money towards a new car. Unless you can trade it before the PCP is up.

Plus you'll want to take GAP insurance, cause if it's written off then your still liable for the remainder of the loan and as there is no car the bubble needs to be paid too.

 

[metal licker]

Got about £500 equity on my 23i Sdrive when I decided to buy the 35i
That was 6 months before the settlement was due

 

[mattwaltersz4m]

The easiest way to describe it is - you are renting the metal. Some times it works some times it doesn't. Example of working is heavy depreciates or cars dealers have excessive stock of. Citreon C1 a while ago could be had for £100 per month. At that money its a disposable car for 24 months. Most people spend more than that on a meal on a weekend. What else could you get as a run around for £2400 that is fully warranted for that period? An old golf shitter? Another example was the clear out of C63 mercs a few years back. You could lease one for £500 per month V buying and hemorrhage £1200 per month.
Its also another way of keeping up with the Jones's by owning (sic) a car which you normally couldn't afford to pay up for.

 

[jimmybell]

Regards to cheap leases i agree - if you don't care what car you get, or what spec - you just need a vehicle, some of the bargain basement leases are an absolute steal at <£100/month

Its also another way of keeping up with the Jones's by owning (sic) a car which you normally couldn't afford to pay up for.

I understand PCP can definitely encourage people to extend their budget into cars they'd normally not be able to afford - but i'm seeing it more a case of i can basically use the GMFV lump in a Zopa lending account over the PCP term and offset the PCP interest to generate an effective 0% finance on the depreciation alone (thus removing the need to sink cash into a depreciating asset).