+- babyRR.com - The Range Rover Evoque Forum (https://babyrr.com/forum)
+-- Forum: Marketplace (/Forum-Marketplace)
+--- Forum: Finance & Insurance (/Forum-Finance-Insurance)
+--- Thread: PCP? (/Thread-PCP)
PCP? - heronb - 18-03-2013 10:34am
Never really got the PCP thing, the problem I have is that the interest amount is calculated on the bulk of the car as the max deposit is 33%.
So for example if I'm getting a Pure at around £33000 the max deposit is £11000, £22000 to finance at a PCP rate with LR of 7.9%APR.
A standard loan would allow flexibility to put in as much deposit as I'm happy with and current rates of 5.1% will keep the interest charges low.
So this example could be £22000 deposit, £11000 to finance at 5.1%APR the overall cost must be lower.
I'm sure someone will say that you could invest the £11000 saved on the PCP in something else but at the moment I can't see where this will give an adequate return.
So all you PCP devotees please help me understand what I'm missing.
Thanks
RE: PCP? - griff - 18-03-2013 11:41am
I think you are missing a significant factor:
Monthly payments are lower on a PCP.
The monthly repayments are lower because of the Guaranteed Future Value (GFV). As part of the process of calculating the repayments, the lender estimates what they think the car might be worth at the end of the contract. Then, using that information, the lender sets a minimum figure at which they guarantee the car will be worth. That’s called the ‘guaranteed future value’ (GFV).
The GFV, along with any deposit you pay, will be deducted from the price of the vehicle and your monthly payments are then calculated on the balance, plus interest on the balance and interest only on the GFV.
So your monthly payments are lower because you’re not repaying the GFV during the agreement.
RE: PCP? - heronb - 18-03-2013 01:39pm
Yes ok, the monthly figure will lower because of the GFV, but that's the bit that always niggles me.
So I put in £11000 and pay whatever the monthly figure is over the period followed by the GFV to own the car outright. Or I take out another PCP with a deposit from the px value of the car minus the GFV which will be significantly lower than £11000. (I would suggest it would be nearer £3000 on a three year old Evoque Pure). This means I have to find £8000 to get back to where I started.
Or I put down a deposit of £22000 and finance £11000 and at the end of the period own the car outright. I realise the monthly cost will be greater but the overall cost of interest is at least double on the PCP and that's what matters to the lender, the monthly figure is irrelevant to them.
So if I go the PCP route when I have the px funds available I will get a nice juicy cheque off the garage to invest in ??? Won't get anything like 7.9% guaranteed returns.
Sorry for the long winded reply but it really interests me how these things work.
RE: PCP? - griff - 18-03-2013 02:10pm
Sorry I'm not sure what you are saying here.
All the GFV is a value the lender puts on the car for the end of the period. That way part of your capital payment is deferred until the end of the loan rather than being included in your payments during the loan payment. The advantage is that at the end of the period you can make a decision as to whether you want to pay the final amount and keep the car, or not pay it and hand the car back and walk away.
My last car was on pcp and I decided the value of the car at four years old was less than the final payment by about four grand so instead of paying £17k for a car worth £13k I handed it back and was four grand better off. I then used the final payment for a deposit for a new car.
RE: PCP? - heronb - 18-03-2013 02:20pm
(18-03-2013 02:10pm)griff Wrote: Sorry I'm not sure what you are saying here.
All the GFV is a value the lender puts on the car for the end of the period. That way part of your capital payment is deferred until the end of the loan rather than being included in your payments during the loan payment.
Yes but the capital payment is still subject to an interest charge.
(18-03-2013 02:10pm)griff Wrote: My last car was on pcp and I decided the value of the car at four years old was less than the final payment by about four grand so instead of paying £17k for a car worth £13k I handed it back and was four grand better off. I then used the final payment for a deposit for a new car.
I'm missing where the final payment came from?
(18-03-2013 02:20pm)heronb Wrote: Yes but the capital payment is still subject to an interest charge.
I'm missing where the final payment came from?
Sorry penny dropped
so the final payment was the cash you would've used to purchase the car. I suppose what I'm doing is funding that money over the term of the loan by paying a higher monthly figure.
PCP? - griff - 18-03-2013 02:25pm
Yes. You are only deferring the part of the capital payment. The GFV.
RE: PCP? - heronb - 18-03-2013 03:03pm
This is an interesting thought on PCP from MSE forum
---------------------
A PCP deal is presumably to give you some sort of protection if the car is worth a lot less at the end of say 3 years than current depreciation values suggest?
If so you are using PCP as a form of insurance policy and as such you will pay a premium on the APR to cover this, or the company will build a low residual into its calculation so that your final payment is always a lot lower than the open market value.
The company will also apply lots of conditions around value and mileage.
Having done the sums a couple of times for new cars, you are often better off taking out a best buy personal loan for 5 years and then the loan outstanding at the end of 3 years is pretty much the same as the value of your car if you decide to change cars or buy out the rest of your loan.
Here is what I suggest you do.....
1) Check out the pcp deals you might be offered on your chosen car: Sources: Local dealer, larger dealer groups like pendragon or sytner, online retailers like jamjar or autobytel
2) Check out the residual value of the current model using parkers or glasses guide.
3) Work out the equivalent cost of a DIY job using a best buy personal loan.
4) Work out if the premium for the PCP (often £1000 plus) is worth it for the risk the car is worth a lot less than you thought.
5) If you car is a heavy depreciator in the early months (usually european models or fairly old models which will be replaced soon) either make sure you get a good discount up front or consider buying a very nearly new car or ex-demo car to avoid losing £1000's as soon as you drive off the forecourt.
While we are on the subject of car buying, don't just compare list prices but look at total ownership cost and price including extras. I think the AA do calculation tables (although these probably won't include extras. You will find that something like a Mini or BMW may cost you a few £1000 more than a Peugeot 206 or 407 but the actual cost of ownership over 3 years (including the loan financing) can be less due to a much higher residual value.
Happy car shopping!
----------------------
I've done it this way in the past.