PCP finance

[Big Chris]

I've never financed a car before, I've either driven relatively cheap cars that I've bought for cash, or had company cars. I'm looking to get something half-decent next year though and I'm curious about the real world experience of PCP deals.

I'll have £5-7k for a deposit and would be looking for monthly payments up to about £350 over say 3 years. I'm looking at new and used cars, not fussed either way.

The bit I'm curious about is what happens after the deal ends. I would ideally look to swap the car for a newer one under a new PCP deal, and I understand that the figure you have to use as a deposit for the new one is the difference between the GFMV they give at the start of the deal, and the actual value of the car at the time you hand it back (taking into account mileage, damage etc).

I know it's a 'how deep is a hole' question and it depends on many factors, but how close or far apart are these two figures at the end of PCP deals generally? If I ended up needing to stick another £5-7k down to get something similar for another 3 years then it's not for me, but if you only have to top the deposit up a bit to get back in a smilar car then it could be a goer.

 

[Maccy]

There will be a lot of differing opinions on this subject, including those who would be against the idea - which is fine as it's not for everyone.

You're pretty much spot on with how it works and if you were to renew after 3/4 years (a typical PCP term) and take out a new deal then yes you would need to find another deposit to keep the monthly payments similar, unless you were to go for a cheaper/more expensive model.

It's important to consider negative equity and how that can affect you at the end of the term, if you're in this unfortunate position and take out a new PCP then dealers do have a magical way of making this negative equity "disappear" (I believe in most cases it's just removed from any discount you'd get on your next vehicle). A possible solution to overcome this is to take out a loan/other source of funding to pay off the GFV and then sell the vehicle privately - check how much similar vehicles at 3 years old are going for and look at the difference between price and GFV, although that difference won't necessarily be your deposit towards next vehicle as you've got to take in the actual selling price, any fees for paying off loans early etc. I'm considering doing this as the GFV on my current PCP is £14.5k with similar models at 4 years old going for around £18-19k.

I would suggest you look at the finances and affordability - can you stomach paying ~£19k to have a car for 3 years with the potential for nothing to show for it at the end?
There's a lot of info online about this so search away.

 

[LiE]

What are you looking for in terms of a car? £19,000 on a used car would be where I'd be looking to go, but it does depend on what exactly you want.

So far all we know is you want a car that cost £17-19k over 3 years.

 

[matthab]

Nothing wrong with PCP but as said above you need to make sure you can afford the monthly payments and get a deal your happy with. PCP normally works better on new cars with manufacture contributions. CarWow can find a good discount on a car you want. Both of my cars are on PCP and for me its a good way to get a new car for a flat monthly cost, with options at the end.

Just wait for the haters to appear now...

 

[ShadowMan]

With PCP you will unlikely have as much deposit at the end as you put in. Whilst GMFV is conservative and most people do have some equity in the car for trade in, it is not going to be a huge amount usually.

In the event of negative equity then your deposit is gone but you are protected as you can hand the car back at the end of the term and walk away. You won't owe anything for the negative equity as long as all other terms met for condition/mileage etc.

£350pm with a £7k deposit opens up a lot of cars but you will unlikely be able to maintain that payment amount on the next one when trading in even if just going for an updated car in 3 years. From experience equity left in the car is probably more likely to be <£3k with some cars getting a little above but its is very unlikely.

Be mindful of taking on PCP for a car with a huge dealer/finance discount now with a large deposit to keep monthly down as when you come to change the same discount may not be available.

Audi currently doing nearly £14k off list for A7's which meant they offered me a base level with no options for a very low monthly with just £3k deposit. In 4 years when the deal ended I doubt the same will be available and monthly will rocket for a new updated A7.

 

[DereksDontRun]

generally with pcp the interest % is only worthwhile for brand new cars - used pcp "deals" seem to have a much higher interest, which makes a bank loan a far better idea.

pcp deposit - the point of pcp is a small(ish) deposit (usually 5k max), and you need to be able to find a similar amount at the end of the term to get the same car/spec for the same monthly for the next 3 years. Say your savings are 7k and you use all that for car1's deposit which results in £350/month payments, and you're happy with that, when you trade in and go for another of the same car, but only have 1k deposit, suddenly your monthly could be about £550 and you're suddenly shocked by that extra £200/month... in reality it will probably be more, as in 3 years the rrp of the car will have increased, so will effectively need to fund a more expensive car too...

pcp can work, if you're buying new, keep it v clean and do limited miles, keeping the car's value above the expected depreciation. if they don't offer a good trade in value (aka deposit) for the next pcp deal then you might be better off finding the cash for the balloon payment, to own the car, so you can sell it privately (or even trade in elsewhere). So, to get the best deals you not only need to find the same deposit as you started with, you might be better off being able to fund the balloon payment at the end too.

technically, pcp cars need to be returned in the same condition as bought, so you're not really meant to mod them, if that's your cup of tea. Certainly not mod in a way that's not reversible - and remaps are a can of worms, as ecu's will still have a tampered flag after removing the map, potentially nuking warranties for the next owner. so, might cause issues with pcp returns if checked (which admittedly is unlikely).

If the car isn't new, then a bank-load is sooo much easier. You will own the car from day 1 and can sell it whenever. yes the monthly payments are more, but if you can manage them then it's far far easier.

 

[Teuton]

There will be a lot of differing opinions on this subject, including those who would be against the idea - which is fine as it's not for everyone.

You're pretty much spot on with how it works and if you were to renew after 3/4 years (a typical PCP term) and take out a new deal then yes you would need to find another deposit to keep the monthly payments similar, unless you were to go for a cheaper/more expensive model.

It's important to consider negative equity and how that can affect you at the end of the term, if you're in this unfortunate position and take out a new PCP then dealers do have a magical way of making this negative equity "disappear" (I believe in most cases it's just removed from any discount you'd get on your next vehicle). A possible solution to overcome this is to take out a loan/other source of funding to pay off the GFV and then sell the vehicle privately - check how much similar vehicles at 3 years old are going for and look at the difference between price and GFV, although that difference won't necessarily be your deposit towards next vehicle as you've got to take in the actual selling price, any fees for paying off loans early etc. I'm considering doing this as the GFV on my current PCP is £14.5k with similar models at 4 years old going for around £18-19k.

I would suggest you look at the finances and affordability - can you stomach paying ~£19k to have a car for 3 years with the potential for nothing to show for it at the end?
There's a lot of info online about this so search away.

If you're in negative equity at the end of the deal you just hand it back and start afresh? Negative equity is only pertinent if you're looking to get out of the deal before the term is complete.

The GMFV value you get is going to depend on the finance house, predicting the equity after 3/4 years will depend on a number of factors such as spec, whether there will be a new model, future desirability of diesel etc etc. You sound like you're eyes are open and you know what you'll be getting into.

What cars are you looking at?

 

[Havana_UK]

At the amount you're looking to spend a personal loan would be worth considering IMHO.

With £7K down and a £12K 3% loan over three years (which costs about £350/month to repay) you've got £19K to spend on a car, which can get you a really nice car. Over 4 years you could borrow £15K and still keep the payments under £350/month.

The advantage in doing it this way is you own the car, and after three years you don't owe anything on it either, where as with a PCP you could get a more expensive car but you won't legally own it and you'll still owe money at the end to keep it.

 

[Diagro]

Personally I feel a bank loan is better.

My bank for example do a 3.4% loan which can be used for cars.

 

[DarkHorizon472]

Have the same choice between pcp or a loan. For me buying a low mileage car in good condition that is a couple of years old from a main dealer makes more sense. It means the car is checked over, comes with a full warranty and likely free servicing for the first year. Also you pay about half or less the original price reducing depreciation and after three years when the loan is paid off can use the value of the car to trade in against a replacement. I do around 20,000 or so miles a year and need a reliable car.

The main thing is to work out a realistic budget to include insurance, new tyres etc., warranty each year, servicing, loan repayment etc. You can then make a comparison based on your needs.

 

[Big Chris]

Thanks for the replies so far, much appreciated. I've done a lot of reading about PCP online but the stuff I've come across just covers how it works, rather than the real world experience. The bit I was most interested in his how much equity you generally have left at the end fo the 3 years, which determines how much of a deposit I'd need to start a new deal. I wouldn't mind chucking a big deposit in originally (£5-7k) if it meant a much lower deposit next time around, but it seems I may end up having to find a similar amount again which puts me off.

I'm wondering now if leasing is the way forward. For £2-3k deposit and around £350pm over 3 years with 10k miles I can get a Skoda Superb estate. Then I've got another £3k in the bank saved by not dropping twice that amount on a PCP deposit for the next lease in 3 years' time.

In terms of what I'm actually after, I've got a little girl so it's family wagons really. Estate, MPV or 4x4. I like the Skoda Superb and the Kodiaq, Ford S-Max and VW Touran, all of which seem to be within reach on lease deals.

 

[Daaaavvveee]

Thanks for the replies so far, much appreciated. I've done a lot of reading about PCP online but the stuff I've come across just covers how it works, rather than the real world experience. The bit I was most interested in his how much equity you generally have left at the end fo the 3 years, which determines how much of a deposit I'd need to start a new deal. I wouldn't mind chucking a big deposit in originally (£5-7k) if it meant a much lower deposit next time around, but it seems I may end up having to find a similar amount again which puts me off.

I'm wondering now if leasing is the way forward. For £2-3k deposit and around £350pm over 3 years with 10k miles I can get a Skoda Superb estate. Then I've got another £3k in the bank saved by not dropping twice that amount on a PCP deposit for the next lease in 3 years' time.

In terms of what I'm actually after, I've got a little girl so it's family wagons really. Estate, MPV or 4x4. I like the Skoda Superb and the Kodiaq, Ford S-Max and VW Touran, all of which seem to be within reach on lease deals.

Pistonheads have a really good leasing thread, may be worth Googling that? I am not on my personal machine otherwise I could have linked you in.

 

[chanjy]

Thanks for the replies so far, much appreciated. I've done a lot of reading about PCP online but the stuff I've come across just covers how it works, rather than the real world experience. The bit I was most interested in his how much equity you generally have left at the end fo the 3 years, which determines how much of a deposit I'd need to start a new deal. I wouldn't mind chucking a big deposit in originally (£5-7k) if it meant a much lower deposit next time around, but it seems I may end up having to find a similar amount again which puts me off.

I'm wondering now if leasing is the way forward. For £2-3k deposit and around £350pm over 3 years with 10k miles I can get a Skoda Superb estate. Then I've got another £3k in the bank saved by not dropping twice that amount on a PCP deposit for the next lease in 3 years' time.

In terms of what I'm actually after, I've got a little girl so it's family wagons really. Estate, MPV or 4x4. I like the Skoda Superb and the Kodiaq, Ford S-Max and VW Touran, all of which seem to be within reach on lease deals.

You can spend a LOT less than £350pm for a Superb estate

http://www.simpsonsskoda.co.uk/pch-offers/new-superb/ <<< £2490 down, 23*£159pm, 10k miles

 

[LiE]

You could buy a used Superb thats only a year or so old for your budget.

http://www.autotrader.co.uk/classif...ke=SKODA&minimum-badge-engine-size=2.0&page=1

 

[GinG]

You could get something like this: http://www.autotrader.co.uk/classified/advert/201708058046396?sort=sponsored&radius=50&advertising-location=at_cars&price-from=16000&transmission=Automatic&make=SKODA&onesearchad=Used&onesearchad=Nearly New&onesearchad=New&model=SUPERB&body-type=Estate&postcode=dl81fd&page=1

Stick 7k down in deposit & get a 15k loan.

Over 4 years the payments would be £332.39 going off the Tesco Bank calculator.

Man maths but say in 4 years time you want to come sell, car is worth say £10k effective monthly cost would have been around £250 per month if you sold up and took the money back to the bank or you will have £10k to put towards the new one...with increased car prices should then allow you to get a similar spec car for similar monthly payments.

 

[Trifid]

It's important to consider negative equity and how that can affect you at the end of the term, if you're in this unfortunate position and take out a new PCP then dealers do have a magical way of making this negative equity "disappear" (I believe in most cases it's just removed from any discount you'd get on your next vehicle).

I wonder how many people take a 'deal' like this when handing the car back or VTing the car early would have made better financial sense for them...

I personally am not a fan of PCP, preferring a PCH lease for a new car on the basis that you follow the deals and not be picky what car make, model and spec you go for.

 

[Bickaxe]

Will be starting a PCP deal soon.
The HP deal worked out more expensive than PCP as well as saving the difference at the same time (based on total price).
After 3 years we should easily have enough put by to pay off the car and will probably keep it for another 2 years anyway.

 

[Big Chris]

You can spend a LOT less than £350pm for a Superb estate

http://www.simpsonsskoda.co.uk/pch-offers/new-superb/ <<< £2490 down, 23*£159pm, 10k miles

Interesting, thanks. I was using a leasing comparison website but this is a much better deal. I've been looking at the SE L or SportLine models, they do the latter for £215pm with a £2.5k deposit, 10k miles over 2 years.

 

[ultralaser]

I found it difficult looking at the options and finding the right path to go down. Ultimately if it's a bank loan or a PCP deal the key is to make sure it's affordable. PCP deals and monthly repayments on a personal loan normally equate to a difference of about a 2-2.5 year gap in the age of the car.

For myself I ended up getting a personal loan over 2 years on a car that was 3 years old at £250 PCM, a PCP for the new version of the same car would have been £280 PCM (+ initial rental of about £1600) over two years.

So over a two year period it kinda works out like this :
PCP: Spend (1600 initial rental + 6740 in monthly payments == £8340) with a return of £0 (I.e. you dont own the car at the end of the PCP deal) at the end of 2 years
Personal Loan (£6000 in loan repayments to own the car) with a return of about £3,400 over 2 years.

So for me the cost of getting the new car on PCP vs a 3 year old one on a personal loan was about £5,740.... so the question for me was is £5,740 over 2 years worth it to drive new car.... for me the answer was nah.

EDIT: just to say that with a new car you get many benefits, such as warranty, no MOT for the first few years, etc. so need to factor those costs in too

 

[McPhee]

Equity following a PCP agreement is rather pointless. It's just money you've overpaid during the course of the agreement.

The monthly payment is roughly:

(The purchase price of the car - the GMFV + the interest on the full value of the loan) / the length of the agreement in months

If the GMFV is too low, the monthly payments will be higher than they should be. All you're banking at the end is money you've already paid out. The only saving is on the interest, as you're repaying a larger amount of the loan.