22 July 2015 at 10:25 pm #66744
I have been given some figures for a PCP on a Volvo XC60. 3 years at £501 and MGFV of £14623 or 4 years at £442 and MGFV of £12666. The salesman advised me to go for the 4 years for the lower payments but part exchange after 3 to get a higher value and possibly more equity to put on a new one. I wasn’t sure if this was good advice or just sales patter. Any advice?
23 July 2015 at 7:37 am #66747
Hi Tim. Some very simple calculations will show the premise to be incorrect, although dealers push it at every opportunity because it suits them (not you).
On the 3-year PCP, you pay £501 so will have paid £18,036 over three years and the settlement figure is guaranteed to be covered by the GMFV.
On the 4-year PCP, you pay £442 so will have paid £15,912 after three years (ie – over £2,000 less), with a higher settlement and no guarantee. If the car’s resale value is significantly stronger than Volvo predicts, you may have some equity, but this is not especially likely as it requires them to have underestimated the car’s 3-year predicted value by at least £2,000.
The car’s value after 3 years is going to be the same regardless of which term you take, so if you take the longer term you will have borrowed more (because you pay more in interest) but repaid less. So how can you have a ‘higher value’ (whatever that means) and more equity if you have repaid less?
If your plan is to change the car after 3 years, you will always be better off with a 3-year PCP.