PCP question

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This topic contains 41 replies, has 4 voices, and was last updated by Stuart Masson Stuart Masson 1 year, 3 months ago.

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  • #7227 Reply

    – none –
    Member

    Suppose I buy a new car worth £9000 with PCP.
    I put down a deposit of £3000
    I make total monthly payments of £3000.
    I now owe £3000.
    If the seller says the minimum guaranteed value will be £4000, I can pay off the remaining £3000

    I now have only £1000 for a deposit on a similar car. (at the same price £9000 to simplify matters)
    I make total monthly payments of £3000
    I now owe £5000
    Minimum guaranteed value £4000
    I now owe £1000 on the second car and have no deposit for the third car

    This is not a sustainable situation for buying successive cars with PCP.

    Can you explain?

  • #7239 Reply
    Stuart Masson
    Stuart Masson
    Keymaster

    Hi Mike,

    Firstly, you need to consider that your car will always depreciate. If you pay £9,000 cash up front for a car, and in three years time it is worth £4,000 (based on the Guaranteed Minimum Future Value being offered by the finance company in your example), then it has cost you £5,000 in depreciation which you have paid up front when you bought the car. With a PCP, you are largely paying the depreciation as you go, so instead of paying £9,000 for the car, you have pay a deposit and then monthly payments to cover the predicted depreciation. At the end of the agreement, if the car is worth more than the GMFV, you get some of your money back. If the finance company has got their sums wrong and the car is worth less than the GMFV, they lose as they still have to settle that figure even though it is not worth that much.

    Secondly, your assumptions are slightly off. Using your example, the car cost £9,000 new and the Guaranteed Minimum Future Value at the end was £4,000. These are basically two fixed points, and you are financing the depreciation between them of £5,000. So you are not paying off £6,000 (£3,000 deposit and £3,000 in monthly payments) as you have suggested, but £5,000 (say, £3,000 deposit and only £2,000 in monthly payments). At the end of the agreement, the GMFV is £4,000, and this is the figure you would have to pay if you wanted to keep the car or settle if you part-exchange it.

    If we assume that you have £1,000 equity in the car at the end of the agreement (ie – the car is worth £5,000 and the GMFV to be settled is £4,000), then you can use that towards your next car but you can also add more deposit next time around, which you have not done. You have assumed no additional deposit beyond the equity for the second car, when for the first car you were putting in £3,000 up front. So for the second car, you would be financing more of the depreciation value than you did the first car (assuming the GMFV is the same again at £4,000), so you would be paying monthly payments to cover £4,000 this time, not £3,000 (ie – your monthly payments would be higher).

    Remember with a PCP that you are effectively financing the depreciation, rather than the whole car. You can choose how much you put in up front and how much you pay monthly, but what you are paying off is the depreciation value (plus interest and fees) rather than the cost of the whole car. So if the car costs £9,000 and has an end value of £4,000, a PCP is financing the £5,000 of depreciation while a Hire Purchase (HP) – or buying the car with cash – is paying off the whole car.

    Let’s assume that the GMFV is accurate, and the car is worth £4,000 at the end of the finance period. With an HP, you pay off £9,000 (plus interest and fees) and get £4,000 back again at the end if you part-exchange or sell it, so your net spend is £5,000 plus the interest & fees. With a PCP, you are only paying off the £5,000, so you get nothing back at the end. The end position is the same, but you have got there in a different way.

    Hope this helps,

    stuart

  • #8149 Reply

    Mo

    Hi Staurt
    I have a similar question to Mike, I am looking at PCP for a used car worth £20k, the dealer has informed me that I pay 14k over three years with GFV of £10k.
    If I was to buy the car outright for £20 k and in 3 years sell it for 10k (asuming that the value is correct and I cant get any more) I will have lost 10k.
    But if I was to do PCP I am losing £14k over the same period. Now I know rate of interest on the money I have borrowed is taken into account but still I dont understand how PCP work out.
    On the other hand if I was to go for a brand new car worth £30 k on a personal Lease deal I pay the same £14 k over 3 years with no option to buy.
    My dealer says they are different products, can you shed some light .

    Thanks

  • #8263 Reply
    Stuart Masson
    Stuart Masson
    Keymaster

    Hi Mo,

    Firstly, your numbers for the PCP are correct in principle, although the £4K in interest & fees does seem a little high. Your cost of financing is effectively £4K over the cash equivalent.

    Secondly, the lease option is a different product. It is effectively a rental for three years, with the car always belonging to the leasing company rather than you, which is why you only have the option to give it back and not to keep or sell it. Make sure they are quoting prices including VAT when they talk about leasing.

    Not sure what cars you are looking at, but manufacturers’ own finance offers will always be far better on new cars than they are on used cars, as the manufacturer would much rather you buy a new car than one they built a couple of years ago. So effectively they forgo profit from their finance company to help sell the new car. With a used car, they are effectively only offering you a market rate rather than a subsidised rate.

  • #9755 Reply

    sharon

    Is GMFV added on your settlement figure.

  • #9861 Reply
    Stuart Masson
    Stuart Masson
    Keymaster

    Hi Sharon,

    No, the GMFV (Guaranteed Minimum Future Value) is equal to the settlement figure at the end of the agreement. If you are settling early (e.g. – 2 years into a 3-year agreement), then the settlement figure will be greater than the GMFV. stuart.

  • #12391 Reply

    Sid
    Participant

    Hello,

    I too have a similar query and want to understand which option is better –
    e.g. I purchased a car for £25k and my final bubble is worth £14k after 3yrs. So I can either pay £14k and own the car or else give it back to the dealer and go for a new car. I can put the £14k towards the new car and the final bubble comes to around £19k after 3yrs.

    Question is – is it better to own the current car or else exchange to a latest car at the end of each 3yrs term?

    Thanks Sid.

  • #13854 Reply
    Stuart Masson
    Stuart Masson
    Keymaster

    Hi Sid,

    Not quite. Yes, you can buy the car for £14K, but if you part exchange it or give it back, the car is equivalent to the payment of £14K, so you won’t get any money back. The finance agreement is then closed off, and you start again with a new agreement.

    There is no right or wrong answer as to whether it is better to buy out your current car or change it; it comes down to what you want to do with your money. PCPs are popular because people generally do want to change their cars every three years or so.

  • #19377 Reply

    Sam

    Hi, I’m thinking of taking out a pcp agreement, using my current car as a deposit. I am thinking about my options in 3 years time and wondering whether there is normally a minimum deposit if I give the car back and take out another agreement. Obviously this time my current car raises the deposit but I’m concerned as to how much I will have to raise in 3 years, especially if there is no equity in the car I give back.

  • #19645 Reply

    Sijin Varghese

    Hi Sam,

    When you give back the car after 3 years without any damages then they wont ask you to pay off the balloon amount. And what you put as desposit is completely upto as the higher the deposit lower the monthly payment.

    I had recently exchanged my car under the same.

    Personally, if you think that you are going to change your car after 3 years then would recommend for lease option coz that will be cheaper.

    Cheers
    Sijin

  • #49487 Reply

    MarkP

    I wanted to buy a 3 year old BMW 1 M Coupe on PCP. The new price of these was £40k and amazingly the used price for a 20-30k mile car after 3 years is still £40K! Not so great though is when I asked BMW finance and Oracle finance they both told me that the GMFV after a further 4 years and 30k miles was only £11K !!
    My question is are there any finance companies that take a more ‘real world’ approach to the GMFV?
    Most people in the industry tip this car to increase in value further still rather than depreciate.

  • #49593 Reply
    Stuart Masson
    Stuart Masson
    Keymaster

    Hi Mark, sorry for not replying sooner. The prices being asked for used 1M coupes seem crazy, so I’d be very wary of buying one at that sort of money. They may become a future classic eventually, but the people paying over the odds now are going to get hit hard when the depreciation eventually kicks in. Short term they will lose a lot of money and then potentially recover it longer term. Even a 3-year old Ferrari 250 GTO was worth a lot less than its new price – but if you were happy to wait for 50 years then you would have made a £20 million profit ;)

  • #49855 Reply

    Iky

    hi I purchased a smart car from mercedes dealers on fri 19th september 2014 , i had bought this car on pcp and not had a test drive, after my partner drove the car the next day it has come to our attention that the car does not have power steering it is very difficult for my partner to do a u-turn and turning into streets and also difficult to park the car.
    I have been in touch with the dealer and notified this matter and they have said we cannot do anything now because the car is registered at dvla in your name and you cannot return the car as we don’t have another smart car which has a power steering.

    can you please advise me what are my rights in this matter to change this vehicle to a power steering smart car

    I D

  • #49857 Reply
    Stuart Masson
    Stuart Masson
    Keymaster

    Hi Iky. Have you taken delivery of the car? If not, you can cancel your order – you could potentially lose your deposit but there’s not a lot else they can do about it. Have a read of this article about changing your mind after buying a car.

    Have you signed the PCP contract? If not, don’t sign it. If so, write/e-mail Mercedes-Benz Finance to cancel the finance while you are still within your 14-day cooling-off period.

  • #65648 Reply

    wayne

    I bought a car for 12000 had it 2 years made all the payments and then bought another car for cash. there was still 2 yrs left on finance and only 5000 still to pay. so instead of trying to sell it I gave back to the finance company to clear the 5000 and get a bit back I was too busy working to sell it myself. they sold the car for 3000 and a week later I saw it for sale at 9000 they now want the difference this has got to be fraud plz help

    • #65650 Reply
      Stuart Masson
      Stuart Masson
      Keymaster

      Hi Wayne. I’m sorry, I don’t understand what you mean. If you gave the car back to the finance company (voluntary termination), then that concludes the agreement. What they do with it afterwards is none of your concern.

      The usual practice for a voluntary termination is that the finance company will sell the car at auction, where it will be bought by a dealer who will then sell the car onto another customer – and it sounds like that’s exactly what’s happened here. What I don’t understand is who is chasing you for money and why.

  • #86617 Reply

    Ann McCabe

    We have been offered a new car for £11000 cash plus our present car as part exchange. Unfortunately this was a little more than we wanted to pay. The sales person has suggested we buy the car using pcp finance from the dealership which would allow us to receive £500 extra off the cost of the car, making it £10,500. The figures he has provided would mean we would pay exactly £10500:- 41 payments of £116.01 plus a balloon payment of 7042.50 minus a cash back payment of £1298.91 (as we can only pay 30% deposit and our present car is worth more than that). It seems like a better deal to us than paying cash but are we missing something.

  • #86620 Reply
    Stuart Masson
    Stuart Masson
    Keymaster

    Hi Ann. For those numbers to add up, it would have to be a 0% APR deal, which may be true – in which case that’s great.

    Check the finance quotation, which should show the APR (annual percentage rate), total interest payable and the price of the car. Also check the manufacturer’s website to make sure that there are no better offers available that you weren’t told about (it happens).

  • #87276 Reply

    Nicola

    Hi,

    I bought my Mini Cooper at the end of June 2013 on a 4 year PCP deal. Earlier this year I looked into a new car and have since bought it with it arriving early March. Looking at my options, the best deal was for me to VT it and by March my PCP deal will of reached 0 with maximum £50 to the good.

    I booked my car in for a service today and was informed my car now needs new brake pads and disks totalling £550 which I cannot justify paying since I will be giving the car up in just a few weeks time. Will I be penalised for this on handing the car back?

    My next issue is mileage. On taking the car on I was working near home so agreed to 8000 mileage per year, however my circumstances have since changed and I am currently sitting at 35000 miles over 2 and a half years – will the mileage be a total of 8000 miles X 4 years totalling 32000 or will the mileage be calculated over the 2 and a half years X 8000 miles?

    I also have a very small dent to one side of the car and a slight scratch on the other due to other drivers, how is this usually dealt with on handing the car back?

    Thanks!

    • #87511 Reply
      Stuart Masson
      Stuart Masson
      Keymaster

      Hi Nicola,

      The finance company will charge you for any visible damage, so the dent and scratch will probably attract their attention. The brakes are much less likely to be noticed, as they will not be removing the wheels to inspect the discs and pads.

      There is considerable debate on excess mileage. The prevailing belief is that the finance company cannot charge you anything for excess mileage on a VT, but they will almost certainly try (working on a pro-rata basis, so roughly 15,000 miles). For more information, have a read of our article on voluntary termination.

  • #87373 Reply

    Michelle B

    Hello
    I have signed a vehicle order with Audi in 2nd week of December. The car is coming in 2 weeks. I want to cancel the order. The salesman says it’s too late. I have not yet signed the pcp paperwork.
    Am I legally bound by the order form? Can I cancel?
    Thanks.

    • #87403 Reply
      Stuart Masson
      Stuart Masson
      Keymaster

      Hi Michelle. Yes, you are legally bound by the order, so you will need to negotiate with the dealer to cancel it. Usually this will mean losing your deposit. Have a read of our article about cancelling a vehicle order.

    • #87507 Reply

      Michelle B

      Thanks Stuart. The car is not in the garage yet. Not for another 2 weeks. I don’t mind losing my deposit. I emailed to say I want to cancel the order but the sales man is ignoring my email.
      Thanks
      Michelle B

    • #87509 Reply
      Stuart Masson
      Stuart Masson
      Keymaster

      The salesman will probably continue to ignore your emails. You will have to speak to someone more senior and explain your position (sales manager or general manager/dealer principal). You will need to call them and then follow up in writing, but they are still unlikely to give you an easy time and legally they don’t have to.

      They could try to enforce the contract, but it’s usually not worth the hassle. It would cost them money to start legal proceedings, and all they are going to get is a very unhappy customer who is likely to cause them trouble at every opportunity. They are far more likely to agree to allow you to cancel the order in exchange for keeping your deposit (unless you ordered something very specific that they don’t want to be stuck with, like a brown car with purple interior or something).

  • #87617 Reply

    Nicola

    Thank you!

    So am I best to get any visible damage fixed? The dent is very small due to being hit by a trolley in a super market car park and a very small scratch to the year. I can imagine they will charge a large sum to fix it!

    Where do I stand with the excess mileage?

    Thanks!

    • #87625 Reply
      Stuart Masson
      Stuart Masson
      Keymaster

      Generally you should get any visible damage repaired, as the finance company could end up trying to charge you far more than a fair price for the damage.

      For excess mileage, as previously advised they will probably try and charge you for it but there is no solid legal basis for that – have a read of our article on VT.

  • #87743 Reply

    Mark

    Hello

    I have a car on 3 year PCP which I believe will have about £1200 excess miles fee at end of term. I am 2 years into term and looking to change my car. At moment part ex value is about £2000 below settlement figure. This suggests there is an advantage in going to the end of the term as the GFV will mean even if you are over the miles the “penatly” will be less. Does the GFv only apply if you change on the very last day of the PCP deal or can you chnage a bit early. As you can see I want to chnage car but seems waiting might be better!

    Secondly does it make any difference whether you go back to the same brand or buy a different one.

    Thanks very much.

    • #87744 Reply
      Stuart Masson
      Stuart Masson
      Keymaster

      Hi Mark. The GMFV only applies at the end of the agreement.

      You can choose any brand you like for your next car – your finance agreement is with a particular finance company, and all they want is for the agreement to be settled – either by returning the car or by paying out the balloon/GMFV amount. If you part-exchange the car, the dealer will pay the settlement and sell the car. If you want to sell the car yourself rather than giving it back, you will need to settle the finance.

      Have a read of our article about how PCPs work, as well as our article about settling a PCP early.

  • #87745 Reply

    Mark

    Thank you very much. I think that means I had better wait until end of PCP or will take a bit of a hit. pity as had seen a nice car!

    Thanks again

  • #87765 Reply

    Mark

    Hello

    Could you explain a bit about VT. i know you have to have paid half but half of w
    What?

    My car was £24 K with £4k deposit and GFV of £11K. That would mean I would never pay of 50%.

    is that correct?

    Thank you very much

    • #87766 Reply
      Stuart Masson
      Stuart Masson
      Keymaster

      Hi Mark. If your car was £24K, your total amount payable will be a minimum of £24K (assuming 0% APR). Assuming you have interest and fees to pay, the total amount payable will probably be about £26-28K. This would mean your VT point would be £13-14K.

      For more info, have a read of our article about voluntary termination.

  • #87767 Reply

    Mark

    Thank you. This is a very good website

  • #90168 Reply

    Christopher

    Hello

    I hope this is correct place to post.

    I have recently taken out a PCP deal on a car and unfortunately due to unforeseen medical issues my income my be at risk. I am wondering if there is a way of giving the car back early (very early 16 plate) as I am concerned about the cost of repayments if I am unable to remain employed.

    If there is a way would this effect my credit rating?

    I am also concerned if the worst were to happen and my illness became terminal would my wife be left with the car and finance? Even though it is only in my name?

    Greatfull for any advice.

    Thank you Christopher.

    • #90178 Reply
      Stuart Masson
      Stuart Masson
      Keymaster

      Hi Christopher. Unfortunately, there is no provision in most PCP deals for not being able to make payments, regardless of the reason. You would need to claim on a life insurance policy if you have one that is applicable.

      You can’t simply give the car back unless you have paid (or are prepared to pay) 50% of the Total Amount Payable under the rules of Voluntary Termination. If you only recently commenced the agreement, this is unlikely to be a viable option.

      If the worst-case scenario you described did occur, the finance would not transfer to your wife. The finance company would be a creditor of your estate and would be able to make a claim for the settlement figure owed at the time. The final figure would end up being negotiated with the executor of the estate.

  • #92419 Reply

    Alex

    Hi,

    After a long while of mind change I have finally decide to start looking seriously about purchasing my ‘dream car’, currently the new f80 BMW M3 is ticking all the boxes. This will be my first time entering any sort of financial agreement so unfortunately my knowledge of this along with predicting future vehicle is quite weak.
    I am thinking after some research that PCP is probably the best route for me, however there are some things I can’t get my head around. Here are some figures I have pulled from one dealership to use as an example- a 2015(65) with 1500 miles on the clock Valued at £50,000:

    Duration of Agreement48 months
    Contract Mileage40000 miles
    47 Monthly Payments£938.76
    Optional Final Payment£17,962.00
    Customer Deposit£2,000.00
    Cash Price£50,000.00
    Total Amount of Credit£48,000.00
    Total Amount Payable£64,083.72
    Excess Mileage Rate9.14 pence per mile
    APR10.9% APR

    I understand that the ‘optional final payment’ is basically what the car is being valued at the end of term, is this correct? If this is the case then they are estimating that the car will be worth £17962.00 at the end of the term? Either I am being very naive in the rate that cars drop or is that too low? Surely the car will be at least £25000? Say if that was the case would that mean I would be in just over £7000 equity to put towards another car? I just can’t see dealerships being daft enough to lose out on these finance deals and the last thing I’d want is to be in the ‘red’ when it comes to the end of the term and actually end up owing on the car rather than being in equity.

    As I said I am pretty much a novice in all of this and this will be my first time purchasing a vehicle like this. Can you give any advice or tips on how to get the best from these kind of deals and also how is the best way to try and calculate a cars future value?

    Look forward to your answer,

    Thanks

    • #92428 Reply
      Stuart Masson
      Stuart Masson
      Keymaster

      Hi Alex. If you are buying a car worth £50,000 now, there is no way it is going to be worth £25,000 in four years’ time, so I think the figure provided is probably reasonable.

      From the finance company’s perspective, they would rather have the figure low than high. If they set the final value at £17K and it ends up being worth £25K, it’s no problem for them. You effectively get back £8K of the money you have paid off (indirectly, when you sell the car). If it’s the other way round, where they set the value at £25K and it’s only worth £17K, you give the car back to them and they’re stuck with a £17K car which means they charged you £8K less in finance payments than they should have.

      For more information, have a read of our article on how a PCP works.

  • #94340 Reply

    Paul Tracey

    Hi Stuart

    I have a PCP with Kia and am looking at paying off all the monthly payments leaving just the final value

    Is this possible ie pay off the monthly repayments and pay the final value in the future not necessarily at the end of the term

    Not sure I am explaining this at all well

    I have 14 monthly payments let and can now pay them off in full leaving just the final value to be paid
    I would be looking to pay that of as soon as possible not necessarily at the due date (Nov 17) it would maybe be later this year or early part of 2017

    Thanks

  • #94355 Reply

    Paul Tracey

    The PCP is with Kia Finance so if I make all the amount required and leave just the GFV amount left
    Does this mean I will not be required to pay anymore monthly payments until the GFV is due

    Thanks

  • #94425 Reply

    Paul Tracey

    Thanks for your reply Stuart

    I contacted Kia today and they tell me I must still leave the DD running but I was able to pay off most of the finance my DD is now set at 1p PM hopefully I can afford that ;-)

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