# Any PCP experts out there?



## dannygdesigns

I know theres tons of threads out there about PCP/Leasing/Cash buying and which is the best option but I want some advice on my personal circumstances and which would be suited best to me.

Never done a PCP before always bought my cars cash with savings. 

I am interested in purchasing an AMG A45, Currently drive a Range Rover Evoque 15 plate bought cash last October for nearly 37k, been looking at 65 & 16 plate A45's which are around 35-37k, my car probably worth 30k now so would use savings again to put the difference to the used car.

After struggling to find one on auto trader and the Mercedes dealership that meets my requirements with options etc the salesman asked why am I not wanting to PCP a brand new one with all the options I want, "Nobody pays cash anymore, most people finance there cars as your only paying for the depreciation" got me thinking hmm could this be the way forward. I could potentially invest the money I get for my evoque as it would not be tied up in a depreciating asset.

Longest I have ever kept a car has been 2 years, I usually get bored after a year and want something newer and exciting.

I've never took the finance route before as I hate monthly outgoings, I have always loved to pay for everything in full and get it out of the way so I never have to worry again, but as I have just moved out of my mums and have 2 mortgages I would probably get used to another big monthly outgoing.

I'm also self employed, does pcp finance have any benefit over cash for claiming tax relief? 

looking for some advice please on what I should do and if anyone has been in the same situation would love to hear what worked for you.

Thanks

Dan


----------



## ardandy

Check the interest rates.
When we bought our Mini they were nearly 10% interest rate on a 3 year PCP.

Went to my bank instead and got a normal loan over 5 years that's about £30pm dearer but is only 3% interest and after 3 years I would've paid more off too so the asset value of the car will be higher.

Quite often they have contributions that make PCP cheaper. Example for my LEAF (simplified):

Cash price bought outright: £17,500
PCP price bought after term ends: £15,500

This is why:
£0 Deposit - £175 per month (2 years - 0%) = £4,200
£11,300 final payment.

So if I wanted to buy the car fully I'm far better getting PCP, then paying it off either after 2 years (especially as its 0% finance) or after a few months. This is because Nissan give £2,500ish as a 'contribution'.


----------



## andy665

Worked in and around vehicle finance for 20+ years so I have picked up a bit of knowledge

Is PCP right for you - only you can make that decision but there are many things to consider based on what you have stated:

1. If you paid cash for a used one how much would it cost you - if you sell 2 years further down the line how much will it make, plus your service / maintenance costs - gives you your TCO (Total cost of ownership)

2. If you use PCP to fund a new one. Whats the monthly payment, rate, mileage, what discount / contribution available from manufacturer and dealership, is service pack included etc etc etc. For Mercedes assume you will have no equity at the end of the term. Cost of your deposit, monthly payments, service / maintenance etc minus the interest earned on the money you have not used to buy a used vehicle will give you the TCO over the two year period. Also worth bearing in mind that any damage beyond BVRLA guidelines and excess mileage will cost you. Also consider that you have options at the end of the term that may reduce the TCO (selling car privately / trading and getting more than the GFV)

If you want to change at any point during the term then its no different to conventional HP (PCP is legally a HP agreement anyway) - simply get a settlement figure.

Only you can make the judgement call on what represents the better deal for you - there is an awful lot more to whats a good deal besides the interest rate (important factor though it is) - every individual and every deal makes every situation unique but with a degree of common sense its not difficult to work out whats best for you now


----------



## Kerr

Be sure to check out sites to get a good discount on the A45. Too many people are paying too much and listen to the dealer when they say little or no discounts. There is often as much as 15% off.


----------



## shl-kelso

In most cases you can pay off the total amount owed from a PCP at any time without penalty. If this means you can then get all of the manufacturer/dealer contributions (which can be several thousand pounds) by taking the finance, then as soon as it comes through and you pick up the vehicle you settle the total amount owed, you've saved yourself some money and still bought the car outright.

If the monthly PCP payments are competitive, do not need a large deposit, and realistically amount to the likely depreciation, and you want to swap every couple of years then PCP might be worth considering. Just make sure you've checked the mileage allowance is about right (or are happy with the over-mileage charges) and allowable wear-and-tear/damage charges if you hand back the car.


----------



## DrEskimo

The amount of interest you pay on a PCP is eye watering. I have taken my first and last PCP, as the cost was just too much.

On a typical 3yr deal you are looking at paying £3/£4k in interest. This is why they can afford to give you additional contributions, but in reality it barely makes up for the additional cost. As above, taking the PCP and settling it within 14days is a good way to get the contribution and not pay the high interest, but don't think many dealers will thank you for it.

In terms of using your cash to invest, you need to be sure you can invest it in something that will pay more than the interest you will be charged. Since most are around 6%, this might be tricky.

My advice is go as much with cash as you can, and get the rest on a personal loan. Rates are much cheaper, and because you are not paying interest on a balloon payment that never decreases over the term, the total interest paid will be dramatically cheaper. Again, would only do the personal loan if you can make your money work harder elsewhere.

No where it can get complicated is when the GFV on a PCP. If finance company suggest it will be worth, say £15k, but the market does badly and the car is only worth £13k, then you can in effect hand the car back and not pay this £2k shortfall. If you bought outright, you are at the whim of the market forces. But given the interest you pay is £3/4k, it would have to be a considerable difference, which is unlikely IMO! 

(also, this price is only guaranteed at the end of the term, so if you want to change early, the trade-in value will reflect the true market, and so you will pay for any shortfall in the same way you would if you bought outright. That is why changing mid term can be costly, as you don't benefit from the protection of the GFV, but get all the negatives of high interest charges.)


----------



## ardandy

My PCP was 0% so they're not all as bad as that. Mini wanted nearly 10%!!


----------



## Richf

ardandy said:


> *Check the interest rates.*


This . Work out the cost to pcp , its often cheaper due to dealer contributions even if the apr is high

So work out the total price to finance - Compare that to the total price for cash and then add in what you are likely to get as a return on the capital you invest

We have two cars coming to the end of pcp deals in March, one was on 0% apr and got a dealer contribution and free servicing , the other was on 2.9%

Cant find a deal anywhere near as good so thinking about just buying them at the end of the term , doesnt seem to be the 0% deals on anything i would be interested in and i cant make 4.9% and over work out in my favour


----------



## andy665

DrEskimo said:


> The amount of interest you pay on a PCP is eye watering. I have taken my first and last PCP, as the cost was just too much.
> 
> On a typical 3yr deal you are looking at paying £3/£4k in interest. )


Like all deals there are good and bad, such a sweeping statement is really not representative of the marketplace


----------



## DrEskimo

andy665 said:


> Like all deals there are good and bad, such a sweeping statement is really not representative of the marketplace


No true, but AFAIK, Mercedes don't offer a 0% PCP, so in this case, its probably accurate?


----------



## andy665

DrEskimo said:


> No true, but AFAIK, Mercedes don't offer a 0% PCP, so in this case, its probably accurate?


Does not have to be 0% to be a good deal - its about looking at the deal as a whole.

Even a high interest rate does not automatically mark a deal out as being unattractive. As an example, f a manufacturer offers a rate of say 8% APR on a deal where the GFV after 3 years / 30k is 60% of the cars list price and offers a large deposit contribution then the lower monthly payment due to an unrealistically high GFV and the deposit contribution can more than offset a less than ideal rate of interest

The problem is that many people simply do not look at the whole deal, they focus in on one thing, rate, term, deposit contribution, GFV or monthly payment and ignore everything else - its only when you look at the whole deal in context of your personal circumstances at the time can a proper decision be made.

Many PCPs may have been not properly explained but I also believe that more PCPs have been bought because the customer did not listen


----------



## DrEskimo

andy665 said:


> Does not have to be 0% to be a good deal - its about looking at the deal as a whole.
> 
> Even a high interest rate does not automatically mark a deal out as being unattractive. As an example, f a manufacturer offers a rate of say 8% APR on a deal where the GFV after 3 years / 30k is 60% of the cars list price and offers a large deposit contribution then the lower monthly payment due to an unrealistically high GFV and the deposit contribution can more than offset a less than ideal rate of interest
> 
> The problem is that many people simply do not look at the whole deal, they focus in on one thing, rate, term, deposit contribution, GFV or monthly payment and ignore everything else - its only when you look at the whole deal in context of your personal circumstances at the time can a proper decision be made.
> 
> Many PCPs may have been not properly explained but I also believe that more PCPs have been bought because the customer did not listen


Yes, but you can take advantage of large deposit contributions and settle the PCP early.

Its not just the rate on the PCP, its the overall interest paid. Even a personal loan of the same rate will be many orders of magnitude cheaper since you don't have a balloon payment that never decreases.

I take your point about the GFV, although I think specifically for the A45 AMG, this is unlikely to apply.

The A45 has a RRP of 42k, and discounts based on coast2coast are about £6k.

So a rough PCP calculator indicates that at 4.9% and a GFV of £20,650 (based on 3yrs/30k) and a deposit of £5k, would cost about £420 a month.

So 35*420 +5000 = total cost after 3yrs of £19,700.

Lets say its worth the GFV, so if you bought outright, it would be £36k to purchase with the discount (as you could get it on PCP and settle early and get the same purchase price), and you trade it in for the same amount after 3yrs/30k at £20,650. Total cost = £15,350.

You save £4,350 by buying cash.

So for the PCP to be more attractive, it would have to be more than £4k less than the GFV set....I think this is wishful thinking personally, but maybe not?

Take your point that there may be some stellar deals where the finance company have made a bit of a mistake on the GFV, and I agree, just like there are some stupidly cheap lease deals, but generally speaking the interest you pay on a PCP is high.


----------



## dannygdesigns

Friend told me to get on to carwow as dealers across the country send in there offers on the car. a few have got back to me and got this full offer and breakdown from Merc at Sheffield.

Looking at it it doesnt seem bad at all considering I've easily lost over £500 a month on my evoque in depreciation, as well as a £500 service this year I had done. I got told evoques held there value well.

based on my circumstances would you guys go for the pcp?


----------



## Kerr

Over £20,000 for 30 months in an A45 is expensive. 

How much discount are they offering to get the price down to £39,000?

The A45 isn't the cheapest to car to own either. Service intervals aren't as long and more expensive that similar cars. Consumable parts aren't cheap either.


----------



## DrEskimo

dannygdesigns said:


> Friend told me to get on to carwow as dealers across the country send in there offers on the car. a few have got back to me and got this full offer and breakdown from Merc at Sheffield.
> 
> Looking at it it doesnt seem bad at all considering I've easily lost over £500 a month on my evoque in depreciation, as well as a £500 service this year I had done. I got told evoques held there value well.
> 
> based on my circumstances would you guys go for the pcp?


But factor in your £5000 deposit and you'll be losing £680 per month on the A45, not just the £500 monthly cost....

As Kerr said, whats the discount level? coast2coast is offering £6k off, but that was a stock model and I didnt enter any options.


----------



## Rayaan

DrEskimo said:


> But factor in your £5000 deposit and you'll be losing £680 per month on the A45, not just the £500 monthly cost....
> 
> As Kerr said, whats the discount level? coast2coast is offering £6k off, but that was a stock model and I didnt enter any options.


Drive the deal has £6734.93 off (bear in mind I didn't put any options or even paint on the car so discount would prob increase on options) but that includes £1464 deposit contribution - Its 4.9% interest

Having said that, have you worked out what you'd get if you invested the £30k providing you're choosing a method of guaranteed income. Might not be worth it overall to be honest with you.

If you're self employed and using the car for business and private use, I believe you can get 50% VAT off the monthly. However, I've always bought with cash (accountant says so) and they do some fancy stuff where they put the whole value of the car in and work out what you use for business and take it off the total tax. Saves me about £1-3k annually until the car goes under £12k


----------



## dannygdesigns

Kerr said:


> Over £20,000 for 30 months in an A45 is expensive.
> 
> How much discount are they offering to get the price down to £39,000?
> 
> The A45 isn't the cheapest to car to own either. Service intervals aren't as long and more expensive that similar cars. Consumable parts aren't cheap either.


£5,419 discount. I'm only used to getting 30mpg on the evoque so don't see a45 being too much different unless booting it then I think its worth the extra money due to the enjoyment. Currently it feels like I've thrown £500 a month driving a car I don't have any enjoyment in.


----------



## dannygdesigns

Rayaan said:


> Drive the deal has £6734.93 off (bear in mind I didn't put any options or even paint on the car so discount would prob increase on options) but that includes £1464 deposit contribution - Its 4.9% interest
> 
> Having said that, have you worked out what you'd get if you invested the £30k providing you're choosing a method of guaranteed income. Might not be worth it overall to be honest with you.
> 
> If you're self employed and using the car for business and private use, I believe you can get 50% VAT off the monthly. However, I've always bought with cash (accountant says so) and they do some fancy stuff where they put the whole value of the car in and work out what you use for business and take it off the total tax. Saves me about £1-3k annually until the car goes under £12k


I'l check that website out cheers. Investment wise it would be in terms of another rental property so return would be gradual and not a guaranteed income. I do use the car for both personal and business often driving down to london to meet clients. My accountant told me I couldn't put the value of car through my books last year and only business miles but I need to check this out.


----------



## Richf

DrEskimo said:


> Yes, but you can take advantage of large deposit contributions and settle the PCP early.
> 
> Its not just the rate on the PCP, its the overall interest paid. Even a personal loan of the same rate will be many orders of magnitude cheaper since you don't have a balloon payment that never decreases.
> 
> I take your point about the GFV, although I think specifically for the A45 AMG, this is unlikely to apply.
> 
> The A45 has a RRP of 42k, and discounts based on coast2coast are about £6k.
> 
> So a rough PCP calculator indicates that at 4.9% and a GFV of £20,650 (based on 3yrs/30k) and a deposit of £5k, would cost about £420 a month.
> 
> So 35*420 +5000 = total cost after 3yrs of £19,700.
> 
> Lets say its worth the GFV, so if you bought outright, it would be £36k to purchase with the discount (as you could get it on PCP and settle early and get the same purchase price), and you trade it in for the same amount after 3yrs/30k at £20,650. Total cost = £15,350.
> 
> You save £4,350 by buying cash.
> 
> So for the PCP to be more attractive, it would have to be more than £4k less than the GFV set....I think this is wishful thinking personally, but maybe not?
> 
> Take your point that there may be some stellar deals where the finance company have made a bit of a mistake on the GFV, and I agree, just like there are some stupidly cheap lease deals, but generally speaking the interest you pay on a PCP is high.


Yep at higher apr's it does pay to settle early

On my Octavia had I paid cash it would have been £27589 , the total I will pay on pcp is £28855.70 so £1266 in interest at 2.8% over 3 years.

I put down as big a deposit as I could meaning I only financed £19489, that £20k I put in a bond which over three years has returned 4% meaning I made £2500, less the interest I'm £1200 better off having taken finance plus I don't need to worry about its actual value at the end of the term if its worth less I'll hand it back something you cant do if you buy outright and a lot of diesel owners are feeling the hurt now on trade ins.

I'm looking at the 280ps Superb Estate and that's offered at 4.6% apr, if I could get a better deal I could be tempted but thats too high to work for me.


----------



## ardandy

A £28k Octavia!!!!

Take it you didn't try drivethedeal.


----------



## Rayaan

dannygdesigns said:


> I'l check that website out cheers. Investment wise it would be in terms of another rental property so return would be gradual and not a guaranteed income. I do use the car for both personal and business often driving down to london to meet clients. My accountant told me I couldn't put the value of car through my books last year and only business miles but I need to check this out.


I just checked and from what I can tell, the accountant has put my car as writing down allowance. They then stick it into either the main pool or the special pool.

After April 2015 the main pool is 18% for cars under 130g/km co2. Special pool is 8%. My car is 127g/km so I get 18%. Then the personal use is deducted, in my case 20% personal use.

Essentially - lets use £40k. Using the main pool as an example it'd be £7200. Remove 20% personal use leaving £5760. You won't get taxed on this amount and the value of your car will have £5760 removed from it and the remaining balance carried into the next year.

If you're claiming based on p/mile, I dont believe you can use it but it works out better financially to do it this way for me rather than using the p/mile method.


----------



## DrEskimo

Rayaan said:


> I just checked and from what I can tell, the accountant has put my car as writing down allowance. They then stick it into either the main pool or the special pool.
> 
> After April 2015 the main pool is 18% for cars under 130g/km co2. Special pool is 8%. My car is 127g/km so I get 18%. Then the personal use is deducted, in my case 20% personal use.
> 
> Essentially - lets use £40k. Using the main pool as an example it'd be £7200. Remove 20% personal use leaving £5760. You won't get taxed on this amount and the value of your car will have £5760 removed from it and the remaining balance carried into the next year.
> 
> If you're claiming based on p/mile, I dont believe you can use it but it works out better financially to do it this way for me rather than using the p/mile method.


Jesus, sounds simple...! No wonder you have an accountant....although as a GP aren't you being expected to run the finances of your practice


----------



## kingswood

andy665 said:


> Worked in and around vehicle finance for 20+ years so I have picked up a bit of knowledge
> 
> Is PCP right for you - only you can make that decision but there are many things to consider based on what you have stated:
> 
> 1. If you paid cash for a used one how much would it cost you - if you sell 2 years further down the line how much will it make, plus your service / maintenance costs - gives you your TCO (Total cost of ownership)
> 
> 2. If you use PCP to fund a new one. Whats the monthly payment, rate, mileage, what discount / contribution available from manufacturer and dealership, is service pack included etc etc etc. For Mercedes assume you will have no equity at the end of the term. Cost of your deposit, monthly payments, service / maintenance etc minus the interest earned on the money you have not used to buy a used vehicle will give you the TCO over the two year period. Also worth bearing in mind that any damage beyond BVRLA guidelines and excess mileage will cost you. Also consider that you have options at the end of the term that may reduce the TCO (selling car privately / trading and getting more than the GFV)
> 
> If you want to change at any point during the term then its no different to conventional HP (PCP is legally a HP agreement anyway) - simply get a settlement figure.
> 
> Only you can make the judgement call on what represents the better deal for you - there is an awful lot more to whats a good deal besides the interest rate (important factor though it is) - every individual and every deal makes every situation unique but with a degree of common sense its not difficult to work out whats best for you now


they was a massive indepth post about pcp in a previous thread - possibly by this chap.

maybe have a search through.

with me i like to own by cars as then i look after them better.

and whereas if you own a car its an asset (depreciating one i agree) but any type of contract your tied into is a liability.


----------



## Rayaan

DrEskimo said:


> Jesus, sounds simple...! No wonder you have an accountant....although as a GP aren't you being expected to run the finances of your practice


Well the earnings from the practice are sorted through the practice accountant. Out of hours and locum earnings go through my own company and sorted by my accountant


----------



## Richf

ardandy said:


> A £28k Octavia!!!!
> 
> Take it you didn't try drivethedeal.


Used Carwow got about 5k off list , its got a fair few options and have extended warranty, servicing and gap in there also.


----------



## kevin69

For similar money I'd get an RS3. 
I did and I love it. That 5 pot noise 
Cars are always going to cost a lot of Money but plenty of smiles per miles. 
You could even look at getting a used M3 or M4 2 - 3 years old big spec with low miles as they will have lost loads.
My RS3 was a PCP over 4 years
8% discount over all. 
£6500 deposit
Pretty big options
£560 p/m
Balloon of £19k after the 4 term.
All my hopes are all on the car being worth the £19 to cover the. Balloon and at least my deposit of £6500 back to roll over onto the next one - but that's very hopeful as the ****s keep on bringing out new models 
Mine makes me smile every time I drive her. And I'm 41 

Sent from my iPhone using Tapatalk


----------



## DrEskimo

kevin69 said:


> For similar money I'd get an RS3.
> I did and I love it. That 5 pot noise
> Cars are always going to cost a lot of Money but plenty of smiles per miles.
> You could even look at getting a used M3 or M4 2 - 3 years old big spec with low miles as they will have lost loads.
> My RS3 was a PCP over 4 years
> 8% discount over all.
> £6500 deposit
> Pretty big options
> £560 p/m
> Balloon of £19k after the 4 term.
> All my hopes are all on the car being worth the £19 to cover the. Balloon and at least my deposit of £6500 back to roll over onto the next one - but that's very hopeful as the ****s keep on bringing out new models
> Mine makes me smile every time I drive her. And I'm 41
> 
> Sent from my iPhone using Tapatalk


Seeing as a basic RS3 is £44k, and you'll be lucky to get 50% of its value after just 3yrs, to expect it to be worth £27k after 4 years is indeed wishful thinking!

I would be making sure you save up an additional £150 each month to make sure you have that £6500 deposit again....

But blimey thats a lot to pay for a car each year....:doublesho


----------



## dannygdesigns

kevin69 said:


> For similar money I'd get an RS3.
> I did and I love it. That 5 pot noise
> Cars are always going to cost a lot of Money but plenty of smiles per miles.
> You could even look at getting a used M3 or M4 2 - 3 years old big spec with low miles as they will have lost loads.
> My RS3 was a PCP over 4 years
> 8% discount over all.
> £6500 deposit
> Pretty big options
> £560 p/m
> Balloon of £19k after the 4 term.
> All my hopes are all on the car being worth the £19 to cover the. Balloon and at least my deposit of £6500 back to roll over onto the next one - but that's very hopeful as the ****s keep on bringing out new models
> Mine makes me smile every time I drive her. And I'm 41
> 
> Sent from my iPhone using Tapatalk


I have actually been looking at RS3's but what's out there at the moment is a few thousand more than the a45 and most have done a lot more miles than the a45's.. also it seems that as standard you don't get as many features and options as the a45 a lot are extras that cost.

"Cars are always going to cost a lot of Money but plenty of smiles per miles. " couldn't agree more with this, family and girlfriend say "why would you want to go backwards in terms of fuel and cost to run" They don't understand how happy and giddy it made me feel taking the a45 for a test drive the other week I couldn't stop smiling for the rest of the day I don't mind paying for something that I enjoy driving everyday, whereas the evoque I don't know what I was thinking 

I've pretty much made my mind up regarding the PCP or cash situation, going to buy used 65/16 plate part x or sell the evoque privately and put the cash towards.. I can't justify financing and paying thousands more when I don't need to, Hopefully this car will be the one I keep more than 2 years :lol:

Just got to sit and wait for one to come on the market with the spec I want.

Thanks everyone.


----------



## Taxboy

DrEskimo said:


> Seeing as a basic RS3 is £44k, and you'll be lucky to get 50% of its value after just 3yrs, to expect it to be worth £27k after 4 years is indeed wishful thinking!
> 
> I would be making sure you save up an additional £150 each month to make sure you have that £6500 deposit again....
> 
> But blimey thats a lot to pay for a car each year....:doublesho


I think you've hit the nail on the head regarding making additional payments to cover another deposit if financing via PCP. It's all very well handing the keys back but you need to start again either via lease or another PCP.

I wonder how many people only realise they may be in that position when the deal gets close to the end

Sent from my SM-T800 using Tapatalk


----------



## andy665

Taxboy said:


> I think you've hit the nail on the head regarding making additional payments to cover another deposit if financing via PCP. It's all very well handing the keys back but you need to start again either via lease or another PCP.
> 
> I wonder how many people only realise they may be in that position when the deal gets close to the end


Anyone on a PCP that expects to get their deposit back is pretty naïve, far better to assume you will have no equity, any equity that is there at the end should be very much treated as a bonus.

PCPs have changed dramatically since they first came to the UK in the early 90's. Many manufacturers in the early days set the GFV at a level that would provide decent levels of equity at the end of the agreement but this obviously made the monthly payments higher - as most customers do not look at the whole picture and focus virtually entirely on the monthly payment. Is it any wonder that the GFVs started being hiked up in order to reduce the payments and make the deal superficially seem more attractive.


----------



## DrEskimo

andy665 said:


> Anyone on a PCP that expects to get their deposit back is pretty naïve, far better to assume you will have no equity, any equity that is there at the end should be very much treated as a bonus.
> 
> PCPs have changed dramatically since they first came to the UK in the early 90's. Many manufacturers in the early days set the GFV at a level that would provide decent levels of equity at the end of the agreement but this obviously made the monthly payments higher - as most customers do not look at the whole picture and focus virtually entirely on the monthly payment. Is it any wonder that the GFVs started being hiked up in order to reduce the payments and make the deal superficially seem more attractive.


Completely agree. Doesn't help that so many salesman still suggest to customers that they will have equity at the end, and that it's almost guaranteed "these aren't like 'insert rival brand', these hold their value so well!".

Also think it's a symptom of a crashing used market due to the silly discounts they are offering on new cars. I got 18% discount on the outgoing B8.5 S5 model and thought that would cover the depreciation once the new model came out, as discounts wouldn't be nearly as strong. Nope, less than 4months after the release of the B9, you could already get 16% discount.

Cynic in me just wonders if this is all shortsighted to meet sales targets to create the illusion of growth, where eventually it will blow up in their faces as everyone will have finance on cars worth several thousands less than what is owed and just hand back the keys...I know some people think it's going to be the cause of the next financial crash!


----------



## Kerr

I thought salesmen were told not to make any suggestions at all about equity at the end? 

There will be a missold a PCP claims epidemic soon enough anyway and if they have advised there will be equity then they've left themselves wide open for it. 

I've lost count of the people who think their deposit is a deposit and not just a big first payment. There is also a theme where they think that PCPing is the fast track to upgrade their car every 3 years. 

The reality sets in further down the line when they want to trade in early and they find themselves in negative equity. That doesn't seem to stop people loading even more debt on to their next car. 

It just scares me what I read on car forums and the level of debt people take on to own a nice car. 

It also amazes me that they can get £40-50,000 cars on finance when they can barely afford the small deposit. There has to be some control taken on the market.


----------



## Richf

Anyone who reads the paperwork cant be in any doubt to what they have signed up for, its very clear exactly what you have to pay for. 

I'm all for financial clarity but some people just stupid , does everyone need to suffer so that we save these people from themselves ?


----------



## Radish293

I have no problems with PCP but you need to watch the interest rate APR. Interest rates are low at the moment no point in paying a fortune on a PCP. 


Sent from my iPad using Tapatalk


----------



## andy665

PCP in the current market with a crash looming is actually a safe bet as there is clear protection from negative equity at the end of the term.

In my experience for every sales person who could be accused of misleading the customer there are 2 customers who simply do not listen and / or read the documentation


----------



## Rayaan

As someone who's never PCPed before as I prefer to save and buy outright when I can pay for it, can someone enlighten me as to what negative and positive equity means and what impact it has in terms of PCPs


----------



## andy665

Negative equity - when the car is worth less than amount owed. Apart from when agreement terms have been breached this cannot happen at the end of a PCP. If the GFV (final payment) is 15k but cars market value at the time is 12k, the car can simply be returned and the finance house takes the 3k hit.

If at the end of the term on a car with a GFV of 15k sees it worth 18k customer can still hand the car back, letting the finance house take the 3k, pay the GFV and own the car outright or sell / part exchange the car and keep the 3k difference between the GFV and the actual value (positive equity)

In simple terms with PCP - negative equity is taken by the finance house, positive equity is taken by the customer


----------



## eddie bullit

We bought my wife's car on PCP to get the VW finance benefits at the time. Paid it off immediately as we don't like owing money. I drive an old Qashqai that I don't have to care about and my money goes on my 205 gti which is great fun and appreciates in value. Day to day new cars are money pits (depreciation) but if you don't mind drive a shed daily like me, have a weekend car to have all your fun with, cars don't have to cost a lot. Horses for courses really but I'm not working to pay for a car that takes me to work. In my eyes it's bonkers!


----------



## andy665

eddie bullit said:


> Horses for courses really but I'm not working to pay for a car that takes me to work. In my eyes it's bonkers!


Absolutely its horses for courses, I have paid cash, had PCP, used Contract Hire, taken out a bank loan, all have been considered in terms of what I wanted / needed at the time, what I could afford, what where the costs and what were the advantages and disadvantages

Its not rocket science but so many people go in blind with no research, lost count of the number of people I have seen post on forums asking what they need to do as they are getting towards the end of their PCP.

Currently have one car on Contract Hire, one has a small personal loan on it and one is owned outright having paid cash


----------



## SadlyDistracted

I thinks and advantage of such can be if you really want to be in a new iron all the time, and of course manufacturers like selling new iron...hence all the 'deals'.
Look at the cost of depreciation over say 2 years, then look at what deal you can get for your PCP.

e.g.. new car 40K, value after 2 years say 25K - there's a cost of 15K, which has efectively cost you 15K / 24M =~ £625 a month, if given initial deposit and monthly's cost less than the 15K, and you start again with a 'new' motor on the same PCP monthly, you're quids in, if you really want/need a new motor every few years?


----------



## andy665

SadlyDistracted said:


> I thinks and advantage of such can be if you really want to be in a new iron all the time, and of course manufacturers like selling new iron...hence all the 'deals'.
> Look at the cost of depreciation over say 2 years, then look at what deal you can get for your PCP.
> 
> e.g.. new car 40K, value after 2 years say 25K - there's a cost of 15K, which has efectively cost you 15K / 24M =~ £625 a month, if given initial deposit and monthly's cost less than the 15K, and you start again with a 'new' motor on the same PCP monthly, you're quids in, if you really want/need a new motor every few years?


And don't forget you have the safety net of not being in negative equity at the end of the term - if the market crashes you are safe, if the market booms and you have equity then you win


----------



## RS3

Do not accept the dealers bull regarding the discount available when taking out a PCP versus cash. Ive had this a few times now where I have managed to negotiate the same discount offered for PCP and paying in cash using (the last 2 cars) a Sainsburys bank loan at 2.8% for £25k over 7 years.
I don't want a finance company owning my cars - I'd rather be indebted to the bank I know and trust (well, somewhat!!).
However, the 0% PCP for the Toyota GR is definitely worth looking at which may be my next car. Got a test drive end of next week. That PCP will only be for 2 years then a bank loan to pay off the future value.


----------



## Taxboy

The other issue for PCP is that it locks you to a deadline. When your term comes to an end you've got to start again regardless of whether there are any good deals around or your personal circumstances may have changed. However if you always change your car every 3 years then it can work out OK - as long as you have saved enough for the deposit on the next one in the meantime 

Sent from my SM-T800 using Tapatalk


----------



## andy665

Taxboy said:


> The other issue for PCP is that it locks you to a deadline. When your term comes to an end you've got to start again regardless of whether there are any good deals around or your personal circumstances may have changed. However if you always change your car every 3 years then it can work out OK - as long as you have saved enough for the deposit on the next one in the meantime
> 
> Sent from my SM-T800 using Tapatalk


Not really, a PCP is a HP deal so has exactly the same flexibility in terms of VT rights, early settlement etc


----------



## Taxboy

andy665 said:


> Not really, a PCP is a HP deal so has exactly the same flexibility in terms of VT rights, early settlement etc


I hadn't realised that. Out of interest how do they calculate the amount owing on an early termination in general terms

I was also thinking along the lines of if you ever want to step off the merry go round of making monthly payments to have a car e.g. you have a pcp for 3 years at say £400 pcm which you can afford; at the end of the 3 years to start again for 3 years and so on. With straightforward HP at the end of the term you still have an asset which you can either sell or keep if you don't want to continue with making the monthly payments. However I do recognise that HP will not get you the use of such an expensive vehicle compared with PCP. I guess that's why dealers promote it

Sent from my SM-T800 using Tapatalk


----------



## Kerr

andy665 said:


> Not really, a PCP is a HP deal so has exactly the same flexibility in terms of VT rights, early settlement etc


I don't agree with the PCP offers people the same flexibility as a normal HP deal.

Firstly most people are buying on a monthly budget. They are buying a more expensive car on PCP with a large percentage of the debt offset, which they are still liable, for the same monthly payment.

You have the right to VT, but that point is reached much later in the agreement. With some of the high final payments some of the PCP deals are only a few months short of the full four year term when the 50% total payable is reached. You are stuck with the car for much longer.

If both cars suffer the same percentage of depreciation, the actual losses on the more expensive car are greater.

PCP makes people take on more debt, and the cost of that debt limits their choices. It's less manageable or affordable.


----------



## Andyblue

Just worth a note on VT - fella next door does mortgages and he was saying mid last year, they now look at these as part of your credit check - he was saying despite popular belief, it can have a negative impact on you... 

I know he was surly at some of the things they were looking at - the real no no from who he works for was the payday loans !


----------



## andy665

Kerr said:


> I don't agree with the PCP offers people the same flexibility as a normal HP deal.
> 
> Firstly most people are buying on a monthly budget. They are buying a more expensive car on PCP with a large percentage of the debt offset, which they are still liable, for the same monthly payment.
> 
> You have the right to VT, but that point is reached much later in the agreement. With some of the high final payments some of the PCP deals are only a few months short of the full four year term when the 50% total payable is reached. You are stuck with the car for much longer.
> 
> If both cars suffer the same percentage of depreciation, the actual losses on the more expensive car are greater.
> 
> PCP makes people take on more debt, and the cost of that debt limits their choices. It's less manageable or affordable.


PCP, legally is a HP deal, people choose to take on more debt. Where the VT point sits is entirely dependent on the structure of the agreement but agreed in many cases the VT point is late on in the agreement - it does not have to be nor is it automatically so. Of course its never the customers fault in todays blame culture but its not exactly a difficult financial product to understand - too many people are blinded by the monthly payment and don't actually ever sit down and do the numbers - personal responsibility is out of the window nowadays

Its a product that has now been around for more than 30 years, it can work very well, for others its not the right product but at the end of the day the customer has the final say and they sign the paperwork. I have helped people buy on PCP, I have actively told others not to, like all financial products it has pluses and minuses, if people select PCP on the basis of lowest monthly payment (and I know many do) they may be digging themselves into a hole, but its their hole and they dug it



Andyblue said:


> Just worth a note on VT - fella next door does mortgages and he was saying mid last year, they now look at these as part of your credit check - he was saying despite popular belief, it can have a negative impact on you...
> 
> I know he was surly at some of the things they were looking at - the real no no from who he works for was the payday loans !


Legally it cannot count against you but as it sits on your credit file it can of course be, the paperwork declining your application just cannot state that its because of a VT



Taxboy said:


> I hadn't realised that. Out of interest how do they calculate the amount owing on an early termination in general terms


The early termination is complex on a PCP, runs to over 3 pages of A4. Interest is charged on the Final Payment at a different rate to the interest on the rest of the deal as its a non-reducing balance, you are merely servicing that amount. The rate (whether that be flat or APR) is a combination of the two rates and is obviously totally legal, it just simplifies things for the customer. Its still not unusual to see debt (negative equity being rolled into the next deal but no manufacturer backed finance house will advance more than the list price of the new car (of course its still easy for a dealer to roll over any discount and create a healthy deposit - certainly not ethical but not illegal either). It is quite possible to get into real trouble with PCP but the same applies to any line of credit if you do not do your research


----------



## SadlyDistracted

Kerr said:


> PCP makes people take on more debt, and the cost of that debt limits their choices. It's less manageable or affordable.


Which is generally a bad thing... but there too much here and now 'greed' rather than do without and save up for.

* Being old/old fashioned the motto was if you can't buy/afford it dont, and, don't put yourself in hock for it. 
But a) it's difficult, - in the marketeered 'keep up with the Jones' and 'you're worth it' and 'you really should have the latest...' (unless there's something 'wrong' with you), marketing hype/bullsh1t3, 
- for some/many not to get sucked in and *where do you get the cash to actually buy outright, then,​ b) that approach doesn't help the money world go round, credit, debt, 'loans' hedge funds, blah, blah, and all the 'finance' overheads (people 'employed', offices, it systems etc. ), not actually adding value to anything but themselves, and all has to be paid for, at the expense of such 'consumers'.

Think of this when you're leasing, pcp / hp 'ing etc.​
If you get the drift.

I'm like some who want to own outright, it's mine, should I loose my job it's still mine, no risk of not being able to keep if I cant keep up with the monthlies etc. I also keep my cars longer than 3 years, as 
a) I like to personalise them somewhat, really look after them, 
b) like avoiding the huge depreciation in the early years. 
Last car bought was 15 months old and was ~50% of new (book) price with all franchised dealer benefits (although the previous 2 cars were new 2002 & 2011). Now 4 years old, its avoiding all the silly car taxation from the post April 2017 hikes does 42-52mpg and 150+ (where legal to do so), currently hoping to keep it for another 4 years plus when I should have enough £s for my next 'nearly new' depreciation and tax avoiding car 
Unless poor private motorists are priced off the roads by then.


----------



## andy665

SadlyDistracted said:


> Which is generally a bad thing... but there too much here and now 'greed' rather than do without and save up for.
> 
> * Being old/old fashioned the motto was if you can't buy/afford it dont, and, don't put yourself in hock for it.
> But a) it's difficult, - in the marketeered 'keep up with the Jones' and 'you're worth it' and 'you really should have the latest...' (unless there's something 'wrong' with you), marketing hype/bullsh1t3,
> - for some/many not to get sucked in and *where do you get the cash to actually buy outright, then,​ b) that approach doesn't help the money world go round, credit, debt, 'loans' hedge funds, blah, blah, and all the 'finance' overheads (people 'employed', offices, it systems etc. ), not actually adding value to anything but themselves, and all has to be paid for, at the expense of such 'consumers'.
> 
> Think of this when you're leasing, pcp / hp 'ing etc.​
> If you get the drift.
> 
> I'm like some who want to own outright, it's mine, should I loose my job it's still mine, no risk of not being able to keep if I cant keep up with the monthlies etc. I also keep my cars longer than 3 years, as
> a) I like to personalise them somewhat, really look after them,
> b) like avoiding the huge depreciation in the early years.
> Last car bought was 15 months old and was ~50% of new (book) price with all franchised dealer benefits (although the previous 2 cars were new 2002 & 2011). Now 4 years old, its avoiding all the silly car taxation from the post April 2017 hikes does 42-52mpg and 150+ (where legal to do so), currently hoping to keep it for another 4 years plus when I should have enough £s for my next 'nearly new' depreciation and tax avoiding car
> Unless poor private motorists are priced off the roads by then.


I absolutely agree that some people are "sucked" into the marketing hype but I'm sure many others make a fully informed decision. I have bought new cars, older cars, paid cash, used PCP, personal loans, Contract Hire.

My OH wanted a new car last year. She had been through a really tough time with depression for a good few years, came out the other side in one piece. No way could she afford to pay cash for what she wanted. We looked around at new and used, looked at the various options and decided on a new car on Contract Hire. Healthy number of payments in advance and a monthly payment including maintenance of less than 10% of her take home salary - she got the buzz and enjoyment of a brand new car to her exact spec at a monthly figure that is completely affordable, money still in the bank - she is happy with her decision. Very similar cost to buying a 12-24 month old example and selling it 2 years later, would have been stupid not to take the PCH deal on offer. Keeping up with the neighbours, sold to - absolutely not (its a Skoda Kodiaq)

All decisions based on research, affordability, looking at the pros and cons. I do not blame companies or sales people for customers decisions, this country is suffering from a disturbing lack of personal responsibility and financial decisions is one of the worst affected areas.

There is nothing wrong with funding the purchase of anything as long as its a researched and informed decision.

I bought a new desktop PC last year, buy now, pay nothing for 12 months and then on to a 24 repayment plan. I had the money sitting there but took the conscious decision to take the offer, just paid it off before the finance agreement kicked in, effectively allowing me use of the PC for 12 months, money still sitting in my account for that period and zero interest paid - an informed decision


----------



## ash39

I've bought my last 3 cars on PCP, including one that was £37k. I would never have been able to save the money to buy that outright, but as it was a sought after car with good residuals, I was able to run it for 3 years at £335 a month.

My only rule with PCP is I make sure I'm always in positive equity, so a decent deposit of £4-5k to cover the dealer margin and any interest. 

Not the cheapest hobby but it brings me enjoyment


----------



## Kerr

Far too many people don't have a clue about finance. I've got bored with a few car forums because finance chat dominated the forum. It was clear that a large percentage of people were really uneducated on what they signed up for. 



Comments about the VT point on PCP. People can't really control that. It's largely dictated by the GFMV. The popular German brands command a good GFMV making the VT point come in very late. If it comes in early they are paying too much overall, or it's a high depreciating car with a low percentage future value. 

I'm also against all the finance going through everywhere now. People see that 0% finance is adding no additional cost. The shops aren't taking a big hit on the cost of this finance. They will be marking their products up to account for that. 

Everywhere is offering 0% finance now and for very low value items. It's another recipe for disaster. I did read that some of these easy finance companies are under investigation.

A lot of people can't be trusted and control does need taken out of their hands. What looks like affordable PCP monthly payments and easy to get finance just draws people like flies around poo. Too many are getting into trouble due to it.


----------



## andy665

Kerr said:


> Comments about the VT point on PCP. People can't really control that. It's largely dictated by the GFMV.


Although not necessarily well known, most finance houses provide the option to lower the GMFV - its actually better for them as it reduces the risk of them being in a loss situation at the end of an agreement

I agree totally with too many people not knowing what they sign up and a sad reflection on the level of intelligence / interest shown by people

I know I personally always research before making a financial commitment - I can't imagine a situation where I wouldn't


----------



## eddie bullit

SadlyDistracted said:


> I thinks and advantage of such can be if you really want to be in a new iron all the time, and of course manufacturers like selling new iron...hence all the 'deals'.
> Look at the cost of depreciation over say 2 years, then look at what deal you can get for your PCP.
> 
> e.g.. new car 40K, value after 2 years say 25K - there's a cost of 15K, which has efectively cost you 15K / 24M =~ £625 a month, if given initial deposit and monthly's cost less than the 15K, and you start again with a 'new' motor on the same PCP monthly, you're quids in, if you really want/need a new motor every few years?


I understand what you are saying completely. Never really quids in but yes, you are losing less money and have the benefit of a brand new motor which is a great experience. Cars are a luxury, toys, and expect for most, especially on forums like this, are hobbies. Just be aware that there are few that do not suffer high depreciation and so expect your hobby to cost a few quid over the years.


----------



## Stoner

From my perspective, similar to OP's, I have had most types of finance in the past. All have pros and cons but as long as you are aware of them, that should not be an issue. I last PCP was on a Merc SL and was the first PCP where the car value was below the GFV so I ran the agreement full term and simply gave it back to the finance company. I obviously lost my deposit which was frustrating but I knew the risks.

I was amazed at the thoroughness of the check-over of the car by BCA who were sent to collect it. Although thorough, wear and tear was assessed fairly, and I had no issues. Given my situation and the loss of my deposit, I have now decided that I will apply the minimum amount possible on my next car should I choose a PCP. It hasn't put me off PCP (or any other finance product for that matter), because each have a place and might be suited to my needs at any point in time.

I have come across the following tables which gives a good insight to the various types of finance available - hopefully they will be of use to a few people (BTW, I have not validated the accuracy of the information, don't shoot the messenger ):


----------



## andy665

Stoner said:


> Last PCP was on a Merc SL and was the first PCP where the car value was below the GFV so I ran the agreement full term and simply gave it back to the finance company. I obviously lost my deposit which was frustrating but I knew the risks.


The positive spin on the situation is that if you had paid cash or took HP your losses at that point would have been higher.

The fact about PCP is that if their is positive equity at the end of the agreement its yours, if there is negative equity its the finance houses - its a genuine safety net that is not provided with HP or a bank loan

No one should go into a PCP expecting equity, or their deposit back, the deposit should be treated like an initial payment - its paid, its now history and is never coming back


----------



## Stoner

andy665 said:


> The positive spin on the situation is that if you had paid cash or took HP your losses at that point would have been higher.
> 
> The fact about PCP is that if their is positive equity at the end of the agreement its yours, if there is negative equity its the finance houses - its a genuine safety net that is not provided with HP or a bank loan
> 
> No one should go into a PCP expecting equity, or their deposit back, the deposit should be treated like an initial payment - its paid, its now history and is never coming back


Absolutely. As I mentioned, I knew the risks of taking out a PCP and was prepared to accept them. If I had paid cash or taken another finance deal, it may have been worse. I look at it from a simple perspective, that I enjoyed a great car for 2 years and received that benefit at a price I could afford. The fact my deposit was a sunk cost is minor. To reiterate, this is the first PCP deal where I have come out "in the red". It certainly won't put me off of taking out a similar deal for the right car :thumb:


----------



## andy665

Stoner said:


> Absolutely. As I mentioned, I knew the risks of taking out a PCP and was prepared to accept them. If I had paid cash or taken another finance deal, it may have been worse. I look at it from a simple perspective, that I enjoyed a great car for 2 years and received that benefit at a price I could afford. The fact my deposit was a sunk cost is minor. To reiterate, this is the first PCP deal where I have come out "in the red". It certainly won't put me off of taking out a similar deal for the right car :thumb:


Its horses for courses, every situation is unique and I can't help raise a smile when people say X is always best, Y is bad etc, go in with your eyes wide open, spend a little time researching and decide what's best for you at that time


----------



## ash39

Stoner said:


> I last PCP was on a Merc SL and was the first PCP where the car value was below the GFV so I ran the agreement full term and simply gave it back to the finance company. I obviously lost my deposit which was frustrating but I knew the risks.


With respect, I don't think you do understand the product based on that comment. The deposit isn't a refundable deposit like you might put down on a rented property to protect the landlord against damage. It's essentially a front-loaded payment against the depreciation.

PCP is really simple - the two figures that really matter are the list price of the car and the final 'balloon' payment, which is roughly what the value of the car will be at the end of the term. Your deposit and monthly payments have to cover the difference.

PCP works well for cars with good residuals, but it can be a trap for people who just see cheap monthly payments and don't understand that their £25,000 car will be worth £20,000 as soon as it leaves the forecourt. When you factor in interest, it's possible to be £7,000-£8,000 in negative equity very easily. Fine if you see the term through, but if you want to get out early you are effectively trapped in the contract.


----------



## Starbuck88

andy665 said:


> No one should go into a PCP expecting equity, or their deposit back, the deposit should be treated like an initial payment - its paid, its now history and is never coming back


When I was selling, I'd always try and steer customers towards a deal we could do with a low initial deposit.

For example, If someone wanted to spend £250 a month, I'd point them at something that would cost that a month but would only require circa £250 - £500 deposit. Rather than point them at a vehicle and spec and say, sure you can have this for £250 a month but you will need to put in £5,000.

Genuinely I'd say 8 out 10 people were stretching as it was and I wanted to be able to sleep at night. Those that 'seemed' that way, I would always build in GAP to the quote and also build it in at the cheaper rate where I wouldn't get as much commission.

For those people, I know for a fact were extremely happy come change time and came back to me, they knew they could get a nice new car/new shape similar spec and wouldn't have to fork out 1,000s for the privilege to start again.

I saw colleagues customers come back in expecting that because they paid a hefty deposit beforehand, their replacement wouldn't need the same deposit as they thought once they were in a pcp cycle, when they came to change, their original deposit built equity in the deal. Which it doesn't.

If a person is within their means then do as they please, that's the bottom line of it and for car people like us, we're all a bit more attuned to this but for the everyday man or woman, far too easy to load themselves up and get in a position where they're a bit stumped when it comes to the end of the PCP.

EDIT: I'd also always tell them that they would need to be realistic and expect to be more than halfway through their payments before they got out of any negative equity. Again, most people that were buying are people that fully expected to see out their term and not be changing cars before the deal ended.


----------



## andy665

Starbuck88 said:


> When I was selling, I'd always try and steer customers towards a deal we could do with a low initial deposit.
> 
> For example, If someone wanted to spend £250 a month, I'd point them at something that would cost that a month but would only require circa £250 - £500 deposit. Rather than point them at a vehicle and spec and say, sure you can have this for £250 a month but you will need to put in £5,000.
> 
> Genuinely I'd say 8 out 10 people were stretching as it was and I wanted to be able to sleep at night. Those that 'seemed' that way, I would always build in GAP to the quote and also build it in at the cheaper rate where I wouldn't get as much commission.
> 
> For those people, I know for a fact were extremely happy come change time and came back to me, they knew they could get a nice new car/new shape similar spec and wouldn't have to fork out 1,000s for the privilege to start again.
> 
> I saw colleagues customers come back in expecting that because they paid a hefty deposit beforehand, their replacement wouldn't need the same deposit as they thought once they were in a pcp cycle, when they came to change, their original deposit built equity in the deal. Which it doesn't.
> 
> If a person is within their means then do as they please, that's the bottom line of it and for car people like us, we're all a bit more attuned to this but for the everyday man or woman, far too easy to load themselves up and get in a position where they're a bit stumped when it comes to the end of the PCP.


Thats the difference between a salesperson who just wants to sell today versus a salesperson who thinks longer term and ease of repeat business - if everyone was like you I would not be in a job 

I always used to say that if you sold to someone who you were then worried about bumping into in the middle of a supermarket or when out in the evening then you need to review how you are selling


----------



## Starbuck88

andy665 said:


> Thats the difference between a salesperson who just wants to sell today versus a salesperson who thinks longer term and ease of repeat business - if everyone was like you I would not be in a job
> 
> I always used to say that if you sold to someone who you were then worried about bumping into in the middle of a supermarket or when out in the evening then you need to review how you are selling


This is it Andy. I always wanted to help people buy a car, rather than sell them a car. It meant I spent time with people who told me they had no intention of buying today, ending up making a purchase with me because they'd been around other dealers for different makes and being treated with utter contempt because they'd said such a thing. Had quite a few.

I saw so much going on during my selling years that it made me quit in the end. I won't say what straw broke the camels back so to speak but I fetched a black bag, sweeped my arm across my desk to empty all my belongings into it and off I went.

I'd go into sales again but only if I had my own car lot.


----------



## Stoner

ash39 said:


> With respect, I don't think you do understand the product based on that comment. The deposit isn't a refundable deposit like you might put down on a rented property to protect the landlord against damage. It's essentially a front-loaded payment against the depreciation.
> 
> PCP is really simple - the two figures that really matter are the list price of the car and the final 'balloon' payment, which is roughly what the value of the car will be at the end of the term. Your deposit and monthly payments have to cover the difference.
> 
> PCP works well for cars with good residuals, but it can be a trap for people who just see cheap monthly payments and don't understand that their £25,000 car will be worth £20,000 as soon as it leaves the forecourt. When you factor in interest, it's possible to be £7,000-£8,000 in negative equity very easily. Fine if you see the term through, but if you want to get out early you are effectively trapped in the contract.


I think you misread my comments. Firstly, I have worked in finance for 30+ years and fully understand how PCP works. I currently write commercial terms for various finance companies who specialise in retail credit lending. If you read my earlier post, I stated this was the first PCP agreement where I have been in a negative equity situation and lost my entire deposit. I understood and accepted that risk when I put down the deposit and took the car. I was not berating the way PCP works, or the finance provider or the fact I came out of the deal underwater.

I was simply stating that various types of agreement exist to suit the situation and the requirements of the borrower. On that particular deal, I lost out. It won't stop me using PCP because they are a great mechanism to permit me financing expensive cars at an affordable price.


----------



## ash39

Stoner said:


> I think you misread my comments. Firstly, I have worked in finance for 30+ years and fully understand how PCP works. I currently write commercial terms for various finance companies who specialise in retail credit lending. If you read my earlier post, I stated this was the first PCP agreement where I have been in a negative equity situation and lost my entire deposit. I understood and accepted that risk when I put down the deposit and took the car. I was not berating the way PCP works, or the finance provider or the fact I came out of the deal underwater.
> 
> I was simply stating that various types of agreement exist to suit the situation and the requirements of the borrower. On that particular deal, I lost out. It won't stop me using PCP because they are a great mechanism to permit me financing expensive cars at an affordable price.


Sorry but regardless of your background or qualification I still don't agree with your second paragraph. You didn't lose out, you paid a deposit and then gave the car back at the end, exactly as PCP is intended to work.

The final payment in most PCP agreements is set to be just slightly higher than the car is expected to be worth at the end of the term, based on the mileage limit you specified at the start of the agreement. If the car has performed well residual wise and is in good condition and under the agreed mileage limit, you might come out with a tiny bit of equity, but rarely would you see your full deposit back.

All the deposit does is adjust your monthly payments. High deposit = low monthlies or low deposit = high monthlies - the final payment is still the same.


----------

