PCP - Clarification please anyone

[vRSuper1]

With the current PCP deal at 0% please could somebody just explain to me how the GFV figure is used for the end of the agreed term? Having never taken out a PCP contract of any sort, I just want to be fully clear on what my options especially given that I' ll probably have to put a hefty deposit down to keep the monthly payments lower. If I decide to take a contract out I want to know where I stand for the car after this next one. Sorry for being a bit numb about this but I want to be fully clear on the facts and permutations before I commit.

Cheers

[Auric Goldfinger]

If the final payment is , lets say £5k

 

3 options:-

 

1, pay the 5k and keep the car

 

2, Give back the car and walk away

 

3, it the car is actually worth 8k your 3k up, this can be used as a deposit for another new motor

[booyaka]

Say GFV = 10k.

 

When the end of the 3 years is up - if your car is worth 10k, it's quits and you can walk away from the car OR purchase it for 10k

 

If the car is worth 12k, you have 2k to put towards a new car deposit

 

EDIT - beaten to it!^^

Edited 27 July, 2013 by booyaka

[vRSuper1]

Many thanks guys. I guess that means your deposit is lost every time. Cheers for your help.

[Has]

You can trade the car in against another one at any point during the term, you don't have to wait until the end. Same rules apply as if you had left it until the end, e.g you trade in after 2 years against a new car, any car doesn't need to be a Skoda.

GFV = £10k + Payments owing (12 x 300) £3600 - interest saving by paying off early, say £600 = £13k to pay off the finance.

If your trade-in is worth £14k you've got £1k deposit against the new one.

[kris1]

That's the only issue with pcp. People stick a massive deposit down to get a low monthly payment, but when it comes to change in three years time they won't have that deposit again and the monthly payments sky rocket.

[JerryT]

Many thanks guys. I guess that means your deposit is lost every time. Cheers for your help.

In essence yes, but don't forget you are never actually paying for the whole of the car. As per Aurics example above, you haven't financed £5000 of the purchase price. So when you consider that in a traditional deal, when you come to a future p/ex you would have the entire value of your vehicle (less any outstanding finance if any) but in order to get here you have had to finance the entire purchase price.

In the case of the PCP you essentially set aside part of the purchase price for the term of the finance and in so doing you have lower repayments. But what it does mean is that you may have little or no equity in your vehicle at the end of the term as before moving on you will need to offset the un financed part of the deal (the GFV).

What you could do (please bear in mind i am not a financial advisor and any decision you make is your own) is you could get the dealer to find the lowest GFV possible for you and finance this. Yes your repayments would be much higher but essentially you will have almost a traditional finance deal leaving you with a lot more equity on the car at the end of the term.

So, at the end of the day a PCP will give you lower repayments so making it more affordable, but ultimately next time round you will have little or no equity left in the vehicle.

Go for a very low GFV and essentially finance the entire car on Skoda's 0% deal. This leads to higher repayments but gives you equity at the end of the deal.

Source a traditional finance deal yourself and become a cash buyer.

If you want to try some PCP examples they the following web site www.pcpcal.co.uk but for the interest you will have to use 0.1 and not 0 as it will not work.

[kris1]

Gfv's are generally fixed these days, the dealer can't just stick any old number in there any more like the good old days.

The only way to frig the figures is to tell them you're doing a lot more miles than you actually will do. This will the lower the GFV.

also remember that you pay interest on the Balloon value you have set aside. You may not pay the capital but you will pay the interest on that amount (unless you get a 0% deal)

[spacenase]

With the 0% PCP you can lower the GFV, but Skoda Finance set the maximum. I don't know if there is a lower limit.

[g_tee]

Does anyone think the PCP is worth it over the long term?

[BigfootW]

It's exactly the same price over the term just split

[spacenase]

It's not as great as it initially sounds because Skoda have reduced the dealer margin, so there is less discount on offer. I suspect that the VAT free offer on a standard PCP would work out cheaper overall.

 

Having said that, I was able to make the figures work for me, so I've ordered my Octavia using it.

[vRSuper1]

I need to try and make the figures work for me. Traditionally, I've always used the money from the sale of my previous vehicle and out a tiny bit of savings towards it and then borrowed the rest on a 0% credit card via bal transfers etc. But, this never gives me a brand new car, just a nearly new used one. Also, with this method, each time I'm ready to change vehicle, I always have a sizeable deposit that I pretty much get back each time give or take a bit. I really need to think about this before I commit.

[BigfootW]

I just placed an order the other day as it would appear my dealer hasn't realised that their margin has been reduced, so I got around 14% discount and the 0 % interest

[DavidF3911]

The general point in respect of any regular new car purchase is that the owner always takes the hit on the initial depreciation. Whilst the various means of purchasing new have the pro and cons, all have that much in common. I have worked out that I can lease a new Octy through my employer (due to my 6000 business miles)for pretty much the same cost and buying a new one, but without any of the hassles of ownership. If however, I bought a 2-3 yr old car, this would be much cheaper. I did this regularly from BCA Auctions for many years, but just dont have the time anymore. Motability leased cars in particular generally had low mileages and full histories, and a surprisingly wide variation of models too.

[LeeHarrison]

I just placed an order the other day as it would appear my dealer hasn't realised that their margin has been reduced, so I got around 14% discount and the 0 % interest

 

Your dealers really dropped one there 

 

On a side note with regards to the GFV, as mentioned there is a set maximum limit the end value can be as this is governed by VWFS but as per my other posts the GFV can be dropped.

[A6TDH]

With a PCP the GFV is normally fixed by the finance company. They estimate what the vehicle will be worth as a minimum figure at the end of the term based on your estimated mileage. The lower the mileage the higher GFV. Although a higher figure will reduce the payments, they will not want to pitch the figure too high as the danger is if the car is not worth it, you will just hand it back( at that point you can never be in negative figures). You can normally build yourself some equity by opting for a higher mileage to reduce the GFV(meaning you will owe less than the car is worth) but this will increase your payment.

The finance company take the price of the car, less your deposit, less the GFV (deferred until the end of the term) & you pay the rest over the term.

So on a car at £20000 with £5000 deposit & a £10000 GFV you would pay the remaining £5000 over 3yrs at 0%

It is important to realise that if the car is only worth the GFV at the end of the term then you have effectively subsidised your repayments over the 3years by your deposit so your true repayment has been £5000+ £5000 =£10000 over the 3years.

The problem is that when you come to change the car you may have no deposit as it has been wiped out over the 3 years.

To give youself a true repayment put in a small deposit & you will have a better chance of changing at a similar payment next time.

I wonder what Skoda will do with these customers that have put in large deposits from part exchanges in 3years time when they want to change & find they have no deposit.

[Dodgy]

If I was going PCP, I'd just give as close to zero as possible for the deposit. Put that deposit into a high interest ISA. Take whatever GFV Skoda give, if that results in a low monthly payment, then just put the extra I had budgeted into the same ISA.

 

At the end of the 3 years I have complete control, I have enough put away to either buy the car or give it back and start again. 

 

If you were to ask your dealer to massage the GFV down resulting in artificially high monthly payments, at the end of the term you'd feel duty bound to buy the car but you wouldn't be any better off financially than if you had just put the extra monthly payment difference into your own account.

 

Does that make sense?

[BossFox]

Does anyone think the PCP is worth it over the long term?

 

On a 0% basis yes.

Otherwise no.

 

As you have to pay interest on the GFV capital sum over the whole of the term if not on 0%, meaning it's typically an expensive way of driving a car.

You are financing the money you are not paying off and then paying interest on it, plus paying for the depreciation of the car during it's steepest period of depreciation.

 

What it does do is give you a better car for your monthly repayment compared to buying one.  Which is why it's popular.

It's just that more of your repayment is interest than if you are buying, unless using the 0% which I think is a great deal.

[g_tee]

Ouch - doesn't sound like it's for me to be honest.

 

I suppose any method you use to buy a car, be it leasing, paying with cash, PCP, finance, etc...

 

At the end of the day you'll lose thousands no matter what

 

Just how many thousand though.............

[Zillio]

Ouch - doesn't sound like it's for me to be honest.

 

I suppose any method you use to buy a car, be it leasing, paying with cash, PCP, finance, etc...

 

At the end of the day you'll lose thousands no matter what

 

Just how many thousand though.............

That is why you should not be thinking in terms of monthly cost, but the total cost i.e. money you put in - money you get out. Divide that by the years of ownership and you then know how much it cost you per year to keep you in that car. You keep buying mid 20-25K cars every three years, just the car purchases will cost you 4-5K per year. If you finance this with loans with >0% apr then you will pay more as you will be paying interest too.