Possible negative equity on 2013 0% PCP

[sniperpenguin]

Thanks for the responses guys,

 

I'm more disappointed with the level of depreciation than anything to be honest, especially as with AllanDJ, it was sold to me that there would always be a "few thousand" in the car over the 0% finance.,

 

To add insult to injury Skoda sent me a letter following the visit confirming my "settlement value", obviously forgetting its 0% interest as they knocked £0.01 off the remaining finance as an "interest rebate".

 

At the moment I'll have no choice but to buy the car which is personally disappointing as I would like a VRS. After this experience, this is likely to be my first, and last,brand new car.

 

Personally I believe the 0% and the selling spiel I let myself get duped me into a PCP process and I think its best I cut my losses and get out of it as soon as I can afford to. Lesson learned.

 

Andy

 

Why Andy?

 

There is no guarantee of a "surplus" above the GFMV of the car after three years. A PCP is effectively a back-loaded hire-purchase agreeement (Im on the same, BTW... '63 plate vRS with a GFMV of 10.5K)

Regardless of the scenario, you look at what is on offer at the time.

 

1. Car is worth less than the GFMV - You lose nothing, you hand the key back and go after a new car. The dealership may take the hit on the difference to put you in a new vRS, but you'll likely lose a little bargaining power.

 

2. Car is worth exactly the GMFV - Same as above, except that you don't lose any bargaining power.

 

3. Car is worth more than the GMFV - Same as situation 2, except you have a bit of extra cash to use as a deposit. This means that you should haggle hard, as the dealership is doing you no favours. Alternatively you can sell private.

 

None of the above scenarios should "sour" your experience of a new car....... As for the "it was sold to me that there would always be a "few thousand" in the car over the 0% finance" comment from the dealer - Unless there was a glass bowl, that would be impossible to know and should be taken  with a pinch of salt (if it was guaranteed, the GFMV would have been higher to make the payments lower   )

Edited 10 August, 2015 by sniperpenguin

[AllanDJ]

It kind of sounds like there won't be much point in trying to trade any of these PCP cars in if dealer prices are already getting very close to the GMFV which is for most of us at least a year away from now! Looking on the bright side it does sound like there are going to be some exceptional bargains on dealer forecourts next summer when they have to start selling the avalanche of Octavia 3's being handed back.

For the record the dealership that promised me circa £2000 equity was Henry's in Glasgow, wish I'd recorded what the salesman said as evidence, not nice to be misled and of course he has since moved onto another franchise selling Volkswagens I believe.

Pretty crap choices really:-

(1) Hand back the car and get nothing for it at all, in which case your PCP deal was actually more like a PCH deal and might well

have cost you more than opting for a proper PCH deal in the first place.

(2) Buy it for the GFMV and end up paying more than the car is actually worth on the open market at that time. In this situation you

will have loads of low mileage cars available to buy on dealer forecourts, which no matter what they ask for are going to be

selling at heavily discounted prices simply to shift them and I'm guessing that the dealers could probably buy these cars from Skoda for somewhat less than the original GFMV. Who knows you might actually be able to buy back your old car for less than its GFMV,

how stupid would that be!

(3) And don't think other franchises are going to be any more generous than Skoda when it comes to trade in prices, if Skoda

have got their GFMV's so badly wrong on their own cars, I can't see other manufacturers dealers offering more money for these cars, except by sleight of hand in the form of extra discount off of their car.

So, unless Skoda cut the balloon price for those who want to buy their cars at the end of the PCP deal or give an extra trade in allowance for those looking to get another Skoda, chances are that a lot of people won't be buying any more Skoda's, which is kind of self defeating really. Maybe these 0% deals have been good for them to keep their factories working at full capacity but the depreciation figures mentioned in this thread are rather shocking, classic supply and demand situation, a huge increase in sales volume is never going to result in long term strong residual values.

[Lady Elanore]

 

PCP is a tool invented by manufacturers in the 90's to lock buyers into a lifetime of being tied to that manufacturer.

 

Very clever marketing the same as 60000m 3yr warranties which have folks believing that the car will disintegrate after that date.

Not true I'm afraid.

 

You can take your car anywhere and trade it in if there is deemed to be any equity (this can be discount on a new car, but shown as an inflated value for you trade in). The great thing about a PCP is if your car is in negative equity, it doesn't matter. The Finance company stands the loss, not you. I regularly have traded cars in to a different manufacturer and released the equity on my trade-in PCP vehicle and I have never bought the same make in concurrent purchases. Likewise I have voluntarily terminated a PCP because my SEAT was worth less than the MGFV, so VW finance took the hit. I was protected by the PCP. Plus don't forget, in the case of the OP he says he had 0% so if he had bought cash, he may not have got such a good deal in the first place.

 

But it is a misconception that a PCP ties you to anyone, it doesn't.

Edited 10 August, 2015 by Lady Elanore

[loskie]

yes but many customers do not understand this.

[BA Baracus]

Are a lot of buyers using PCP putting down next to nothing deposit? - in this case I would expect the equity to be zero come end of the term.

[RobbySpurs]

It kind of sounds like there won't be much point in trying to trade any of these PCP cars in if dealer prices are already getting very close to the GMFV which is for most of us at least a year away from now! Looking on the bright side it does sound like there are going to be some exceptional bargains on dealer forecourts next summer when they have to start selling the avalanche of Octavia 3's being handed back.

For the record the dealership that promised me circa £2000 equity was Henry's in Glasgow, wish I'd recorded what the salesman said as evidence, not nice to be misled and of course he has since moved onto another franchise selling Volkswagens I believe.

Pretty crap choices really:-

(1) Hand back the car and get nothing for it at all, in which case your PCP deal was actually more like a PCH deal and might well

have cost you more than opting for a proper PCH deal in the first place.

(2) Buy it for the GFMV and end up paying more than the car is actually worth on the open market at that time. In this situation you

will have loads of low mileage cars available to buy on dealer forecourts, which no matter what they ask for are going to be

selling at heavily discounted prices simply to shift them and I'm guessing that the dealers could probably buy these cars from Skoda for somewhat less than the original GFMV. Who knows you might actually be able to buy back your old car for less than its GFMV,

how stupid would that be!

(3) And don't think other franchises are going to be any more generous than Skoda when it comes to trade in prices, if Skoda

have got their GFMV's so badly wrong on their own cars, I can't see other manufacturers dealers offering more money for these cars, except by sleight of hand in the form of extra discount off of their car.

So, unless Skoda cut the balloon price for those who want to buy their cars at the end of the PCP deal or give an extra trade in allowance for those looking to get another Skoda, chances are that a lot of people won't be buying any more Skoda's, which is kind of self defeating really. Maybe these 0% deals have been good for them to keep their factories working at full capacity but the depreciation figures mentioned in this thread are rather shocking, classic supply and demand situation, a huge increase in sales volume is never going to result in long term strong residual values.

But surely when you signed up to your PCP deal you were presented with the option to return the car with a guaranteed value (your option 1) or pay of the lump sum and buy it out right? The guaranteed value of the vehicle is given to you. Right now I can't find a three year old Octavia VRS (mk2) for 9k. 9k seems to get you 4 to 5 year very high mileage at best. So as things stand I am not sure I would be able to buy a 3 year old car in the spec I want for 9k (my final payment).

I have always viewed the PCP deal I signed up to as an interest free loan on a car. Nothing more nothing less. I plan on keeping the car because I will have a three year old car that I know will have been looked after. I do have the option of returning it and who knows in 3 years time I might decide to but it is not part of the plan at the mo.

Your dealer was naughty suggesting it might be worth more than the final payment but I bet that figure was not mentioned any where on the paperwork you signed.

I imagine any other marque is going to provide exactly the same experience (albeit with slightly less alarming residuals as the Octavia).

[cortina63]

Are a lot of buyers using PCP putting down next to nothing deposit? - in this case I would expect the equity to be zero come end of the term.

iV always put in 20% dep for pcp,iv recently changed my mk3estate vrs for a m y 16 vrs hatch,think if I had put less deposit in it would have been neg equity, but I was lucky to break even,but wasnt prepared to put another 5k deposit down, so I went the pch route using 1500 deposit and the remaining 3500 is going to be my dep in 2years,

[cortina63]

It kind of sounds like there won't be much point in trying to trade any of these PCP cars in if dealer prices are already getting very close to the GMFV which is for most of us at least a year away from now! Looking on the bright side it does sound like there are going to be some exceptional bargains on dealer forecourts next summer when they have to start selling the avalanche of Octavia 3's being handed back.

For the record the dealership that promised me circa £2000 equity was Henry's in Glasgow, wish I'd recorded what the salesman said as evidence, not nice to be misled and of course he has since moved onto another franchise selling Volkswagens I believe.

Pretty crap choices really:-

(1) Hand back the car and get nothing for it at all, in which case your PCP deal was actually more like a PCH deal and might well

have cost you more than opting for a proper PCH deal in the first place.

(2) Buy it for the GFMV and end up paying more than the car is actually worth on the open market at that time. In this situation you

will have loads of low mileage cars available to buy on dealer forecourts, which no matter what they ask for are going to be

selling at heavily discounted prices simply to shift them and I'm guessing that the dealers could probably buy these cars from Skoda for somewhat less than the original GFMV. Who knows you might actually be able to buy back your old car for less than its GFMV,

how stupid would that be!

(3) And don't think other franchises are going to be any more generous than Skoda when it comes to trade in prices, if Skoda

have got their GFMV's so badly wrong on their own cars, I can't see other manufacturers dealers offering more money for these cars, except by sleight of hand in the form of extra discount off of their car.

So, unless Skoda cut the balloon price for those who want to buy their cars at the end of the PCP deal or give an extra trade in allowance for those looking to get another Skoda, chances are that a lot of people won't be buying any more Skoda's, which is kind of self defeating really. Maybe these 0% deals have been good for them to keep their factories working at full capacity but the depreciation figures mentioned in this thread are rather shocking, classic supply and demand situation, a huge increase in sales volume is never going to result in long term strong residual values.

part of the issue is the dealers compare px prices to what they can buy used direct from skoda,so with all the offers that they claim they have to subsidise, they are reluctant to give a lot more for yours tgan they can get from skoda and make more profit on

[RapidPaul]

Hi guys,

Just come away from the dealers a little concerned.

I dropped my 2013 2ltr Elegance Hatch (with front assist) in for its second service today, they offered to see if it was worth me changing cars.

They ran the numbers on my 0% interest PCP taken out in September 2013 and the current equity in my Octavia is wait for it.... 26 pence! The cars value.... £12,300

The PCP was taken out based on 14000 miles a year, but I have only just rolled over 18000 today on the way to work.

My final payment next September is £9,900. I'm now quite concerned I'll have negative equity based on that valuation.

It appears the mk3 isn't holding it value as well as vwfs hoped back in 2013 so thought I'd share my experience with everyone in case someone else is in the same boat!

Andy

 

If you're out of negative equity with over a year to go, surely you've done ok? Most PCPs are calculated in such a way that you normally come out of negative equity with 6 or so months to go, so I'm guessing you've either done well or you've put in a reasonable deposit to begin with. If you end up with a hefty chunk of equity when your arrangement finishes, that usually means that you've paid over the odds for the car during the course of the arrangement. It's nice to feel as though you've beaten the market, but in reality it's far more likely that your just getting your own money back.

 

Depreciation curves are available online (What Car) and car cost calculators are freely available, so none of this should be a surprise. As far as I can tell from what people have shared on here, values are around the expected level after a couple of years. Compare the depreciation curves for Skoda against other manufacturers - they're not so bad, so perhaps what is happening is just an effect of market forces? I think the 0% offer has had an impact though - if, as a result of that offcer, large discounts were not available, the depreciation curve will be sharper as buyers are starting at a higher point.

[sniperpenguin]

Are a lot of buyers using PCP putting down next to nothing deposit? - in this case I would expect the equity to be zero come end of the term.

 

All a bigger deposit does is lower the monthly payments - It doesnt affect the GFMV is any way.

[Lady Elanore]

PCPs are much more complex than you might think. My current car is on a 4 year PCP, but the interesting thing is the VT (voluntary termination) point at 3 years is exactly the same as if I took out a 3 year PCP and came to the end of that agreement *.  Now many people will say of course it is, what did you expect and I admit I fancy leaving it there to see peoples comments. But to save the "told you so" bit here is the complex surprise. both examples, 3 year and 4 year PCPs making the same payments and both having the same 3 year point for either ending the agreement or deciding to VT, generate entirely different amounts of required deposit in the first place. So in my case, it was £1,300 cheaper to take the 4 year PCP option rather than the 3 year. I only lose out with the rule of halves and thirds, ie the point were the finance company needs a court order to repossess my car and the point were I can VT the car myself, both of which take longer to hit. Of course I am assuming that I will bail out of the PCP at around the 3 year point wither because the car will have equity or I will be able to VT it. The figures and expected dates for these things should be in your finance agreement.

 

I used to sell a lot of PCPs and was easily the Dealerships no1 seller of them, mainly because they offer so much flexibility to the customer, plus the safe guards against chronic depreciation and the fact that manufacturers often back the dealer up with large incentives in order to get customer to use the PCP finance on offer. They are nothing more than fancy HP agreements anyway.

 

* actually the VT amount after 3 years on my 4 year PCP is £17 cheaper

[skomaz]

Reading this thread just reinforces to me that I would never, ever buy a car on a PCP...

[Lady Elanore]

Reading this thread just reinforces to me that I would never, ever buy a car on a PCP...

 

 

That's a real shame as it can be the cheapest way to buy a car sometimes :(

[RapidPaul]

I got my wife's Panda on PCP because Fiat were doing a £1400 deposit contribution and c.2.5% interest. The extra discount/deposit contribution for taking PCP was three times the cost of the interest. Can't say fairer than that.

[Lady Elanore]

As a poacher turned gamekeeper, or is it the other way around? I would always say take your time and let the salesman explain the options..........then haggle hard on the one you choose. Obviously a pushy salesman is unlikely to give the best deal and even if he does, you wont feel you can trust him (or her), but take a calculator, a pen and a bit of paper and do the long sums, ie multiply out the monthly payments, add the deposit to that figure and then appraise the Final payment if there is one. it's a fairly good way of checking which is the best way for you, but remember, if it's a new car in particular, the dealers would prefer a finance deal over a cash deal 99;100. Haggle haggle haggle on any type of deal.

[AllanDJ]

Regarding my own first time experience of buying a car using PCP, I was in a situation where my old car had just been written off due to an accident that was not my fault, so I needed to replace it quickly. Original intention was to buy a newish car on a personal loan over 3 to 4 years. The 0% deal on the Octavia sounded quite good, only thing was I was just starting to look into this in late September 2013 when that deal was supposed to close at the end of that month. Talked to the salesman, no Octavia diesel estate cars in Elegance spec were left to buy from UK stock, he found one possible car just out of the factory and worked out a 42 month PCP deal on that but nothing whatsoever off of list price due to high demand at that time because the finance deal was supposed to end within literally a day or two and UK dealers were trying to buy the cars straight out from the factory. I only agreed to take this deal to get the 0% finance, which seemed worthwhile even if paying full list price.

Then of course the 0% deal was continued beyond September, virtually indefinitely as it has turned out, which has greatly increased Skoda's marketshare but at the expense of residual values and virtually all of these cars have been sold with decent discounts off of list price too, much better deals than the one that I got! I've read about different PCP deals over the year and am well aware that the manufacturers hope that they can entice you to keep buying their cars on this sort of deal and that the GFMV is always tweaked so that in most circumstances there should be some sort of equity left in the deal so that the customer feels they have got something to gain when they trade the car in for their next shiny new car. Lets be frank the salesman made it seem as if it was a certainty that there would be decent equity in the car if I wanted to trade it back in at the end of the deal. If I had recorded that conversation I think I'd have been passing it on to the local Trading Standards office and maybe to Skoda UK too as serious misrepresentation bordering on fraud.

What seems the most likely situation is that if I kept that car to the end of the PCP period, that there will be a huge glut of similar cars on dealers forecourts all across the UK. At retail prices these cars are most likely to be priced a thousand or two over the GFMV at least, possibly more than that with actual Skoda dealers. I would have liked the option at least to consider buying maybe something like the new Superb Estate if that were a viable option but have to admit that I feel badly treated by Henry's garage and may well just hand the car back and buy something else entirely at that time from hopefully a more trustworthy dealer if there is such a thing!

The thing is that my Octavia isn't a bad car, far from it, just a bit ho hum about town with the 1.6 diesel engine and rough suspension, the 2 litre diesel or 1.4 petrol would have been better options and I did want the bigger diesel engine originally, just couldn't get one at the time and I didn't really consider the petrol engine at the time which was a mistake as it would probably have been much better for my needs than the diesel.

Edited 12 August, 2015 by AllanDJ

[skomaz]

That's a real shame as it can be the cheapest way to buy a car sometimes :(

But I'm not one to change cars every few years - they are long termers for 10 to 12 years minimum so I just go for the overall cheapest deal. Which generally means low interest or more normally interest free finance. I just can't see the point in continually paying out if the car isnt mine or I might have nothing at the end of it... Foolish IMHO.

[neiln]

Amanda, why is it that dealers prefer to sell financed cars instead of cash sales?  I'd reached that conclusion but can't see how a cash buyer, giving instant cash flow to restock plus instant profit, isn't appealing to the dealer.

 

 

For everyone complaining about PCP costs, is just depreciation, new cars do it in spades.  Running a brand new car and changing at 2 to 4 years is always going to be very very costly.   The cheapest way to run a car so I've read, is to buy at around 3 years old when 50% or more of its depreciation has happened, and sell at about 8 years before they become (statistically) less reliable. 

[M12MKD]

Surely PCP is no different to buy a car with cash. Only difference (apart from possible interest) is you take the depreciation hit straight away on a cash sale.

 

Like I said my Citigo is nearly on the GFV at the moment with a year to go, I'm not overly bothered if I look at it as if I have bought it for cash the car would still be worth the same amount.

 

Only difference is you can sometime get the "negative equity" written off by the next dealer as part of the deal. It's often easier than trying to get a big discount. If a dealer will not just try another.

[RapidPaul]

Amanda, why is it that dealers prefer to sell financed cars instead of cash sales?  I'd reached that conclusion but can't see how a cash buyer, giving instant cash flow to restock plus instant profit, isn't appealing to the dealer.

 

 

For everyone complaining about PCP costs, is just depreciation, new cars do it in spades.  Running a brand new car and changing at 2 to 4 years is always going to be very very costly.   The cheapest way to run a car so I've read, is to buy at around 3 years old when 50% or more of its depreciation has happened, and sell at about 8 years before they become (statistically) less reliable. 

 

Amanda will know better than I, having worked in the trade, but AFAIK when you take out finance through the dealer, the dealer gets paid up front by the finance company. They still get the cash flow, it just comes from a different source. Presumably PCP is favoured as it allows a punter to drive off in a car that they wouldn't necessarily be able to afford by other means, which means happy customers and more profit for the dealer. Plus they will more than likely get a commission - although of course that applies to other finance products such as HP too.

 

Most of the criticism leveled at PCP seems to be around the issue of getting into negative equity part way through the deal and the uncertainty over the amount of equity at the end of the deal. It seems that there are some unreasonable expectations in terms of what can be achieved though. If I took out a PCP over three years and paid a modest deposit up front, I wouldn't expect to be able to chop the car in after 18 months to 2 years and have a nice pile of equity to spend on the next car. If that did happen, I would consider myself a very lucky boy (or realise that I've been paying over the odds for the 18 months/2 years). Whichever route you go down, the vital thing is to make sure you pay the price you are happy with at the start of the deal. Yes the monthly cost is important, but it's not as important as the headline figure. If you don't know what you will be paying in total, you can't tell if you have got a good deal or not. Pay too much and you'll be in negative equity until the end of the deal.

 

As Amanda says, take a calculator, pen etc. and do the sums. Take your phone too, so you can compare prices elsewhere while your negotiating. Dealers rely on people not doing their research to sell things like gap insurance at four times the market rate! 0% finance is a good deal whether it's on PCP, HP or whatever, but it gives the dealer much more power to resist discounts.

Edited 12 August, 2015 by RapidPaul

[RobbySpurs]

But I'm not one to change cars every few years - they are long termers for 10 to 12 years minimum so I just go for the overall cheapest deal. Which generally means low interest or more normally interest free finance. I just can't see the point in continually paying out if the car isnt mine or I might have nothing at the end of it... Foolish IMHO.

So how is a 0% PCP deal not perfect. If you buy a new car as a long termer (as I do) you have to pay for the car. Whilst you might not get such a good discount on list the interest free element offsets this. You pay the same amount (the agreed price of the car) no matter how you pay it.

Unless you mean you don't buy new.

[cortina63]

Think the best deals from skoda were the 20% off, so every one gained regardless of the way you bought it,

[bhoywonder]

I have been looking at these PCP deals and I personally think they look like a good way to buy the car interest free for 41 months then a final payment of x pounds.  

 

This means I know how the car has been treated and if I don’t like the car I can hand the keys back and walk.

 

I would have thought the only way to get more than the x pounds of the final settlement figure would be to haggle on a new deal at the time of handing your keys back not before the deal is up with the only exception being if a dealer was looking to hit some sort of target and you happen to walk in at the right time.

[gregmk1]

The way I see PCP is:

 

If the car is worth less than the GMFV at the end of the term then that is a bonus. VWFS has obviously underestimated the depreciation and you have paid less for the car over the term of the agreement than the amount the car has deprecated. WINNER J

 

If the car is worth more than the GMFV at the end of the term then that is a bonus too. Any remaining cash can be traded in against another deal. WINNER J

 

With PCP the future has been predicted for you so you can never have a nasty surprise.

 

Regarding the OP’s so called “negative equity”, this is always going to happen as PCP payments are linear and depreciation is exponential. If you decide to swap your car early you are always more than likely going to take a big hit.

 

For me PCP has been a 0% way to purchase a new car that I have every intention of keeping for at least 6 or 7 years.

[M12MKD]

Think the best deals from skoda were the 20% off, so every one gained regardless of the way you bought it,

 

Agreed, which is why I still say the mk3 is expensive! But, so it a lot of other cars!!