Possible negative equity on 2013 0% PCP

[Lady Elanore]

I think the above posts answer why manufacturers like to lend money I look on PCPs a bit like the 0% deals you see. the manufacturer often will put enough money into the deal to offset any interest you will pay (sometimes a lot more too) and instead of you putting a big -often 50%- deposit down (ie the typical 0% deals), you put a small deposit down. If you wish to keep the car, you pay off the lump at the end, assuming the car is worth at least the final figure. So it's a bit like the 0% deals but back to front. You pay the big amount off at the end and so, if you have the money already to pay that lump, can invest the money until you need it plus it's still there if you have a financial emergency.

 

I wouldn't do a PCP if it didn't work out beneficial to me and so if there is no incentive coming from the manufacturer, then it will most likely be slightly more expensive than conventional HP. When you see a figure of '£XXXX deposit contribution' try to find out how much comes from the manufacturer and how much from the dealer. The amount that comes from the dealer will most likely be from his profit margin, so it won't be available to haggle off the price of the car.

[skd12]

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.

 

Another point when considering the GMFV is that if they've quoted a figure of £10k for example. That car will then be sold on to the next punter for £12k++

So you've got a car that you have looked after for a couple of £k less than it would have cost you on the forecourt.

I'm in the same boat. I know that I've been given less discount because of the 0% finance but I've got a car that I can pay off interest free over 41 months then pay off and keep if I don't dislike it.

[skomaz]

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.

Bought one new on zero Apr over three years. Others have been a couple of months old. Either way PCPs just don't do it for me as I don't like having a balloon payment at the end and would far rather just spread the payment. Maybe I'm just wierd but thats how I am...

[RobbySpurs]

Bought one new on zero Apr over three years. Others have been a couple of months old. Either way PCPs just don't do it for me as I don't like having a balloon payment at the end and would far rather just spread the payment. Maybe I'm just wierd but thats how I am...

Not weird at all fella. I have bought cars that way. The PCP deal i went for this time round seemed ok with 0% and deposit contribution and was just curious as to why you though PCP was a no go. In the end it's horse for courses. Those dealers get our money eventually!

[M12MKD]

Bought one new on zero Apr over three years. Others have been a couple of months old. Either way PCPs just don't do it for me as I don't like having a balloon payment at the end and would far rather just spread the payment. Maybe I'm just wierd but thats how I am...

 

Not at all, my MK2FL was on that option. Straight no balloon finance. But that's because I was expecting to keep the car for a very long time.

 

This time, I wanted the option of being slightly more flexible,  not using my cash in the deposit and still having lower monthly payments.

 

But yes I know what you mean the balloon payment can be a worry.

[sniperpenguin]

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.

 

0% PCP deals were getting about 8% discount from list if you haggled hard (6% was more common) as the dealer part-funded the finance package.... Regular cash deals were getting closer to 12% discount from RRP.

 

The "cash sale being better for dealers" is actually a myth. Smaller dealers who may not use VMFS sometimes will get a kickback from the finance, and bear in mind a part-ex brings them an opportunity to buy a car below book price and make a profit on it (including potential additional profit through the sale of warranties, service plans etc).

[themanwithnoaim]

I don't understand this subject, PCP's have a Guaranteed final value & a voluntary termination point therefore, payment of any negative equity must be entered into by the buyer voluntary.

 

Why would you do this, its not like we're driving Renaults !

[RapidPaul]

You would only need to pay out to cover the negative equity if you want to 'buy out' of the contract before the halfway break point. If you only paid a small deposit, that is likely to be about 6 months from the end of the contract.

Put it this way, if you take out a 36 month PCP, lose your job after 6 months and then fail to make your repayments, the finance company will ultimately reposess the car, retail it and send you a bill for the difference between what they get for it and the outstanding finance - the negative equity. That bill could run to thousands and there's nothing voluntary about it!

[cortina63]

If you want to buy another car before your term ends, you will only pay the outstanding amount on the car, the remainder of monthlys plus the baloon payment, it doesnt cost thousands to get out of the pcp, only whats on the statement, the fact that it may cost you a further chunk of cash to get into another car is a completely different matter, that is the real depreciation of your car, the size of the sum needed

[vrskeith]

Tell us something new:http://www.autoexpress.co.uk/car-news/consumer-news/92554/explosion-in-finance-on-new-cars-could-spell-trouble-for-used-market

[pipsyp]

As mentioned above one benefit of PCP...assuming the GFV has been underestimated is that it provides an oportunity to buy the car for less (sometimes considerably) than you'd pay for a similar vehicle from a main dealers.....also with added benefit of it remaining a single owner car that youve had from new and know the history etc.

If its been a bit of a lemon or you just dont want it...either hand it back or trade it.....

[Bellster]

I have always had PCP deals. First one was Citroën, then BMW/Mini, Fiat and last two have been with VW/Skoda. Always put minimal deposit in (£500 or less) and each dealership has always paid and cleared my PCP completely. My current Skoda dealer ring me up every two years or less (they've rang me twice already to change and only had my current car since March 2014). Obviously this is great if you do want to change cars but in my experience I have never had to fork out cash to offset negative equity. Most dealers won't let you leave the showroom!

[Wet Kipper]

Tell us something new:http://www.autoexpress.co.uk/car-news/consumer-news/92554/explosion-in-finance-on-new-cars-could-spell-trouble-for-used-market

 

I don't understand why this means "trouble" for the used market - surely if the dealers end up with lots and lots of used cars, they'll just have to provide better incentives for people to buy them, and you could end up with a bargain ?

[andyvee]

At the end of the day, if the GFMV is way too high compared to the market value just hand the car back - that is the whole idea of PCP - the finance company takes the risk. I expect at the most to get £1-2k out of a PCP deal at the end, and expect to have to put a bit in towards the deposit on the next one. If the figures don't stack I can always keep the car and refinance the GFMV for a similar monthly payment as I am paying now.

 

If you put in a big (more than 10%) deposit then you will lose a lot of money, but only a fool would put more in at the front end on a PCP deal, they aren't designed for 20%+ deposits and very low monthly payments, unless you intend keeping the car.

[chadlington]

An interesting thing I observed when comparing 2 very different finance deals from Skoda Finance

 

50% deposit, 0% finance over 24 months. Monthly payment = £X

 

PCP. 30% deposit, 2.9% APR over 36 months. Cost of (monthly payment)+(balloon payment/36) = £X

 

So on a PCP, if aiming to buy the car that way, and calculating how much you'd need to save up each month to be able to pay the balloon at the end, the monthly amount required was the same figure but you'd need to pay that same figure for a whole year more in order to own the car.

[skd12]

It doesn't matter what your deposit is as the balloon payment status the same.

Personally I'm putting 20% down to keep the monthly payments around the £250 mark.

It doesn't matter whether you want to buy the car or not, the gmfv is based on the base spec of the chosen mileage/duration/model/edition/engine/fuel/gearbox

[andyvee]

It doesn't matter what your deposit is as the balloon payment status the same.

Personally I'm putting 20% down to keep the monthly payments around the £250 mark.

It doesn't matter whether you want to buy the car or not, the gmfv is based on the base spec of the chosen mileage/duration/model/edition/engine/fuel/gearbox

Of course it matters, if you put £6k deposit in and pay £x per month, when your PCP is up you will need about £5k cash to have the same monthly payment on your next car, all other things being equal.

As long as you enter in to a PCP deal knowing that you get very little out come trade in time then you are fine.

People need to budget for the deposit for the next car over the period of the PCP.

Putting a large deposit in to reduce monthly payments defeats the object, as you have to put more aside each month if you want similar repayments next time around.

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[RandomSkodaperson]

I agree with andyvee, with pcp just get the best deal for the car, pay a low deposit and keep the monthly repayments sensible. No point paying large deposits as the idea is to keep costs down then hopefully swap over at end of term for another. The PCH is what I am interested in next time. As I will not be keeping the car at the end of the term might be better depending on the figures. Downside with PCH I will have to find the next deposit instead of potential equity in the trade in car.

[skd12]

I agree that a low deposit is a good idea for those using pcp back to back. I personally like to keep my monthly outgoings low by using a chunk of my savings.

That said, this is my first pcp deal and I hope I like the car enough to keep it after 3.5 years.

My monthly payments won't change between the first 41 months and the last.

[Dr_Pepper]

My deposit was lower than my first payment. Sorry if im missing something I'm not sure why anyone would pay a higher deposit, it's the same money and it's surely better off in my bank account than Skoda's.

I also don't see any need to panic about the pcp, I was lucky enough to have the cash but went for the 0% and again kept the cash earning me interest. Maybe the car will be worth less than the gfv, but why is that a bad thing could just give it back and spend the money on another one the same age for cheaper.

[SurreyJohn]

If it's 0% then should minimise deposit as money might be earning more in own bank account.

It's harder to calculate PCP vs HP if the HP has a deposit contribution (effectively a price cut) but requires 50% up front. Will then depend on what else you would have done with the cash for the approx 30 months until you have paid 50% on a PCP vs how much interest could you have earned (or avoided paying out borrowing for something else).

As an example if PCP saves you £700 interest, but you could get extra £1000 off with HP which is worth more as the PCP improves your cash flow.

[andyvee]

I agree that a low deposit is a good idea for those using pcp back to back. I personally like to keep my monthly outgoings low by using a chunk of my savings.

That said, this is my first pcp deal and I hope I like the car enough to keep it after 3.5 years.

My monthly payments won't change between the first 41 months and the last.

PCP was designed for back to back, to try and stimulate the ailing car industry and boost new car sales by tying people in to a new car every 3 years.

 

If you are intending keeping the car and just using the PCP as a way of having low outgoings, then that is fine. What worries me is those who bung £5k at the front and then can't afford another new car at trade in time as they now have £1k deposit and haven't got the £4k to put back in again ......... the only option they have is financing the GFMV and keeping the car.

[BA Baracus]

PCP was designed for back to back, to try and stimulate the ailing car industry and boost new car sales by tying people in to a new car every 3 years.

 

If you are intending keeping the car and just using the PCP as a way of having low outgoings, then that is fine. What worries me is those who bung £5k at the front and then can't afford another new car at trade in time as they now have £1k deposit and haven't got the £4k to put back in again ......... the only option they have is financing the GFMV and keeping the car.

 

I hope you are wrong! - and is not how I understood PCP would work, although appreciate it is always a bit of a gamble.

 

Roll back to January 2013 I traded in my Polo for a Blackline (great car BTW).  Trade in for my Polo was £4,775 at this date and was used as deposit in a Skoda PCP.

 

According to CAP as at tonight the current trade-in price of my Blackline is £12,500 (other members have achieved this recently selling privately and quickly!).

 

Final settlement figure is £8,764.  I appreciate the valuation will drop further when my PCP finishes in 6 months - but will I not have at least £3,000 come trade-in again (mystic meg skills required here)?

 

Am I missing something?

 

Is it not in the trades interest for me to have some kind of deposit next time rather than force me onto my push bike for all transportation?

[Hudson01]

I simply see the PCP schemes as another choice in the customers line up, it really does depend on if you want to keep the car at the end, how much you can actually afford to put down as a deposit, not everyone has the luxury of a 50% deposit, and as said in a few posts the great thing about buying buying new with PCP is that at the end you get a 3 year old car which you know the history of for a lot lower price than you could get that age of car for...... its a good product if you know all the pro's and the con's, its been out a while now and most sensible people knows these and can make an informed choice.

[snowjoe]

Whether you give the money in a large deposit or in higher monthly payments you're still paying the money out. It will obviously make a bigger difference on non 0% interest deals. On a 3 yr PCP each £1000 put in a deposit changed the monthly payment approx by £30.

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