PCP ending with 2k equity

[dougalredbear]

Any advice/opinion would be greatly appreciated.

 

My Octavia estate 1.4 TSi Sport (which I love) is coming to the end of the finance agreement.  There's around £2,500 equity in the car.  But I'm a bit conflicted about what I should do.

 

Ideally I'd be getting a new car, but I'm holding out for the Octavia estate iV next year.  

That said, I don't know whether to buy the car outright at the moment, refinance the remaining balloon payment or trade it in now for a new car while there are good offers available (possibly an A4 Avant).

 

I'd be looking to part exchange any car I might have next year if/when the iV becomes available

 

any suggestions?

 

thanks

Doug

[ima]

Well financially if you can afford to buy outright that’s IMO the best option and then should you want the mark IV next year all your options are open. Any refinance on the car an expensive option .

 

[Ecomatt]

I would speak to the finance company and see what they offer with the refinance option. Then you can compare that to what it would cost to pay off the balance. Equally you could approach Skoda and see what they can do with ordering an estate for next year and how they can help. That way you can decide which is the better option for you.

[match14]

Are you sure there is £2500 equity? When my finance was coming to end I was told there was little to no equity.

[AJAMESR]

1 hour ago, match14 said:

Are you sure there is £2500 equity? When my finance was coming to end I was told there was little to no equity.

Id be interested to see how you ended with no equity. If PCP, they intentionally set the GMV at a % that will leave you with at least enough equity to be the deposit on the next car. Or if you decide to hand the keys back they have a nice a few quid profit in it. The GMV is very conservative compared to what the car should be worth after 3 years. And Skoda has held value fairly well over the last few years. 

The GMV on my OCTY VRS was €12,500 - I made the final payment. That was a year ago. So the car is 4 years old now and still fetching 20K here in Ireland. Although dealers would prob only offer me 15K on a trade in right now. But still selling in the forecourt for 20K + with the low mileage like mine. 

For the OP:

£2500 seems a bit low. But I guess it depends on condition, mileage, spec etc - I'd pay the final payment and see if you can sell it privately. Have you priced around to see what they are selling for? 

[Octaviarse]

The only way to gauge equity is to check the amount outstanding Vs the book price / trade value of the car. You can't go by what a dealer offers because their part ex price will always be tied to their sale price on your next purchase so it's easy for them to make it look like they are finding equity in your part ex by eating into their margin on the next purchase. In reality that money was probably money you could have negotiated as discount off your next purchase anyway if you weren't trying to part ex your previous vehicle.

 

Sales people always want you to believe there will be equity at the end of a pcp but I think in reality the most common outcome is for the final payment and the trade value of a car to be pretty evenly matched once the end of term is reached 

[dougalredbear]

13 hours ago, match14 said:

Are you sure there is £2500 equity? When my finance was coming to end I was told there was little to no equity.

 

 

Yes - the car is under mileage and in excellent condition.  Apparently due to the pandemic the used car market has surged adding to my car's value.

[dougalredbear]

11 hours ago, AJAMESR said:

Id be interested to see how you ended with no equity. If PCP, they intentionally set the GMV at a % that will leave you with at least enough equity to be the deposit on the next car. Or if you decide to hand the keys back they have a nice a few quid profit in it. The GMV is very conservative compared to what the car should be worth after 3 years. And Skoda has held value fairly well over the last few years. 

The GMV on my OCTY VRS was €12,500 - I made the final payment. That was a year ago. So the car is 4 years old now and still fetching 20K here in Ireland. Although dealers would prob only offer me 15K on a trade in right now. But still selling in the forecourt for 20K + with the low mileage like mine. 

For the OP:

£2500 seems a bit low. But I guess it depends on condition, mileage, spec etc - I'd pay the final payment and see if you can sell it privately. Have you priced around to see what they are selling for? 

 

Since posting I've done a bit of a search on what similar cars are selling for up to £12,000.  My car is in very good condition.  Interior is immaculate.  Exterior has a couple of very minor wear and tear, alloy scrapes etc... I think I've decided that I'll make the final payment and then look to selling the car privately when the iV becomes available next year.

[dougalredbear]

15 hours ago, Ecomatt said:

I would speak to the finance company and see what they offer with the refinance option. Then you can compare that to what it would cost to pay off the balance. Equally you could approach Skoda and see what they can do with ordering an estate for next year and how they can help. That way you can decide which is the better option for you.

 

Finance company offered me an APR of around 7.6% (subject to a renewed credit check).  If I were to finance the car I'd get better numbers from my own bank.

 

Haven't approached Skoda to order a car just yet - what with everything in the world being so uncertain right now, I don't really want to be locked into that commitment.

[dougalredbear]

15 hours ago, ima said:

Well financially if you can afford to buy outright that’s IMO the best option and then should you want the mark IV next year all your options are open. Any refinance on the car an expensive option .

 

yes, refinance on the car turns out to be very expensive - 7.6% APR - not happening!

[AJAMESR]

9 hours ago, Octaviarse said:

The only way to gauge equity is to check the amount outstanding Vs the book price / trade value of the car. You can't go by what a dealer offers because their part ex price will always be tied to their sale price on your next purchase so it's easy for them to make it look like they are finding equity in your part ex by eating into their margin on the next purchase. In reality that money was probably money you could have negotiated as discount off your next purchase anyway if you weren't trying to part ex your previous vehicle.

 

Sales people always want you to believe there will be equity at the end of a pcp but I think in reality the most common outcome is for the final payment and the trade value of a car to be pretty evenly matched once the end of term is reached 

In my experience here in Ireland Id have to disagree with most of that. 
I have tried buying a car with no trade in - absolutely no discount offered. Walked out of 3 different dealers, fully called their bluff just looking for 1500 off a 40k car. None of them backed down.

It seems most of them now make their money on selling you finance rather than a car🤷‍♂️
In fact in many places the cash price of a car is higher than the finance price 😂

And I have had 2 PCP Skoda cars. At end of each term I’ve had equity. 
In general I think Skoda calculates the GMV at about 35-40% of the starting price of the car (less options) So in order for ur car to have no equity it would need to lose over 60% value in that 3 years. I read recently that Skoda loses about 45% in that 3 years. 
So picking some round figures: Starting price, 30,000 - GMV: 11,100 - after 3 years car still worth about 15,000 @ 50% depreciation. 
it’s not in Skoda, the dealers or the finance companies interest for the GMV to be close to the trade value of the car. They want u to have at least 15% equity. That covers them if u hand it back, but more important encourages you to go again. 
My last PCP was amazing. 12,500 final payment for a 3 year old VRS. I can assure you they are selling for way more than that here in Ireland. 
On a trade in they will screw me quite a bit, but that has nothing to do with pcp or any other finance. That’s just trade in prices which is another topic. You overcome that by selling the car privately if u can. 
Also to consider, maybe higher trim & therefore more rare & sought after cars hold there value a bit better & sell easier on the other side. So a PCP contract may work slightly better on a higher trim car, but I’ve not compared. I can only go on my experience on my last 2 PCP deals. & id go PCP again without blinking an eye - as long  as the GMV is set at below 40%. 

Some companies may raise it to bring 

down the monthly repayments but then you will have issues. U want GMV at close to 35% as u can get & no more than 40 & u should be fine. 
If it is higher than 40% then that means ur monthly will be very low & u could stick aside a balance every month to have something saved for the end of term. 
Either way the cost of the car doesn’t budge. If the car is costing 30k - it costs 30K whatever finance way u go about it. Higher monthly will mean lower final payment & more equity in car, low monthly will mean higher final payment & less equity - but due to the lower monthly u could save the extra ever month to allow for it. 

[dougalredbear]

Interesting.

 

So when you've ended your PCP agreements have you made the final payment then sold the car privately?

[AJAMESR]

1 minute ago, dougalredbear said:

Interesting.

 

So when you've ended your PCP agreements have you made the final payment then sold the car privately?

On my first one I eventually traded in. 

2 years in I decided I wanted to go up to a VRS from a 1.6D. 
When I first enquired about trading in, I tried 3 diff dealers & it was a waste of time, they all offered almost exact same deal. Like a cartel. They obviously have do discretion to discount anything & they are all working off same book value for car. 2 of the dealers never even saw my car & offered the same amount as my local dealer. 
So I just kept the car. 
6 months later Skoda introduced 0% finance on the VRS  So now the deal was worth my while. All 3 offered me the same trade in price as they did 6 months earlier. But as I mentioned above, anytime u trade in u are getting screwed. But I was happy to go with it at the time. 

Now that VRS is 4 years old. 1 year ago I paid the 12,500 to the VAG bank. I financed most that from Credit Union. And I currently have car for sale for about 20K. And thats the going price for them here right now. Some selling for as low as 18k but with much higher mileage & not as many options etc. 
if I traded it right now I’d prob get an offer of about 15-16K ( if lucky)
So the issue isn’t with the pcp it’s with the hit u take when trading in any car to a dealer. U lose 1000’s - but u avoid headache of selling a car privately. Pros & cons. 

[dougalredbear]

10 minutes ago, AJAMESR said:

On my first one I eventually traded in. 

2 years in I decided I wanted to go up to a VRS from a 1.6D. 
When I first enquired about trading in, I tried 3 diff dealers & it was a waste of time, they all offered almost exact same deal. Like a cartel. They obviously have do discretion to discount anything & they are all working off same book value for car. 2 of the dealers never even saw my car & offered the same amount as my local dealer. 
So I just kept the car. 
6 months later Skoda introduced 0% finance on the VRS  So now the deal was worth my while. All 3 offered me the same trade in price as they did 6 months earlier. But as I mentioned above, anytime u trade in u are getting screwed. But I was happy to go with it at the time. 

Now that VRS is 4 years old. 1 year ago I paid the 12,500 to the VAG bank. I financed most that from Credit Union. And I currently have car for sale for about 20K. And thats the going price for them here right now. Some selling for as low as 18k but with much higher mileage & not as many options etc. 
if I traded it right now I’d prob get an offer of about 15-16K ( if lucky)
So the issue isn’t with the pcp it’s with the hit u take when trading in any car to a dealer. U lose 1000’s - but u avoid headache of selling a car privately. Pros & cons. 

 

So, I'm going to make the final payment on my Octavia - around £7500 - and wait till next year for the iV - at that stage it's probably my car (my circumstances staying the same) is still going to have comparatively low mileage - what would you advise - that I then trade it in?  I've never sold a car privately but presuming that that would be a real pain in the ass.

[AJAMESR]

1 minute ago, dougalredbear said:

 

So, I'm going to make the final payment on my Octavia - around £7500 - and wait till next year for the iV - at that stage it's probably my car (my circumstances staying the same) is still going to have comparatively low mileage - what would you advise - that I then trade it in?  I've never sold a car privately but presuming that that would be a real pain in the ass.

So u owe 7500 & I think u said above that u see them selling for 12,000. So that’s a decent bit of equity & about what I’d expect. 
So on trade in they are basically offering 10k. And that tracks as well. It’s a couple K less than selling private. So everything is adding up to about what I’d expect. Roughly. 
 

Selling private is a pain. I’ve had mine up for about 4weeks now & just this week have had 3 promising calls. 
On my side - I’m in no rush to sell. I have a work van, so if I sold today I wouldn’t be without transport. & there are no issues with the car, it is mint. So I have no worries about problems afterwards. 
Selling private is weird. Its all about timing & pure luck. U may post it for sale today & it coincides with some guy looking for exactly what ur selling the same day. 
Or u could be waiting months to get a bite. How unique is ur car? How unique is it locally? Can u make it more attractive by dropping price a bit below current market. 
How long can u go without a car? This gives u selling time which is what dealers have on their side that most private sellers don’t. Can u borrow a banger from a friend for a couple months if urs sells quick? That means u can put it up go sale way earlier than u actually need & just wait without any panic or pressure to sell for less than u want. 
 

if u got 11,500 - clear the 7,500 & u’ve hot 4K - 1500 up on the trade in. So is it worth 1500 to u to sell private. That’s the bottom line. 
 

But look at it this way. You can buy a car for 7500 right now that is costing everyone else 12K - that’s about exactly how PCP should work. 

 

[dougalredbear]

26 minutes ago, AJAMESR said:

So u owe 7500 & I think u said above that u see them selling for 12,000. So that’s a decent bit of equity & about what I’d expect. 
So on trade in they are basically offering 10k. And that tracks as well. It’s a couple K less than selling private. So everything is adding up to about what I’d expect. Roughly. 
 

Selling private is a pain. I’ve had mine up for about 4weeks now & just this week have had 3 promising calls. 
On my side - I’m in no rush to sell. I have a work van, so if I sold today I wouldn’t be without transport. & there are no issues with the car, it is mint. So I have no worries about problems afterwards. 
Selling private is weird. Its all about timing & pure luck. U may post it for sale today & it coincides with some guy looking for exactly what ur selling the same day. 
Or u could be waiting months to get a bite. How unique is ur car? How unique is it locally? Can u make it more attractive by dropping price a bit below current market. 
How long can u go without a car? This gives u selling time which is what dealers have on their side that most private sellers don’t. Can u borrow a banger from a friend for a couple months if urs sells quick? That means u can put it up go sale way earlier than u actually need & just wait without any panic or pressure to sell for less than u want. 
 

if u got 11,500 - clear the 7,500 & u’ve hot 4K - 1500 up on the trade in. So is it worth 1500 to u to sell private. That’s the bottom line. 
 

But look at it this way. You can buy a car for 7500 right now that is costing everyone else 12K - that’s about exactly how PCP should work. 

 

Very helpful - thank you. 

One last thing - my only residual concern is that I'm changing £7500 into a car - I'll not get that cash back.  Once I've bought the car that's it 'locked in' to a car - whether it's this one or as a trade in for my next car.  Unless I sell it privately for cash - then I can decide how much I want to put forward as a deposit for my next PCP.

[AJAMESR]

Well the 7500 of the car belongs to the bank right now. Either way u need to pay that. If u trade in they settle it. If u sell privately u pay it. So the only value u have in the car is the difference in the 7500 & whatever u sell it for. 
 

You will always have money tied up in a car unless u can sell it privately for 12 or 11.5 & use the 4K to buy a nice little runaround. 
But that still leaves 4K tied up in a car. 

 

Id rather pay the bank the 7K final payment and have a car worth 12k rather than sell the car privately, and then buy a car for 4K that is worth 4K. 
Granted U’d be loan free but a 7K loan to own a 12K car is as good a deal as you’ll get. 

And what problems might a 4K car give u in unexpected repairs compared to a 12K relatively new car. 

[ExSEAT]

15 minutes ago, dougalredbear said:

Very helpful - thank you. 

One last thing - my only residual concern is that I'm changing £7500 into a car - I'll not get that cash back.  Once I've bought the car that's it 'locked in' to a car - whether it's this one or as a trade in for my next car.  Unless I sell it privately for cash - then I can decide how much I want to put forward as a deposit for my next PCP.

Its all about the numbers. On PCP in the past I have traded in a car I own and it has been over the maximum deposit for the car I want. In three separate cases the dealer gave me a cheque back for the difference, I got £2.5k back in my hand for a volvo I traded in against my mk2 Leon.

 

When it comes to your next car you can try and sell your old one private, Im not a fan but Ive done it. Or you can cut your loss and palm it onto one of the car buying places. I currently have an ex PCP that I bought at the end of the term and have 7k tied up in it. The value seems to be going nowhere and I estimate its straight sell value as just under 7.5k, forecourt price for worse is well over 9. I'll be looking to sell it in a few months and if I can get my 7k back I've had a car for free for a few months. Im looking at a lease next anyway so trade in isn't really an option.

 

Lastly, if you are looking at the new Octavia, then I wouldnt worry about 500 quid here and there, the price of the new models are very high. The SE edition, with some extras is over £26k for a manual 1.5tsi. Best discount I've had so far is £2k off that, which makes it more expensive than my DSG 245 VRS was. Also, someone earlier was talking about discounts on cash buys, if you look at the deals the PCP is cheaper on paper because of the interest thats not included on the initial price. The key to getting that discount when buying outright is to take out the finance to get the PCP discount and then pay the finance off at the earliest opportunity!

 

Also, another last thing, I've been the guy who has bought the first version of a new car and sworn I will never do it again. I paid SEAT a handsome price to be an unwilling beta tester on their mk3 leon. Im not doing that again, especially for an SE with the wrong engine and gearbox 🤣

[AJAMESR]

3 minutes ago, ExSEAT said:

Also, another last thing, I've been the guy who has bought the first version of a new car and sworn I will never do it again. I paid SEAT a handsome price to be an unwilling beta tester on their mk3 leon. Im not doing that again, especially for an SE with the wrong engine and gearbox 🤣

This is a very good point. At the end of the day u are never going to make money on a car, only ever lose. U are just trying to minimise the loss. 
& this is where PCP could be a helpful. If the bottom falls out of the market completely, u can just hand the car back at the end of the 3 years. If it’s worth less than the GMV that’s their problem not yours. That’s why they won’t set the GMV higher than 40% - they would be exposing themselves massively. So u should always have some equity tied up in the car at the end of 3 years otherwise they have messed up massively. In which case thank ur lucky stars u didn’t borrow the entire amount on normal finance and still owe it regardless of what the car is worth. U can essentially get out of a bad deal. The car lost more value than estimated and u can cut your loses. Not nice, but better than owning more money on a car than it’s worth - negative equity. PCP will help u avoid negative equity. 

[ExSEAT]

@AJAMESR I traded my last VRS in after just under 3 years and got some equity back for my new VRS. Previously I have jumped out a bit earlier but always aimed to break even.

 

PCP is a strange thing. I was looking to get a qasqai for the wife (her choice not mine!) And the local dealer wanted £24k ish. Final payment after 3 years was around 12k. I found a broker offering the same car for 17.5k, with only a 7k payment. Theoretically you could buy that one and have a £12k car at the end. Sounds too good to be true. However if you hand it back youve paid the same as the £24k car deal anyway!

 

Cars are like a utility bill for me, I pay a monthly fee, it should work and every now and then I have to switch providers. I know Im losing money the whole time, I know the alternatives are driving a car to work that I hate 🤣

[match14]

22 hours ago, AJAMESR said:

Id be interested to see how you ended with no equity. If PCP, they intentionally set the GMV at a % that will leave you with at least enough equity to be the deposit on the next car. Or if you decide to hand the keys back they have a nice a few quid profit in it. The GMV is very conservative compared to what the car should be worth after 3 years. And Skoda has held value fairly well over the last few years. 

The GMV on my OCTY VRS was €12,500 - I made the final payment. That was a year ago. So the car is 4 years old now and still fetching 20K here in Ireland. Although dealers would prob only offer me 15K on a trade in right now. But still selling in the forecourt for 20K + with the low mileage like mine. 

For the OP:

£2500 seems a bit low. But I guess it depends on condition, mileage, spec etc - I'd pay the final payment and see if you can sell it privately. Have you priced around to see what they are selling for? 

The dealer could have been under value. In June the ballon payment was £7893. Today webuyanycar are offering £9175. Bit at the time the dealer was saying after the ballon there was only £500 left. Ended up just buying the car outright.

[AJAMESR]

1 minute ago, match14 said:

The dealer could have been under value. In June the ballon payment was £7893. Today webuyanycar are offering £9175. Bit at the time the dealer was saying after the ballon there was only £500 left. Ended up just buying the car outright.

You did the right thing. Sounds to me like the dealer was taking the ....! 

[AllanDJ]

On 28/08/2020 at 20:03, AJAMESR said:

Id be interested to see how you ended with no equity. If PCP, they intentionally set the GMV at a % that will leave you with at least enough equity to be the deposit on the next car. Or if you decide to hand the keys back they have a nice a few quid profit in it. The GMV is very conservative compared to what the car should be worth after 3 years. And Skoda has held value fairly well over the last few years. 

The GMV on my OCTY VRS was €12,500 - I made the final payment. That was a year ago. So the car is 4 years old now and still fetching 20K here in Ireland. Although dealers would prob only offer me 15K on a trade in right now. But still selling in the forecourt for 20K + with the low mileage like mine. 

For the OP:

£2500 seems a bit low. But I guess it depends on condition, mileage, spec etc - I'd pay the final payment and see if you can sell it privately. Have you priced around to see what they are selling for? 

 

Personally from my experience I'm amazed to hear of anyone having even a penny in equity at the end of their PCP agreement! I had an early Octavia 3 1.6 diesel estate in Elegance spec which I ended up having to hand back to Skoda because there was zero equity there, the dealership didn't even want to buy the car off me for the final payment as they could buy cars for less than that on the open market. Trade value was nearly a £1000 less than the final payment would have been, which put me off buying the car at the time. Never taken out another PCP since then, current car is on PCH, which works out less expensive overall.

 

The deal was sold to me on the basis that there would easily be decent equity in the car but the VW diesel scandal pretty much killed the market in diesel cars at that time plus Skoda got their numbers very wrong with their PCP deals in the UK, which made them very unlikely to work as they should work. If I'd had the cheaper 1.4 petrol engined version I'd easily have had good equity because suddenly everyone wanted petrol engined cars instead of diesel at that time.

[themanwithnoaim]

OK you guys you can kick this hot potato around as much as you like but, the bottom line is, if its got tits or tyres its gonna cost you money & the prettiest/fastest models are gonna cost you much more.

 

Dealers need to make 1500 quid outta each deal, thats just the pure economics of their business costs & when I said each deal, that means trade-in 1 deal, purchase 1 deal, or 3 grand in total if trade-in.

 

Nobody wants to pay 3 grand but, drive on to the forecourt in your old car, drive off in your new car, simples.

 

There will always be 2nd hand car market exceptions though, normal supply & demand rules apply. The guy earlier with the financially underwater 1.6tdi was probably due dieselgate whereas I got more for 1.4tsi due to its £30 tax disc.

 

So, if you have the time & abilities to sell private, you'll save 1500 quid but, you'll need a 2nd car, same applies to webuyanycar et. al.

 

TBH playing around with 30-40 grand cars I CBA, I just leave it to the professionals & accept it'll cost me money, bung it on the monthly & its less than a tenner a month🤔🤫🤭🤗

[lway]

On 30/08/2020 at 00:01, AllanDJ said:

 

Personally from my experience I'm amazed to hear of anyone having even a penny in equity at the end of their PCP agreement!

 

Wow, they must have really messed up their figures on that one, or else the car was way over mileage or in bad condition, sounds like you had no option but to hand it back if the market was that bad.

At the very least you need the car to be worth the Guaranteed Minimum Future Value plus whatever deposit you paid day one at the end of the PCP.

Missus had an Opel and at the end of the PCP the Opel garage were offering her the GMFV plus 2k, but she had paid a 5k cash deposit at the start of that PCP so we shopped around and the Skoda garage were offering her the GMFV plus 5k for the Opel and 0% interest so she changed to an Octavia. She's thinking of buying the Octavia at the end of the PCP so we'll see what the story is when that time comes around in a year or so.