Author Topic: Buying on PCP  (Read 10447 times)

Offline trueblue_ips

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Buying on PCP
« on: 16 October 2018, 18:59 »
Apologies if this has been done before on here but after spending a couple of hours with VW's PCP Finance calculator I thought I would write my first thoughts down while fresh in my mind for the benefit of other posters new to PCP like me. The below contains a number of assumptions which I'm more than happy to be challenged on and a couple of questions I still have.  Hopefully others will find this summary helpful and correct any errors.

I have a decent deposit and another reasonable lump sum coming to me in 2 years time so PCP seemed perfect - breaking cost of the car down into chunks with lower monthly repayments than HP and the flexibility PCP brings at the end of term.

1) The deposit. Big or small? Which is cheaper overall?
It doesn't make any real difference to what you'll end up paying. If you make a bigger deposit, VW will shrink the monthly payment (even if you can afford to pay more), a lower deposit will increase monthly payments. Bottom line is they force you to borrow the same and pay the same amount of interest! Cunning. The only way I found to shrink the interest was to reduce the PCP term (obvious really). I would go for as high a deposit as you can afford unless you think your money can be better invested elsewhere than reducing the 5.5 (new) or 7.4 (used) APR interest otherwise due. Also, VW only let you put down up to the 30% including any deposit contribution again forcing you to borrow more than you might need.
**Question** Can you make overpayments or borrow from another source at a lower APR and pay early to reduce the interest?
You pay interest on the whole balance (including the balloon payment), not just the monthly payments as I had naively assumed.

2) The balloon payment.
So who calculates what your car is worth at the end of the term and whether you have any equity to put down on a new car? I believe the dealer maintains a book which lists their trade in price based on car's age, mileage and condition. This is what they value the car at. For VW, their balloon payment seemed low to me so I would expect to have equity of a few thousand even at trade in price.
**Question* Is this realistic? What are others experiences? Can the dealer try to hoodwink you by offering less than the car's true value or can they offer you more to entice you into rolling over into another PCP deal?
 There is always the option to sell the car privately where you'll likely get more. You can still pay off the balloon payment and keep the equity.
My conclusion in all this is that for me, I can get 50% of the car's price as a deposit.  Under these circumstances, I think HP may be the better option as I can get quite a bit lower APR with my bank, will actually be borrowing less with the bigger deposit (less interest) and don't have the balloon payment at the end to worry about. Then again, I lose their deposit contribution (assuming I buy new, not nearly new). I need to do my sums properly.

Car finance is more complicated than I had assumed!  :whistle:

Offline davyk31

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Re: Buying on PCP
« Reply #1 on: 16 October 2018, 19:51 »
A bigger deposit does reduce the overall cost as you will be paying less interest. Not a massive difference but yes it's cheaper. Also it changes the profile of your loan agreement in that with a small deposit you will likely be well into negative equity for the first part of your agreement. That matters should you want out early as the lack of negative equity by your larger deposit could leave you in a position where you can get out anytime. Technically of course you will have paid more upfront so might not actually be better off but psychologically it's easier.

Also the baloon is not set by the dealer. It is set by the finance company and thus will be the same no matter which dealer you use.

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Offline SRGTD

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Re: Buying on PCP
« Reply #2 on: 16 October 2018, 20:18 »
My conclusion in all this is that for me, I can get 50% of the car's price as a deposit.  Under these circumstances, I think HP may be the better option as I can get quite a bit lower APR with my bank, will actually be borrowing less with the bigger deposit (less interest) and don't have the balloon payment at the end to worry about. Then again, I lose their deposit contribution (assuming I buy new, not nearly new). I need to do my sums properly.

Car finance is more complicated than I had assumed!  :whistle:

One option to consider;

You could arrange a loan with your bank at their lower (than VW’s) APR in advance of getting the car but buy the car on VW’s PCP. As soon as you’ve got the car, phone VW Finance and tell them you want to exercise your right to withdraw from the PCP. VW should tell you the settlement amount you need to pay to clear the PCP finance and you can use your bank loan to clear this amount.

When you withdraw from the PCP arrangement, you don’t have to return the VW deposit contribution, so you’ll have the benefit of keeping the deposit contribution, and monthly payments will be to your bank to clear the bank loan.
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Offline trueblue_ips

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Re: Buying on PCP
« Reply #3 on: 16 October 2018, 21:07 »
A bigger deposit does reduce the overall cost as you will be paying less interest. Not a massive difference but yes it's cheaper. Also it changes the profile of your loan agreement in that with a small deposit you will likely be well into negative equity for the first part of your agreement. That matters should you want out early as the lack of negative equity by your larger deposit could leave you in a position where you can get out anytime. Technically of course you will have paid more upfront so might not actually be better off but psychologically it's easier.

Also the baloon is not set by the dealer. It is set by the finance company and thus will be the same no matter which dealer you use.
Ok, didn't realise that.  But I guess the question still applies. What's to stop the finance company offering you less than it's real value and how do they decide what the real value is? Is this regulated? Can you appeal etc?

Offline trueblue_ips

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Re: Buying on PCP
« Reply #4 on: 16 October 2018, 21:18 »

One option to consider;

You could arrange a loan with your bank at their lower (than VW’s) APR in advance of getting the car but buy the car on VW’s PCP. As soon as you’ve got the car, phone VW Finance and tell them you want to exercise your right to withdraw from the PCP. VW should tell you the settlement amount you need to pay to clear the PCP finance and you can use your bank loan to clear this amount.

When you withdraw from the PCP arrangement, you don’t have to return the VW deposit contribution, so you’ll have the benefit of keeping the deposit contribution, and monthly payments will be to your bank to clear the bank loan.

Interesting. I guess most people just think of the monthly payments and don't worry too much. Tips like this take some of the pain of the instant depreciation hit when buying a new car.
I've never spent more than £5K on a car before and always paid cash and am not really a car person. I'm approaching 50 though and want to own something more decent before I'm too old to appreciate it without massive funds behind me. A new car just once would be great.  My very first car was a Golf, Mk2 I think, so there is some meaning behind me getting another. It ticks the boxes. Just need to decide between a GTI and R.

Offline Beezer

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Re: Buying on PCP
« Reply #5 on: 16 October 2018, 22:14 »
Ok, didn't realise that.  But I guess the question still applies. What's to stop the finance company offering you less than it's real value and how do they decide what the real value is? Is this regulated? Can you appeal etc?

Im on a PCP deal too for the first time and wondered the same. Heard a lot of negativity about pcp but thought I’d give it a try anyway as the figures didn’t seem that bad. I took a 3 year deal on a 7.5 dsg gti. Spent a bit on options too and my balloon payment is £14k. 3 year old gtis seem to go on autotrader for £16.5-17k so based on that I should have a couple of grand equity at then end. Especially as I look after my cars.

What I’m not sure of though is how it works when you come to part ex. I presume any dealer in the VAG group will be able to access my finance deal and see the balloon amount and just offer a crap part ex value based on that? (Eg £14-14.5k). A lot of the bad press towards pcp is people not realising at the end of their deal there’s a good chance they could be left with nowt.

I should be ok to buy it outright if need be to sell privately, but I’m intrigued to see how it all plays out when the time comes.

Offline Ryan90GTI

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Re: Buying on PCP
« Reply #6 on: 16 October 2018, 23:09 »

One option to consider;

You could arrange a loan with your bank at their lower (than VW’s) APR in advance of getting the car but buy the car on VW’s PCP. As soon as you’ve got the car, phone VW Finance and tell them you want to exercise your right to withdraw from the PCP. VW should tell you the settlement amount you need to pay to clear the PCP finance and you can use your bank loan to clear this amount.

When you withdraw from the PCP arrangement, you don’t have to return the VW deposit contribution, so you’ll have the benefit of keeping the deposit contribution, and monthly payments will be to your bank to clear the bank loan.

A new car just once would be great.  My very first car was a Golf, Mk2 I think, so there is some meaning behind me getting another. It ticks the boxes. Just need to decide between a GTI and R.

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Offline JB GTI

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Re: Buying on PCP
« Reply #7 on: 17 October 2018, 08:09 »
Arrange a bank loan etc at a much lower APR take out the PCP and exercise your right to withdraw. I picked up my car on a Friday and rang VW finance on Monday and only paid 3 days interest @£3.30 a day and transferred the money that day. Finance contribution and free servicing offer were unaffected and still honoured by VW.  If I remember correctly though, you only get 14 days to withdraw from the finance agreement..
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Offline Jim_mk7.5

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Re: Buying on PCP
« Reply #8 on: 17 October 2018, 09:05 »
Arrange a bank loan etc at a much lower APR take out the PCP and exercise your right to withdraw. I picked up my car on a Friday and rang VW finance on Monday and only paid 3 days interest @£3.30 a day and transferred the money that day. Finance contribution and free servicing offer were unaffected and still honoured by VW.  If I remember correctly though, you only get 14 days to withdraw from the finance agreement..

You will of course p*ss the poor sales person off as they won't get commission on the finance as think it has to be in place for at least a few months before been settled for them to get paid!
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Offline MrBinks

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Re: Buying on PCP
« Reply #9 on: 17 October 2018, 09:41 »
It sounds like you have enough money now and incoming that PCP might not really be for you. Why not use the deposit to buy outright with a bank loan with lower APR to cover the difference? When your windfall comes your way you can then pay off the bank loan right away with no penalties.

Also think carefully if that new car smell is worth the extra cash. Depending on what you're coming from, a nearly new from a dealer would save you a fair amount of money for very little difference in car. From my experience buying a 16 plate GTI PP this year, the whole thing felt exactly the same (actually, better) as when I bought a new TDI 4 years ago - but with far less waiting around.