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!