PCP Finance - Very Boring yet Potentially Saving us all money?

[Mr Savage]

Hello guys,

I need a bit of a finance guru on here to answer some of these questions and I apologise if this gets a little confusing but finance companies seem to avoid talking about these kind of things.

Right so we all know how PCP works, you pay a deposit, you then finance the middle portion of the agreement up to the GFV and then you can even hand the car back and pay nothing, part ex it or pay the balloon payment.

So here's an example;

Cash Price - £15,000
No Deposit Paid.
Finance - £15,000

APR - 10%
48 Monthly Payments of £271
Final Payment £6150

That's a total of £13,008 paid over the 48 months.

Then after this you have the option to pay the final payment or chop it in for a new car.

Now the APR rate in this example is high, 10% but you are not financing the full amount in one go. So if you were to secure a loan with your bank for let's say 5.9% for the full amount over the same term (48 months) you would be paying higher monthly payments of £350 a month but without having the final payment of £6150 at the end.

This is where it gets confusing. Most people probably change their car after 3-4 years so it makes sense for you to treat a PCP contract like a rolling mobile phone contract and to get the monthly payments down as low as possible. Now is this possible?

The middle portion of the agreement in the example above works out at around £10800 being borrowed and interest of £3200 being paid over the term of 4 years to bring us up to the £13,000 we would have paid by time 4 years have passed. Now could you borrow that £10800 from another loan company at a lower APR and pay this directly to the company so you lower your monthly payments with the original finance company to practically £0 and pay much lower monthly payments back to your bank due to the lower APR rate but get to keep the agreement rolling for 4 years and still have the GFV of £6150 at the end of your agreement. So in effect you are getting the best of both worlds. You are not financing the entire car and you are getting much lower monthly payments due to the improved APR.

I hope some of this is comprehensible. But I thought it would be interesting and potentially save some people who are on crap third party finance APR's save an awful lot of cash.

[p3asa]

That's interesting, are you able/allowed to do this and am I understanding you right?

Take VW solutions for example, You agree the monthly term and the final GFV.
So can you then pay the full 48 x monthlies minus the interest up front?

[Mr Savage]

That's interesting, are you able/allowed to do this and am I understanding you right?

Take VW solutions for example, You agree the monthly term and the final GFV.
So can you then pay the full 48 x monthlies minus the interest up front?

Yes that's effectively what I'm saying. I think you would have to pay just short of the 48 monthly payments in order to keep something small coming out each month and to avoid early settlement fees. I'm just not sure if they still charge you interest for the final payment figure at the end.

[carl1]

Im sure Halifax do something like what you are saying, 3.9 Apr I think. 3.3 Apr if you have a account, I think again.

[p3asa]

I wonder if that's relatively new as with my last PCP the dealer made a mess with something and gave me £500 back.
I asked them to just put it back into my PCP deal to bring the payments down and they told me they couldn't do this and would have to take out a brand new deal and since the prices had went up I'd have to pay the new prices!!
I just ended up taking a cheque.

Also I'm not sure where the savings would come from as you can get the Golf with 4.9% APR from VW?

[Mr Savage]

I wonder if that's relatively new as with my last PCP the dealer made a mess with something and gave me £500 back.
I asked them to just put it back into my PCP deal to bring the payments down and they told me they couldn't do this and would have to take out a brand new deal and since the prices had went up I'd have to pay the new prices!!
I just ended up taking a cheque.

Also I'm not sure where the savings would come from as you can get the Golf with 4.9% APR from VW?

You're dealer lied to you as you can make overpayments at any point during your policy and choose whether to reduce your monthly payments or reduce your final payment at the end of the agreement. This may not benefit VW Solutions too much if you're on the good APR but some companies do upwards of 10% APR on their PCP's and so the savings for people there would be phenomenal.

Where's MonkeyHanger when you need him?

[p3asa]

I wonder if that's relatively new as with my last PCP the dealer made a mess with something and gave me £500 back.
I asked them to just put it back into my PCP deal to bring the payments down and they told me they couldn't do this and would have to take out a brand new deal and since the prices had went up I'd have to pay the new prices!!
I just ended up taking a cheque.

Also I'm not sure where the savings would come from as you can get the Golf with 4.9% APR from VW?

You're dealer lied to you as you can make overpayments at any point during your policy and choose whether to reduce your monthly payments or reduce your final payment at the end of the agreement. This may not benefit VW Solutions too much if you're on the good APR but some companies do upwards of 10% APR on their PCP's and so the savings for people there would be phenomenal.

Where's MonkeyHanger when you need him?

That's why I was asking if it was a new thing? I wanted to pay a chunk to my Mk6 PCP and after contacting VAG Finance personally was told you couldn't do that.
Then when the Audi Dealer wanted to give me the £500 and I asked him to pay it to the account instead, I didn't question him as I had previously been told you couldn't do that.
So maybe its in the last 3 or so years this has changed?

[monkeyhanger]

Monkeyhanger reporting in, with a huge hangover from a works night out in the Toon last night.

It seems that VW and Audi work a little different on the rules for the finance, even though they're the same company.

VW require you to be financing at least 70% of the RRP for your car when you take the loan out - not sure if they allow you to make early repayments.

Audi require you to be financing at least 50% of the RRP for your car when you take the loan out - but they do allow you to make early repayments as long as you don't end up owing less than the GFV during the term.

Audi salespeople seem to be able to manipulate the GFV fairly readily, but i've never been offered less than GFV stated on the VW website by a VW salesperson.

I was prepared to take the wife's A1 under finance with the biggest deposit allowable but the salesman arsed around with the GFV pushing it way down, around £1100 lower than the figure quoted on the Audi website for the same model. He told me that he had to do this because of the discount given. I said that didn't seem right - why should that car potentially be worth less to him in p/x 3 years down the line because I negotiated a discount?  I'd always look at the used forecourt sticker price when p/xing and expect 85% rather than settle for a standard arbitrary value more than GFV

It seemed to me that he was trying to get 2/3 of the discount I negotiated back at the other end on the assumption that he'd try to low-ball me at p/x time or the dealership would get a bigger bung from VW/Audi finance for offering me crappy terms. The difference between his terms and the Audi website terms for what I was prepared to put down amounted to an extra £60pm. He wouldn't give in on the GFV so I took the finance and rang Audi finance for a settlement the next working day after collection.


Back to Mr Savage's question... If VW finance allow big overpayments then your proposition will be doable, but taking out 2 big loans in a short space of time (even if one loan will be offsetting a large part of the other) will be challenging for many people's credit rating, and the personal loan from a bank will be harder to get than the VW finance. If you can borrow everything you need from the bank rather than VW finance, you'll be better off all round (you might miss out on a finance contribution though).

The VW/Audi model of business relies heavily on most people taking out finance to get one and high residuals to keep the monthlies reasonable and give the finance company a large wedge of that monthly payment.

[HA54SYM`]

Never bought a new car on PCP always cash buying, but I notice better incentives for finance.

Question....

If I bought a Clubsport on PCP and settled the finance in full day after delivery, what are the charges / implications?

VW are giving £1,250 contribution for finance and £1000 discount for loyalty, and with a broker discount maybe this could be a good option for the clubsport, as most dealers I see will spin the limited model "no discount" card on the Anniversary editions, like they did with the ED30 I bought.

Dave

[p3asa]

I was prepared to take the wife's A1 under finance with the biggest deposit allowable but the salesman arsed around with the GFV pushing it way down, around £1100 lower than the figure quoted on the Audi website for the same model. He told me that he had to do this because of the discount given. I said that didn't seem right - why should that car potentially be worth less to him in p/x 3 years down the line because I negotiated a discount?  I'd always look at the used forecourt sticker price when p/xing and expect 85% rather than settle for a standard arbitrary value more than GFV

Obviously I get the lower the price of the GFV then the higher the monthly payments but that GFV wouldn't really come into play unless handing the car back and walking away as Audi would then give at least this to clear the finance.
If Audi have given you a GFV of say £10k and you think that is really low like you have mentioned above, would you not be offered book price anyway and thus make out of it come trade in?
Remember you can take the PCP car to any marque and they won't know what the GFV figure is just what the car is actually worth.