Golf R PCP deals

[wag29]

5 months into a 36 month pcp,  £7000 deposit, £283 a month, GFV £14700.

[sotonjoe]

2 years into a 48 month deal it but I had amassed £1000 of equity last May when a got my car service

Prices have taken a massive hit since then, I'd be surprised if you've any equity at the moment.  Unfortunately.

And it generally takes longer on a 4 year deal to reach the point of equity as you're paying less capital off per month. Prior to the big drops in p/x prices caused by VW's incentives and emissions scandal fallout previous VWs on a 3 year PX saw me in positive equity at around 2 years, likely 3 years before you reach equity on a 4 year deal without a colossal deposit.
*
Assuming 12% deposit (either by discount or money paid) on a £30k R (back in May 2014) and £15.5k* GFV you've got £10900 + interest to pay over 4 years. Chances are you'll have cleared around 15% of that £10900 in year 1 (£1635), the car would've had to be worth £24765 in p/x at 1 year old for you to not be in negative equity on it.

Right now on your 2 year old example, you're probably looking at the car being worth £20k in p/x and you actually owing £22040 (on the assumptions above).

Unless you had close to the full allowable 30% deposit (financing 70% of the RRP from money down and discount) you will be in  negative equity.

*Assuming you've got a 4 year GFV of around £15500 (i'm taking an educated guess based on the old GFV of £18500 at 3 years) you're likely to be handing the keys back with zero equity, unless the R's used prices strengthen a lot if/when the VW CO2 scandal blows over.

Size of deposit won't make a difference as to whether or not he would be in positive equity at 2 years into a 4 year pcp. A bigger deposit will just have reduced monthlies but depreciation curve will have remained consistent, or car is worth what it's worth. Simple answer is no he won't have positive equity until later in the pcp ( if he's lucky enough to reach positive equity, because it isn't a firegone conclusion),

[monkeyhanger]

Size of deposit won't make a difference as to whether or not he would be in positive equity at 2 years into a 4 year pcp. A bigger deposit will just have reduced monthlies but depreciation curve will have remained consistent, or car is worth what it's worth. Simple answer is no he won't have positive equity until later in the pcp ( if he's lucky enough to reach positive equity, because it isn't a firegone conclusion),

Of course it would. The depreciation curve is a constant, but with a big enough deposit you would be so much closer to your GFV endpoint at the start of your term, even if the monthly balance of capital paid is lower than it would've been with a smaller deposit. In the case of the OP's deposit down he probably is in a little negative equity right now, but if he'd put down 30% and had lower monthlies, his car would be worth around what he'd owe on it 2 years (£20600) into a 4 year deal, give or take £500.

It would take him far longer into the 4 year agreement to be in that position with a smaller deposit and larger monthlies.

Audi allow an even bigger deposit, 50% of RRP. Put a 50% deposit down on a car with a 50% GFV after 3 years and you're basically servicing the interest on the GFV balance.You will always be in positive equity on those terms.

Bigger deposit is always better if you can do it - less interest paid and in equity sooner into your PCP.

[sotonjoe]

Size of deposit won't make a difference as to whether or not he would be in positive equity at 2 years into a 4 year pcp. A bigger deposit will just have reduced monthlies but depreciation curve will have remained consistent, or car is worth what it's worth. Simple answer is no he won't have positive equity until later in the pcp ( if he's lucky enough to reach positive equity, because it isn't a firegone conclusion),

Of course it would. The depreciation curve is a constant, but with a big enough deposit you would be so much closer to your GFV endpoint at the start of your term, even if the monthly balance of capital paid is lower than it would've been with a smaller deposit. In the case of the OP's deposit down he probably is in a little negative equity right now, but if he'd put down 30% and had lower monthlies, his car would be worth around what he'd owe on it 2 years (£20600) into a 4 year deal, give or take £500.

It would take him far longer into the 4 year agreement to be in that position with a smaller deposit and larger monthlies.

Audi allow an even bigger deposit, 50% of RRP. Put a 50% deposit down on a car with a 50% GFV after 3 years and you're basically servicing the interest on the GFV balance.You will always be in positive equity on those terms.

Bigger deposit is always better if you can do it - less interest paid and in equity sooner into your PCP.

I'll say this nicely, but I don't think you're looking at the overall picture from the right angle.

In my opinion, a larger deposit is going to result in lower monthly payments which means that,whilst the amount owed will start off lower than if a lower deposit had been paid, the overall gap between balance outstanding and the value of the car will be broadly similar, once you are some way into the deal.

Similar to a large discount, a large deposit is going to reduce what it is owed on the car over the first few months in relation to its value, but in the case of the large deposit you haven't gained equity if you got rid of the car are that point because you threw the larger deposit in, thus spending that supposedly regained equity in the first place.

Whether or not we agree on how quickly into a term the amounts owed will end up the same, my understanding of your interpretation of the situation is that larger deposits can improve purchasers' chances of being in a positive equity situation, and people might therefore infer they should increase their intended deposit in the hope of seeing some / more it back later in the form of equity. I disagree with that logic.

When I think about it, the most important fact here is you or I  have no idea what is going to happen to the value of anybody's car. When budgeting for a pcp therefore, my opinion is that everybody's financial calculations should assume the worst: that being that the pcp runs to its term  and that there will be no equity at any point during the deal, all your money has been spent with no return, irrespective of whether it was spent in the form of monthlies or deposit.

In this scenario, I believe the purchaser is better off using a deposit amount which that are happy to lose, and not start putting several thousands of pounds in with the hope that they expect to see some it back. By the end of the term, if the car is worth £1k more than the final sum owed, that's good news, but it has no link to the size of deposit.

How much deposit is the right amount? Something you don't mind kissing goodbye to. Something that still leaves funds in the bank for whatever else you need or want. Something that gets you the sort of monthly payment you know you can comfortably commit to for the whole term.These would be my considerations; I wouldn't be getting into the business of predicting when and how much money I expect to be coming back to me because it is a complete unknown.

[monkeyhanger]

I'll say this nicely, but I don't think you're looking at the overall picture from the right angle.

In my opinion, a larger deposit is going to result in lower monthly payments which means that,whilst the amount owed will start off lower than if a lower deposit had been paid, the overall gap between balance outstanding and the value of the car will be broadly similar, once you are some way into the deal.

Similar to a large discount, a large deposit is going to reduce what it is owed on the car over the first few months in relation to its value, but in the case of the large deposit you haven't gained equity if you got rid of the car are that point because you threw the larger deposit in, thus spending that supposedly regained equity in the first place.

Whether or not we agree on how quickly into a term the amounts owed will end up the same, my understanding of your interpretation of the situation is that larger deposits can improve purchasers' chances of being in a positive equity situation, and people might therefore infer they should increase their intended deposit in the hope of seeing some / more it back later in the form of equity. I disagree with that logic.

When I think about it, the most important fact here is you or I  have no idea what is going to happen to the value of anybody's car. When budgeting for a pcp therefore, my opinion is that everybody's financial calculations should assume the worst: that being that the pcp runs to its term  and that there will be no equity at any point during the deal, all your money has been spent with no return, irrespective of whether it was spent in the form of monthlies or deposit.

In this scenario, I believe the purchaser is better off using a deposit amount which that are happy to lose, and not start putting several thousands of pounds in with the hope that they expect to see some it back. By the end of the term, if the car is worth £1k more than the final sum owed, that's good news, but it has no link to the size of deposit.

How much deposit is the right amount? Something you don't mind kissing goodbye to. Something that still leaves funds in the bank for whatever else you need or want. Something that gets you the sort of monthly payment you know you can comfortably commit to for the whole term.These would be my considerations; I wouldn't be getting into the business of predicting when and how much money I expect to be coming back to me because it is a complete unknown.

I understand you, but disagree. You're talking as if a big deposit is lost money that could be saved by putting a smaller deposit in and ending up with big monthlies. You don't save any money overall by putting a small deposit in instead of a big one.

Take a £30k car, with a £15500 GFV after 4 years. Assuming 6.7% APR (as it was until VW dropped it to raise sales following the emissions scandal), this should all be quite similar to the OP's finance taken.

You put down 30% deposit, so the finance is coming down from £21k owed at the start to £15500 owed 4 years later, you end up with monthlies of £217.50 x 48 months, total paid = £9k deposit + £10440 monthlies = £19440.

You put down 10% deposit, so the finance is coming down from £27k owed at the start to £15500 owed 4 years later, you end up with monthlies of £360.25 x 48 months, total paid = £3k deposit + £17292 monthlies = £20292.

Big deposit saves interest = Win for buyer.

There's only one point at which the difference between a big deposit and a small deposit end up with the same equity - the end of the deal. They really don't close up to a negligible amount until well into the final year.

I'm not claiming that if you put more down you'll get a bigger amount back at the other end (I said just the opposite, that deposit is spent on day 1). I'm saying that if you put a bigger deposit down and choose to trade in before the end of the PCP, a bigger deposit means you can do it earlier and not be in negative equity.

2 Years into the deal above, with a 30% deposit you owe VWFS £18546 inc GFV, with a likely p/x price of £19975 (85% of used sticker price £23500). £1429 Positive equity.

2 Years into the deal above, with a 10% deposit you owe VWFS £21873 inc GFV, with a likely p/x price of £19975 (85% of used sticker price £23500). Negative equity. If you want to get out, you owe VWFS £1898, they don't just write that off, and you've already paid £3426 more in monthlies, That's £6753 vs £6000 extra paid in deposit.

If you are into a PCP and see it through to the end, you have a definitive minimum value - your GFV, most would hope to be getting 110% of GFV on past history.