Gti Mileage on PCP

[fredgroves]

There was a thread on here a few weeks saying about how expensive PCP is compared to a cheap bank loan. Might be worth crunching the numbers and looking at drivethedeal.com to get an idea how much you could buy the car outright for and have no worries about mileage or ballon payments!

Its swings and roundabouts though...

Borrow £35k at 2% from the bank, you are repaying the entire £35k monthly - much higher monthlies.

Borrow £35k at 3.6% on a PCP from VWFS, you are repaying the loan the capital on £35k minus the GFV.

The only way the bank loan makes any sense is if you can extend the term to longer than 4 years and have an option to repay early (ie you want to change your car) without paying the interest that would have been paid over the full term of the loan.

With the bank loan sure you aren't being hit directly with a mileage charge, but you are effectively because the depreciation (due to mileage) is yours when you come to sell the vehicle. A vehicle with 90k miles on it after 3 years is still worth less than one with 60k...

PCP works for most people because the numbers are all predictable. What you have on the paperwork is the worst case scenario.

If you go for a "cheaper" way, you are taking all of that risk yourself. For most people they are happy to have a controllable budget and derisked.

There's no such thing as a free lunch...

[Crunch]

The way I'm looking at it is my company are paying for the golf gti and the insurance, the PCP deals I've been quoted come in bang on my allowance take home inc insurance. The extra £150/£200 a month I will be saving in tax I will keep in a separate account to maintain it and help with the final balloon payment if I decide to go that way. I've looked on auto trader at 4 year old gold GTI's with over 70k miles on to be safe and they are advertised for £14/£15k so the £10.7k final payment seems conservative.

I'm going in with the attitude that I won't be saving money every month but I can drive a car I actually want and after 4 years I will have something to show for it.

I've got a test drive booked for this afternoon in a gti performance dsg so I'm looking forward to that! First time!

[Beddie]

Borrow £35k at 3.6% on a PCP from VWFS, you are repaying the loan the capital on £35k minus the GFV.



There's no such thing as a free lunch...

Unfortunately that’s incorrect, on a PCP product you pay interest on the entire amount borrowed which includes the GFV, the GFV figure is just deferred however the interest is not...

As you say there’s no such thing as a free lunch, or in the case an interest free loan from VWFS..

[fredgroves]

Borrow £35k at 3.6% on a PCP from VWFS, you are repaying the loan the capital on £35k minus the GFV.



There's no such thing as a free lunch...

Unfortunately that’s incorrect, on a PCP product you pay interest on the entire amount borrowed which includes the GFV, the GFV figure is just deferred however the interest is not...

As you say there’s no such thing as a free lunch, or in the case an interest free loan from VWFS..

Yes, you pay interest on the full capital, but not capital repayments...

[Beddie]

Borrow £35k at 3.6% on a PCP from VWFS, you are repaying the loan the capital on £35k minus the GFV.



There's no such thing as a free lunch...

Unfortunately that’s incorrect, on a PCP product you pay interest on the entire amount borrowed which includes the GFV, the GFV figure is just deferred however the interest is not...

As you say there’s no such thing as a free lunch, or in the case an interest free loan from VWFS..

Yes, you pay interest on the full capital, but not capital repayments...

You’ll pay interest and capital reducing payments on the total amount borrowed minus the GFV and any end of contract fees, and interest only payments on the GFV without a reduction in capital of that amount.

To someone unfamiliar with how PCP ‘really’ works your original post could be a little confusing as some may assume the GFV is, for want of a better term, ‘out’ of the agreement and therefore free from any accrued interest..

Edit to add: I’ve found that sadly it’s becoming an increasingly common misconception that GFV can be almost be treated with a head in the sand type of attitude, surely can’t be long before PCP in general gets some kind of regulation before it becomes the next PPi scandal..? 

[kmpowell]

Borrow £35k at 3.6% on a PCP from VWFS, you are repaying the loan the capital on £35k minus the GFV.



There's no such thing as a free lunch...

Unfortunately that’s incorrect, on a PCP product you pay interest on the entire amount borrowed which includes the GFV, the GFV figure is just deferred however the interest is not...

As you say there’s no such thing as a free lunch, or in the case an interest free loan from VWFS..

Yes, you pay interest on the full capital, but not capital repayments...

You’ll pay interest and capital reducing payments on the total amount borrowed minus the GFV and any end of contract fees, and interest only payments on the GFV without a reduction in capital of that amount.

To someone unfamiliar with how PCP ‘really’ works your original post could be a little confusing as some may assume the GFV is free from any accrued interest..

The 'balloon' on a PCP has interest charged at the actual true effective rate of interest (APR) for the duration of the term.

The 'balance' of a PCP (your monthlies) has interest charged at a 'flat rate' for the duration of the term.

This is how a PCP has an interest rebate if you settle early. You don't get interest rebates on HP or LP.

PCP's used to be a poor product because the APR's were so high, which is why I used to fund my purchases using LP agreements (as discussed earlier in this thread), but over the past 8/9 years PCP APR has tumbled and GFV (or as they are called now  the "Optional Final Payment") have reduced making them a viable product for those who don't want risk.

On a £30k car there is no advantage to using a LP over a PCP. If you want a low balloon a garage can adjust the balloon down accordingly.

[Beddie]

On a £30k car there is no advantage to using a LP over a PCP. If you want a low balloon a garage can adjust the balloon down accordingly.

I’m not convinced it’s a clear cut as that?

Not every £30k car will be bought new, used PCP APR rates are still shockingly high in the most part! LP brings no mileage restrictions and the ability to mod the car if wanted and any reduction in the GFV will surely push up monthlies which defeats the appeal of a PCP to most people?

[brettblade]

On a £30k car there is no advantage to using a LP over a PCP. If you want a low balloon a garage can adjust the balloon down accordingly.

I’m not convinced it’s a clear cut as that?

Not every £30k car will be bought new, used PCP APR rates are still shockingly high in the most part! LP brings no mileage restrictions and the ability to mod the car if wanted and any reduction in the GFV will surely push up monthlies which defeats the appeal of a PCP to most people?

Indeed, the TCO over 4 years has been cheaper for me on two occasions now to take a PCP on a new, more expensive car than a 1-2 year old “cheaper” car.  I think by and large, most people don’t understand how the different finances options work, or the concept of interest, GFV, TCO etc - but nor is it as clear cut as PPI mis-selling.  Closest to that is the GAP, tyre and alloy insurance, LifeShine etc that very often is factored in to any first quote at the dealers.

[Beddie]

On a £30k car there is no advantage to using a LP over a PCP. If you want a low balloon a garage can adjust the balloon down accordingly.

I’m not convinced it’s a clear cut as that?

Not every £30k car will be bought new, used PCP APR rates are still shockingly high in the most part! LP brings no mileage restrictions and the ability to mod the car if wanted and any reduction in the GFV will surely push up monthlies which defeats the appeal of a PCP to most people?

Indeed, the TCO over 4 years has been cheaper for me on two occasions now to take a PCP on a new, more expensive car than a 1-2 year old “cheaper” car.  I think by and large, most people don’t understand how the different finances options work, or the concept of interest, GFV, TCO etc - but nor is it as clear cut as PPI mis-selling.  Closest to that is the GAP, tyre and alloy insurance, LifeShine etc that very often is factored in to any first quote at the dealers.

Exactly, pcp lends itself to pushing people into that ‘new’ car purchase cycle due to the incentives offered over going used.
Where I have a problem with it is the poor selling techniques used, upping GFV to meet someone’s monthly budget by lowering mileage pa to an unrealistic level for the consumer and then burying their head in the sand re the mileage/GFV at term end, bundling in extras as you mention like GAP/lifeshine which themselves incur yet more interest charges.
And perhaps the most irresponsible practise, re churning negative equity from the last pcp into the new one, all in pursuit of hitting the magic monthlies and getting a signature on the order form...

[2007GTI]

this is interesting and a good explanation, I think!

https://www.whatcar.com/advice/buying/pcp-or-hp-which-car-finance-option-makes-most-sense/n1163