PCP Deals

[Dan.G]

 

As Im about to close one pcp deal and enter another, I find myself wondering more and more about how it works.

On my bike, I paid minimal deposit and the monthlys were fairly high. The bike depreciated quite heavily But I only feel like I've lost my monthly payments, which I am ok with, it was expendable money.

With my lotus, my intent is to pay a hefty deposit, am I likely to lose this deposit at the end of the term as well as my monthlys? Or, because the lotus shouldn't depreciate so much, could I get a good chunk of my deposit back?

It would be nice to have a good amount of equity to buy it outright (with some savings) at the end.

Any other options?

Edited October 7, 2018 by Dan.G
fat fingers and poor spelling

[andydclements]

The PCP's a priced so that, over the period, you have paid the depreciation, plus a bit of interest (not badged as such, but the provider effectively has to borrow the funds), plus a bit of profit for the provider. With the initial deposit big enough to cover the initial value dip that effectively happens when you drive off the forecourt.

They work on a safety margin at the end, where the  actual depreciation is more likely less than the plan's final (optional) payment.  You'd be unlikely to get a lot of your deposit back, but may well get some. If you did get a lot of the deposit back , that would mean the supplier massively over-estimated the depreciation.

[KennyN]

Large deposits on a depreciating asset are a difficult one...It depends what else you could be doing with the money and whether that would yield a greater return than the interest charged on a larger loan over the period of the agreement.  It's often best to look at the 3rd party options rather than the dealership finance, companies such as Magnitude, Oracle and JBR Capital can take a more innovative approach than the dealer or a bank, they understand the specialist car market and will be happy to provide you with figures to see what works best for you.  I have no affiliation with any of the companies named, nor have I used any of their services, but I know quite a few that have and they've been happy customers.

[2GOOD]

When I worked at a main dealer selling main stream cars a long long time ago pcp’s worked best with small deposits. A 3 year pcp was much the same as a 4 year hp deal, I’d get figures for both & compare if you’re paying a large deposit. Not something I’ve been involved with for almost 13 years but as I needed a new job quickly I’m going back to it next month...

[Dan.G]

So, basically, with pcp I'm going to lose my deposit.

On HP, the monthlys are double.

As mentioned, I will try one of the finance houses. I think a hp deal would be better in the long run with the new investment and development plans, the v6 sports car will be a thing of the past with eu emmisions, lotus saloons and suvs.

[Stuart Monument]

Exactly that. Your are going to loose a large chunk of your deposit. The larger deposit is literally buying you a cheaper payment. If you put a £25k deposit down on a £50k car and it has a £25k defered payment at the end , you would literally be only paying interest on the £25k. It would appear cheap but you equity position would be getting worse daily. 

[winners]

PCPs are usually set to work bet with a minimal deposit. Historically they were set up to give enough equity over the GFV (final payment) to roughly give the same deposit if the car is part exchanged on the next car. This is why they exist. 

There are two other options; 1) hand back, which should only be exercised if you have negative equity at the end, in this case you would then "lose" your deposit, but effectively the finance company are clearing your negative equity. 2) Pay the GFV and own the car. 

As car companies want you to use PCP they usually have a lower rate. If you want to own the car ultimately, to get the best deal use the PCP then set up either a saving plan to clear the GFV in 3 or 4 year or whatever period your PCP is over. Or simply finance the GFV with a low rate personal loan. 

The down side of an HP is that if the car depreciates more than usual you have no protection other than your rights under  consumer finance law. 

 

[Softlysoftlycatchymonkey]

if you're paying a large deposit it's worth looking at taking out bank loans as the interest is very low (Sainsbury's, Tecos, Zopa, etc. are 3ish% APR) and if necessary spread it over a longer term.  You pay less interest and own the depreciating asset so will have more money coming your way when you sell up.  The loans are about 3% until you hit 25ish thousand pounds and then go up significantly so take out two loans from separate banks to keep to 3%.

PCPs are financially in the car company's interest long term as they own the asset but you pay off the depreciation for them.  However they allow people to drive a car they couldn't otherwise afford in the short term.  They are not a cost effective way to buy a car so if you can afford it, get it on a separate bank loan.  As you're paying up front to the dealer this also gives you better bargaining power when buying.

[Chillidoggy]

I do a straight lease over three years. No money up front, fixed monthly payment, and hand it back at the end of the term, no option to buy. Suits me fine.

My current Mondeo costs me £307 a month.

[C8RKH]

5 hours ago, Softlysoftlycatchymonkey said:

As you're paying up front to the dealer this also gives you better bargaining power when buying.

I think it is generally accepted these days that the best finance deals usually come from the ones with manufacturer support and that are around no ownership PCP type deals.  The major car companies are as much a "financial operation" as they are a "manufacturing one" these days.

[Softlysoftlycatchymonkey]

True, especially for the major manufacturers but not what I found when buying my Lotus.  Having just bought one and spending endless hours working out the permutations on all the different options the finance deals for a new or second hand Lotus didn't add up compared to alternative finance.  50/50 interest free offer was good but too much up front for me.

I could have bought more expensive cars on paper from other manufacturers for less money but I only wanted a Lotus.

[Dan.G]

If only I could get 50k loan from Tesco...

[winners]

9 hours ago, Softlysoftlycatchymonkey said:

if you're paying a large deposit it's worth looking at taking out bank loans as the interest is very low (Sainsbury's, Tecos, Zopa, etc. are 3ish% APR) and if necessary spread it over a longer term.  You pay less interest and own the depreciating asset so will have more money coming your way when you sell up.  The loans are about 3% until you hit 25ish thousand pounds and then go up significantly so take out two loans from separate banks to keep to 3%.

PCPs are financially in the car company's interest long term as they own the asset but you pay off the depreciation for them.  However they allow people to drive a car they couldn't otherwise afford in the short term.  They are not a cost effective way to buy a car so if you can afford it, get it on a separate bank loan.  As you're paying up front to the dealer this also gives you better bargaining power when buying.

I agree if you have a large deposit a standard structured loan is best. But PCP are cost effective for low deposits. Car manufacturers like them as they shorter the change cycle not because the customer pays the depreciation.

Cash for a better deal ended 20+ years ago. Its actually illegal to offer a different price just because of how an asset is funded. 

Baically fully understand all the options and pick the one that suits your circumstances.