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Author Topic: PCP question.  (Read 286 times)

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Field Marshal Dr. Opti

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PCP question.
« on: 04 January 2019, 10:06:10 »

Who decides the amount of equity available at the end of a PCP deal?*


*Presumably this will not apply to lorry fuel cars which are probably worth less than the GFV.   
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jimmy944

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Re: PCP question.
« Reply #1 on: 04 January 2019, 10:25:20 »

The equity is made up of two numbers, the GFV (this is the amount you owe the finance company at the end of the PCP agreement) and the market value of the car at the end of the agreement. If the market value is higher than GFV you have equity, if not then you don't.

The Manufacturer's system determines the GFV at the time you take out the agreement. It used to be the case that dealers were allowed to flex the GFV up or down, but that stopped a few years ago.

Market value is harder, the salesmen will tell you what they'll give you for it (either cash or part X, the two values will be different), or you can look elsewhere. Ie assess what you think you could get selling it privately.

If you want to sell it privately, you need to buy the car off the finance company (for the GFV) and then sell it yourself.
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Field Marshal Dr. Opti

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Re: PCP question.
« Reply #2 on: 04 January 2019, 10:55:14 »

The equity is made up of two numbers, the GFV (this is the amount you owe the finance company at the end of the PCP agreement) and the market value of the car at the end of the agreement. If the market value is higher than GFV you have equity, if not then you don't.

The Manufacturer's system determines the GFV at the time you take out the agreement. It used to be the case that dealers were allowed to flex the GFV up or down, but that stopped a few years ago.

Market value is harder, the salesmen will tell you what they'll give you for it (either cash or part X, the two values will be different), or you can look elsewhere. Ie assess what you think you could get selling it privately.

If you want to sell it privately, you need to buy the car off the finance company (for the GFV) and then sell it yourself.


So it seems the customer is between a rock and a hard place.

The sales manager will probably offer a low figure that doesn't represent the true amount of equity in the car. To call his bluff you have to have to make the final balloon payment (which about 90% of PCP users don't have, so can't do) and then sell the car on.

It seems they have you by the balls and offer whatever they decide.


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TheBoy

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Re: PCP question.
« Reply #3 on: 04 January 2019, 11:46:46 »

It seems they have you by the balls and offer whatever they decide.
But as you know that before you take it on, you can factor that in...  ...or walk away.
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jimmy944

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Re: PCP question.
« Reply #4 on: 04 January 2019, 13:47:30 »


The sales manager will probably offer a low figure that doesn't represent the true amount of equity in the car. To call his bluff you have to have to make the final balloon payment (which about 90% of PCP users don't have, so can't do) and then sell the car on.

It seems they have you by the balls and offer whatever they decide.

Yup, that's about the size of it. PCP is a product that's designed to keep you with the manufacturer and regularly swapping for a nice shiny new car, and its designed very well.  ;)

In the case of the skoda, we've viewed it as a good way into a new car for SWMBO and it allowed us to defer the decision of whether to buy the car or not (looking rather like "not" now). Then again, we were on 0% interest, so it made sense, some of the interest rates that do the rounds, 5% and more are just not worth contemplating as you pay it on the GFV portion of the car from day 1 with nothing coming off that part of the capital.

Have you looked at the comparative cost of leasing?

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Doctor Gollum

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Re: PCP question.
« Reply #5 on: 04 January 2019, 16:50:58 »

A regular lease works the same way as a PCP, the difference being that the GFV isn't offered to you as a purchase option using any positive equity. Basically it's a long term rental with no end of lease option... You pay any excess mileage/damage and hand the car back.

Mileage also has a big bearing on the depreciation with PCPs being very restrictive in this regard...5/6k being quite common on the 'better' deals. Bring the mileage up to  realistic levels can easily double/triple the monthlies. effectively you're prepaying the depreciation.

If you do some mileage, then 48 month HP and return at halfway is usually more cost effective than a two year lease, the reason being that HP won't have a mileage penalty.
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TheBoy

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Re: PCP question.
« Reply #6 on: 04 January 2019, 17:01:50 »

If you do some mileage, then 48 month HP and return at halfway is usually more cost effective than a two year lease, the reason being that HP won't have a mileage penalty.
Is that "ok"? Would it affect things like credit rating etc?  Or does it depend on who/where.
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Doctor Gollum

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Re: PCP question.
« Reply #7 on: 04 January 2019, 19:30:53 »

Legally they cannot negatively affect your credit rating. They may choose not to finance the next car, but there are plenty of firms that will ;)

You effectively mutually agree to cut the hp term short in accordance with the terms of the agreement. Which is nice.

Hence, when my Seat went back at month 25, it was in near mint condition even allowing for 130k on it and they didn't even blink even though it had dumped 10k in value from the 12.5k purchase price (a pre-registration reduction from 16.5k) down to 2.5k.

It affected my credit so badly (not) that I was subsequently able to finance a further 6 cars to the tune of over 62k over the next 6 years. And all alongside two personal loans of 25k, a couple of credit cards and a marine mortgage.

Consumer credit is as freely available as the napkins in McDonald's.

None of which is a reason to finance a car. Also, you only need a credit rating if you intend to borrow money, mortgages notwithstanding as these can be manually underwritten. The point being that not having a credit score, as opposed to a low score, shouldn't prevent you from buying property.
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jimmy944

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Re: PCP question.
« Reply #8 on: 04 January 2019, 19:37:27 »

A regular lease works the same way as a PCP, the difference being that the GFV isn't offered to you as a purchase option using any positive equity. Basically it's a long term rental with no end of lease option... You pay any excess mileage/damage and hand the car back.

100% agree, the option to purchase has a value, IF you ever intend to exercise it. Which is why I was suggesting a lease could be cheaper. In PCP agreements you are always "paying" for a potential upside to the deal, which if you never intend to go for it is a waste.  :y
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Doctor Gollum

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Re: PCP question.
« Reply #9 on: 04 January 2019, 20:28:24 »

Don't forget to add VAT onto the headline monthly...
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TheBoy

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Re: PCP question.
« Reply #10 on: 05 January 2019, 09:36:31 »

Legally they cannot negatively affect your credit rating. They may choose not to finance the next car, but there are plenty of firms that will ;)

You effectively mutually agree to cut the hp term short in accordance with the terms of the agreement. Which is nice.
Good to know - my concern was around the implications of not completing an arranged financial agreement, but sounds like its a non issue :)


Not that I'm in the market for such a scheme, I'm more of a run an old banger into the ground motorist, rarely tempted by new and shiney, unless the offer is outstanding.  So my query was pure curiosity.
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STEMO

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Re: PCP question.
« Reply #11 on: 05 January 2019, 11:43:17 »

Depends what you mean by credit rating. If you are talking about the 'score' you see on any of the credit reference agencies, they are meaningless. Just a made up number that leads you to believe that you are eligible for certain credit cards or loans, which these agencies will gladly introduce you to for commission. Lenders do not see this number.
Any lender will check your credit history to see if you are the type of customer they want to lend to. Early settlement of loans can be a negative factor but, obviously, nowhere near as bad as CCJs or defaults.
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Field Marshal Dr. Opti

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Re: PCP question.
« Reply #12 on: 05 January 2019, 12:32:00 »

A regular lease works the same way as a PCP, the difference being that the GFV isn't offered to you as a purchase option using any positive equity. Basically it's a long term rental with no end of lease option... You pay any excess mileage/damage and hand the car back.

100% agree, the option to purchase has a value, IF you ever intend to exercise it. Which is why I was suggesting a lease could be cheaper. In PCP agreements you are always "paying" for a potential upside to the deal, which if you never intend to go for it is a waste.  :y


90% can't so don't which is why PCP works far better for the finance company than the customer. How much longer must we endure these Xmas smiley.
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Doctor Gollum

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Re: PCP question.
« Reply #13 on: 05 January 2019, 16:29:02 »

Tonight, tonight...  ;D
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