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I am currently doing some sums to take back to my Mazda dealer for a personal contract plan. The APR is obviously fixed and the deposit is up to me. The two dealer quoted figures which affect the payments are the price new and the GFV. I know that there is movement to be had on the price but is the GFV set in stone? They are quoting less than most for this figure, however, they will guarantee this even if the car is worth less.
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We recently considered the PCP when buying a new Mini. Doing the sums, I could not see that the GFV actually 'guaranteed' anything. It's simply the final payment you need to make to secure ownership of the car. The alternative is simply to hand the car back at the end of the contract period. No mention was made of the value the car might still be at the end of the period and whether any variability of that might affect the finances.
The best way to calculate these things is to look at the APR - that's all that matters (subject to you finding the cash for the monthly payments). If they give it to you, great. If they give you the flat rate - criminal in my opinion - then you need to try and calculate the APR using a spreadsheet and someone who understands discount rates / NPVs. As a rough guide, the APR is often about double the flat rate.
We found that the HP came out at 6.5% APR for the Mini, the PCP was more like 12% APR. The final option, giving the car back, is likely to be even more expensive - to calculate this you'd need to know the true (not GFV) value of the car at the end of the three years.
If you can time it with a remortgage or you have enough overpayments on your flexible mortgage, this may be even cheaper.
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Mattster - obviously you're right, the GFV doesn't guarantee the actual value of the car in the market, however, what it does guarantee is that you won't be left with a car that's worth less than the amount you owe on it at the end of the term. In theory, the car should be worth a little more than the GFV which leaves you with some equity to put into the next motor.
It's good news for anyone who bought a Range Rover, X5, or other high CO2 car on PCP within the last couple of years as their values are now in freefall but they have the benefit of knowing they can't have negative equity.
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An alternative, if you can still get one, is a loan with an amount deferred until the end of the period.
Keeps the payments down in the same way as a PCP and is independent of the car.
However, it's all got to be paid off some time.
If you need to rely too heavily on GFV/ deferred amount, perhaps you cannot really afford the car.
Like a lot of people, I have to borrow to afford anything decent, but wouldn't want payments for any more than four years - three if possible.
Edited by ifithelps on 05/07/2008 at 14:54
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There's very little benefit in doing that though (unless the rate is much better of course) as the loan is independant of the car if your car depreciates more than you expect then you are still left with a lump to pay off, with a PCP you aren't.
I suppose you are right in that if you rely on the deferred lump to afford the car then you are probably overstretching yourself, however, it can be beneficial under certain circumstances, e.g. I sold a Mondeo once and the couple wanted to pay cash, the price was £12,999, we sold them it on Options Cashplan (a PCP where you pay the monthly payments up front) they put something like £6K down up front and paid another £6,500 in a year's time, the total payable was lower than the cash price! :-)
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Blue,
Yes - I suppose manufacturer/dealer incentives could make a difference.
Do I understand Ford are offering an extra £600 to those who take their credit this month?
If you are borrowing anyway, that sum could make their PCP/deferred purchase or whatever plan the most attractive option.
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Do I understand Ford are offering an extra £600 to those who take their credit this month?
There was an incentive on at the time (I'm talking 3 years ago here) and I'm sure they still run them now and again but I haven't sold cars for years thankfully!
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>what it does guarantee is that you won't be left with a car that's worth less than the amount you owe on it at the end of the term>
But aren't the mileage and the condition of the vehicle key factors in determining the GFV?
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Mileage is important as that's part of the deal but I don't think that condition was ever mentioned as been a major factor, no more so than a lease deal for example.
Obviously if you bring the car back in a state with body and trim damage then it may come off the GFV (but that's assuming that the car is already booking at lower than GFV), if the car books higher than the GFV then it's less of a concern as you will have some equity to take the damage out of.
The key thing is that however you pay for your car, condition is always going to be a concern, even lease cars charge for damage on return.
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I made a post about this a while ago - presume GFV means that come trade in the dealer has to offer what was on the paperwork 3 years ago? If you are trading it in of course. And of course the dealer doesn't have to give you such a good deal on your new purchase. Otherwise you hand it back and the dealer stops sweating a bit.
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I made a post about this a while ago - presume GFV means that come trade in the dealer has to offer what was on the paperwork 3 years ago? If you are trading it in of course. And of course the dealer doesn't have to give you such a good deal on your new purchase. Otherwise you hand it back and the dealer stops sweating a bit.
The dealer doesn't have to offer you anything for your trade in, what it means is that the finance company guarantee your car will be worth at least as much as the final balance (the GFV), if the dealer offer you less than the GFV then you can just hand the car back to the finance company and start afresh. In that situation with conventional finance you can end up carrying over negative equity to your next car, this is impossible with PCP.
What's important to bear in mind is the distinction between the dealer (who buys and sells cars) and the finance company who offer the PCP, they're two entirely different entities, that's why the dealer is never sweating with any kind of finance, if you're on PCP then it's the finance company that suffers any possible negative equity loss, if you're not then they just bang the balance onto your next car finance deal.
This process is repeated ad infinitum until the customer has so much negative equity that they are no longer able to carry it over to their next car as the finance would be refused (I once sold a Fiesta to someone with about £3K negative equity on top, he owed £10K on a second hand car! The Business Manager didn't even think we would get the finance approved and had a long talk with the guy to make sure he knew what he was doing. However, all he wanted was lower monthly payments and better mpg. What can you do?
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We recently considered the PCP when buying a new Mini. Doing the sums I could not see that the GFV actually 'guaranteed' anything.
The clue is in the initials - it guarantees the final value of the car.
You shouldn't be looking at a PCP if you intend to keep the car - PCP's were invented to get people to change their cars every 3 years and they're designed to encourage that.
Having said that, they can be a useful hedge against falling residual values - others have mentioned 4x4's etc, but the bubble is finally bursting on Mini residual values so if Mini dealers are still offering high GFV then they might be worthy of serious consideration.
We found that the HP came out at 6.5% APR for the Mini the PCP was more like 12% APR.
Be careful here - the APR on a PCP will always look higher as you're financing the GFV for the whole period, it's not a reducing balance like an HP deal is. I find the clearest thing to do is is look at the whole deal in pound notes, including working out the loss on interest on any cash deposit that you make.
to calculate this you'd need to know the true (not GFV) value of the car at the end of the three years.
Clearly that's impossible. The GFV will be a pretty good estimate of it - the finance companies are, after all, the experts. The trouble is that many people have an overinflated idea of what their car will be worth (even if they haven't actually bought it yet).
Edited by Bill Payer on 05/07/2008 at 16:26
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The APR is obviously fixed...
Why do you think that?
In fact, the APR will vary with every element of the deal - change the purchase price, deposit or GFV and the APR will change.
The key thing that can move it is changing the flat interest rate. Now the dealers might not want to change it - maybe it's a manufacturer backed deal? - but it doesn't *have* to be fixed.
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Thanks for the advice. I have always bought used in the past but have decided I want peace of mind so want to buy new and change every 3 years, ensuring the car is in warranty for the whole period and also avoiding MOT's. I know what I can afford each month and will not move from that, I am therefore choosing a model on the basis of those payments. I will obviously be looking for the best car I can get for this money. I will also be looking for a PCP that gives me the option of handing the car back or selling it privately and settling the deal in cash.
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In fact the APR will vary with every element of the deal - change the purchase price deposit or GFV and the APR will change.
Not necessarily - though the amount of interest will change if the rate stays the same.
If anyone wants real interest rates/APRs calculating, provide the figures and I'll happily do it. All I need to know is what the cash price is, what you have to pay, and when you have to pay it.
I was assured by a car salesman last week that I would be better taking a loan at 6.9% APR and leaving my money in the bank at 5%, as 6.9% APR is 3% flat which is less than 5%. He doesn't know much about the cars he's selling either, but it doesn't stop him making nonsense statements with unshakeable self confidence.
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