"Options" Payment Plans. Dont understand! - Stebbil

Hi all

First time on this site, and already I have found some answers to my questions, except this one:

I am about to purchase a new car. previously I have always saved up and bought second hand, so this time is my first into the world of payment plans. Yesterday I went into my local ford dealership to look at the new fiestas and the dealer introduced me to their "Options" payment plan with the MFPV element etc. I wont lie to you, I didnt really understand how it works or whether it is a good deal.

What baffles me most is this MFPV and how it relates to the APR I have been paying. I was given op[tions of paying over 2 years with a lower APR, or 3 years with a higher APR, both of which had an effect on the MFPV. Is it better to have a higher or lower MFPV? I dont get it at all.

Can anyone please break down how this works. As the dealer was trying to get a sale out of me, I got the impression he was shouting out numbers but I prefer to be fully clued up so I can read between the lines (if you get my meaning).

Many thanks

Stebbil

"Options" Payment Plans. Dont understand! - Craigdm

My advice is to ask the salesman to put all the figures down into an email, and ask for him to explain them in simple terms.

I've just signed up for a Juke and did all the negotiations by email. Once you know the model you want, just email a few local dealers and ask for their best price to change.

There's nothing much to fear from finance deals from the main dealers.

"Options" Payment Plans. Dont understand! - Falkirk Bairn

Look at HJ guide on finance

http://www.honestjohn.co.uk/guides_finance/

My simple guide

1)Cash - you own car

2)HP - Deposit + payments say over 24/36 mths = you own car at end of contract

3)Personal lease - small deposit, 24/36/48 Rental payments - you do not own the car UNLESS you pay the Balloon Payment @ end (GMFV etc) or you just hand back car. You can be held liable for bumps and scrapes if you hand car back at end. If you break the contract early (say 20 mths) there are termination charges which are substantial + bumps scrapes scratches etc

4) Bank loan - you buy car with borrowed money but you own the car from day one.

You can buy from any source so you could buy from discount broker and not your local main dealer price.

"Options" Payment Plans. Dont understand! - bonzo dog

Hi Stebbil, while Options & the likes are very useful finance packages which enable a customer to afford a vehicle when under a normal Hire Purchase agreement they would not be able to manage the monthly payment, they can be used by dealers to baffle the less knowledgable.

One of the problems customer face is the mandatory use of APRs. This should be used solely as a comparison between loans of the same amount over the same period as, as you have found, the period affects the APR. This is because in the case of an Options agreement the outstanding balance (GMFV) is not paid off until the end of the agreement but attracts interest over the full period.

The trouble is that the relative size of the GMFV also affects the APR, as does the finance commission the dealer is setting (which you won't know).

So, which is the better deal? In all honesty it is immaterial. You choose an Options scheme based on what suits your pocket best, although if you can afford to take a traditional HP / personal loan route this should be financially more attractive across the length of the loan. But in either case compare with another Ford garage the overall cost of the Options & with a bank the cost of a personal loan / HP. Don't forget to take into account front & back end fees which the bank don't normally charge

Good luck

"Options" Payment Plans. Dont understand! - woodster

Sorry Bonzo (love the name!) I have to disagree that these 'options' packages are useful. I'll stick a tenner to one side that the FSA criticise them in the next five years. In reply to the original post: You pay a deposit (which you never get back), make monthly payments and at the end of the agreed period you DO NOT own the car. At that point you can hand it back (subject to some small details which I'll come back to) or you can buy it for the MGFV.

The minimum guaranteed future value is set by the dealer and depends upon you sticking to a service/mileage/condition agreement. If you go beyond the agreed mileage, haven't serviced it properly or it has damage then you'll pay. Regardless of interest rate, you're paying a deposit plus monthly payments to cover the depreciation of the car.

Most dealers will do 2 things: 1) they sell the car at top price or thereabouts wowing you with low monthly payments and 2) tell you that you can use it as a deposit towards a new car at the end of the agreement period. Number 1 is negotiable, number 2 is a lie. You can only use any value in the car OVER the MGFV as a deposit. So, if they gave you an MGFV of £4000 and they value it at £5k then you've got £1000 deposit. This is all subject to that mileage/condition limit.

Others on here will disagree with but I think these are dreadful packages. Be realistic about what you can afford and take a personal loan. If you default on a personal (i.e. unsecured) loan, the lender can't come and take your car. (Someone will point out that if you default badly enough then the lender could take court action and come and take anything you own. Whilst this is true, most major high street lenders will only do this in the most extreme cases and then only when the customer isn't talking to them).

My summary is that these finance packages are simply a way to dress up the price to make it look affordable. You have to ask yourself if it really is affordable taking into account the deposit and the fact that it ain't yours at the end of the period. having posted this previously another contributor still responded that they could get a Fiat Panda for £99 plus whatever monthly payment. I didn't reply because I felt they were still missing the point - They could have paid a 99p deposit and their monthly payments. They still didn't own the car at the end and would have to find further money to own it outright.

Check this website for internet brokers if you're buying new with your own loan versus dealer 'option' prices.

Edited by Avant on 30/09/2010 at 21:43

"Options" Payment Plans. Dont understand! - daveyjp
Unless you are paying cash and buying from a broker the purchase of a brand new Fiesta on Ford finance is a definate false economy. There are thousands of 6 month old Fiestas out there for well below list price.

Tell us the exact spec of the car you are looking at buying with the finance options and some of us who have used brokers may get some prices for you.
"Options" Payment Plans. Dont understand! - Armstrong Sid

Do you really need to buy new?

I just looked at Fords own website and calculated a 1.4 Zetec 5 dr would be about £13.5k.

At a local car supermarket I can get a 12 month old version of the same thing for around £10k

"Options" Payment Plans. Dont understand! - daveyjp

And drivethedeal will do a brand new 1.4 zetec 5 door for £10.5k.

"Options" Payment Plans. Dont understand! - Avant

Options / PCPs work well if the car in question holds its value well (you may get a deposit towards the new one, as explained above, but more importantly the monthly payments can be lower). SWMBO has had three Minis on PCPs with good deals on all of them.

But I wouldn't buy a Ford or a Vauxhall new (or a Vauxhall at all) - they depreciate too fast too soon and the bargains are to be had secondhand.

"Options" Payment Plans. Dont understand! - brettmick

The waters might not clear on this one.

My personal opinion is...

Depreciation is the biggest single cost with a car under 5 years old. This is an elephant in the room that is rarely spoken about because it makes dealers and the industry nervous.

Would you put £20k in the bank and 3 years later be happy that it was worth £10k? That is what happens when you put your cash into a new car.

If you PCP (options, whatever its called with a balloon at the end) you put down a deposit (£1.5k perhaps) and then finance the depreciation. You may have paid £12k over three years but you have £18.5k in the bank still and the opportunity cost of doing what you want with that money. If you lose your job the £18.5k in the bank will make the payments (and pay the mortgage), if you put £20k into a car then it doesn't and you might have to fire sale.

Yes with finance you pay interest but if you chose the right car and the right deal (Toyota do PCP on cars up to 5 years old) then you can get a decent deal.

I would not bother with a PCP on a cheaper car. We have an i10 and after the deposit of £1k and 3 years of £99 or so the balloon was something like £4k - the monthly payments had not reduced the final payment by much more than £500. We bought that outright instead, but if you can't do that a straight loan would be best (consider a 5 year loan, even if you only want to keep the car 3 years as the final 2 years payments will be about the same as a balloon). Rule of thumb is each £5k borrowed over 5 years is £100 per month, sensible PCPs seem to average the same over 3 years but leave you a balloon to pay.

The Saab I bought on a PCP and terminated at 34 months (no penalty) because the car was worth £3k and there were £7k worth of payments still to make (equivalent) to keep the car. Lesson - cars that depreciate heavily should be avoided OR bought after they have done most of their depreciation. I suggest a new Ford may fall into this category.

I have just bought a 3 year old RAV4 on a PCP. Again we could have bought it outright but I prefer to keep the money in the bank (well, ISA).

You can Google for an Excel spreadsheet that will allow you to play with PCP figures and APRs. Study the figures and consider the deal. I went to a car supermarket who had a year old RAV4 that was 2.5k cheaper than my new A3 was but having put down a larger deposit the monthly payments were £80 more than the A3. They didn't want to tell me the APR - I walked.

I have learnt to be dispassionate about car financing and think of it like a normal business asset purchase. The car becomes a utility, just transport like a washing machine is just to wash clothes or a computer is to compute, and consider the finance options accordingly.

I am not dispassionate about the cars I chose however!!! That said, if someone had told me at the start of 2009 I would go from a Saab 93 to Audi A3 to Subaru Legacy to RAV4 with a Mazda 323 becoming a Hyundai i10 I would have laughed at them....

"Options" Payment Plans. Dont understand! - Craigdm

I think the way to make these plans work is to put down a decent deposit in the first place and then make the monthly payment as much as you can afford. This brings down the Balloon payment and then leaves you with a big deposit for your next car.

I agree that these plans can be a minefield for those people who don't have a decent deposit (say £5K on a £17K car), but that's not really down to the PCP aspect, more down to the basic fact that you're borrowing a lot of money and that has to be paid for. If you took the full amount as a bank loan, you'd never get close to the 5% (ish) APR rate offered by the manufactures.

Just signed the wife up for a new juke. She had a Quashqai before. Trade in value was £10.5K, old PCP had £6K left so that leaves £4.5K against the new vehicle. Payments come out as the same and she's straight into a new car. So that means she'll always have a car that's less than 3 years old for £160/month.

"Options" Payment Plans. Dont understand! - woodster

Craig - do you think you'll have the same excess value when it's time to trade in the Juke?

I'm genuine when I say I respect everyone's opinion and each must do what suits them but I still don't like the condition/mileage limits. I guess I have to see your point about putting down a larger deposit and the interest rate, but those points have to be set against the price being paid overall vs. say, internet broker prices . I've always looked at these schemes with disdain because I think they've been aimed at selling a car to someone who perhaps can't really afford it by dressing up low deposit and low monthly payments as 'affordable'. Lots of cars sold to young people who then find themselves struggling at replacement time. I wouldn't dare suggest that dealers have been unscrupulous in skimming over the fine detail like the conditions and interest rate whilst focusing on the monthly payments... one dealer went straight to a PCP quote without even asking me how I might pay for a car and tripped himself over on quoting the base rate not the APR. Again he immediately pointed straight at the monthly payment. I'm digressing somewhat but it simply insults the intelligence. I wanted to try and point out the potential pitfalls to the OP.

Anyway, can we talk about the looks of that Juke??!!

"Options" Payment Plans. Dont understand! - Ben 10

I was looking at a Mazda 3 Takuya. I considered PCP but they are doing 50% deposit and then 0% finance over 3 years. Would this be better than getting a bank loan ?

Then I got this example sent through today:

Just to let you know the Mazda 3 offers for vehicles registered between now and the end of December are as follows:

24 month PCP 3.9% APR with £500 on diesel and £750 on petrol Mazda deposit contribution (NIL customer deposit required)

36 month PCP 5.9% APR with £500 on diesel and £750 on petrol Mazda deposit contribution (NIL customer deposit required)

12, 24 or 36 month HP 0% (50% percent customer deposit required)

12 or 24 month HP 3.9% APR (NIL customer deposit required)

36 month HP 5.9% APR (NIL customer deposit required)

Mazda 3 Takuya taken with the PCP finance offer has free of charge servicing for the period of the PCP i.e. 36 month PCP qualifies for 3 years or 37500 miles free servicing and 24 month PCP qualifies for 2 years or 25000miles free servicing.

You can see how these offers can be confusing to some, and how attractive they can appear.

Edited by Ben 10 on 02/10/2010 at 00:17

"Options" Payment Plans. Dont understand! - Craigdm

I spent many years telling everyone that I'd never buy new, but as you get older the search for an easy life takes over from financial worries.

The juke will be the third new car in a row. The dealers will alway inflate the px price of the old car in order to sell you a new one. In my mind that's just as good as getting a discount on the new vehicle. I spent years buying second hand cars in the £6-8K range, I'd take new bank loan out for each one and so although I owned the car at the end, I was still making the same sort of payments that I do now for a new car.

I just like the feeling that I know if anything does go wrong with the new car, I can take it straight back to the dealer and he'll fix it, no questions asked.

I got a new IX35 about 5 months ago, so that replaces the old Quashqai and the wife can downsize to the Juke. Downsizing means she can up-spec to the 190bhp turbo with premiuim pack for the same monthly payment as the old 1.6 petrol. No brainer to me.

Edited by Craigdm on 02/10/2010 at 12:13

"Options" Payment Plans. Dont understand! - bonzo dog

Hi Ben, if you're trying to figure out which is the best offer, simply do the maths:

  1. Ask for the total amount payable in each case (easy in the case of the 0%) less the deposit in the case of the PCP
  2. Subtract the from the PCP what the servicing would cost if you paid for it yourself
  3. Add to the 0% deal the interest you would get if your 50% deposit remained in the bank over the 3 years
  4. Compare

Either sound a good deal.

"Options" Payment Plans. Dont understand! - bonzo dog

So last night a friend was telling me of her experience over the past two weeks buying a new car on a PCP.

Calls in to dealership & agrees terms including £4000 PX. £1,000 deposit needed so cash back of £3,000 (she has an outstanding bank loan) then £XXX per month over 48 months with an APR of 5.8 & a GMFV based on 10,000 miles per year.

She goes to collect car, fortunately with a friend who notices that the finance agreement states 7.8 APR and 6,000 miles per year. As she told me, she would not have noticed either.

Now you can argue the APR is irrelevent as it should only be used for comparison purposes and the dealer might have reduced the price of the car but kept the payments the same which would have the effect of raising the APR, but the fact is he has changed the terms agreed. Clearly the mileage terms mean there could be a difference in excess mileage of 16,000 over the term - a lot of dosh!

Anyhow, after much argueing the dealership has agreed to the priginal terms & she is to collect on Wednesday. But they are now saying the cheque for the PX will be sent in the post after they have recieved the money from the finance co & she will not be able to collect it on the day.

I have advised her to insist on the cheque at time of delivery just in case they alter the amount!

This is a good example of how a PCP has been used to both afford a car she would not have been otherwise able to afford AND for the dealership to bamboozle a customer into terms she did not agree to by way of mis-understanding.

"Options" Payment Plans. Dont understand! - Ben 10

BD,

Can I ask which manufacturer her car is made by?

"Options" Payment Plans. Dont understand! - bonzo dog

I don't think it is appropriate to say as it is not the manufacturer who is trying it on but a dealership.

 

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