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Discussion Starter · #1 ·
:ugeek: Never had one of these because I have been more of a pay for it and take the depreciation hit later type of guy. My dealer who I have bought three or four cars off thinks that I am mad and that a PCP will allow me to change my car more often without having to part with a bundle upfront. What does everyone think about PCPs???
 

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Not a lot wrong with LR PCP's just don't put a massive deposit down, save you capital, go for small deposit (10%ish) and it will work...had 4 LR's with DS on order and PCP has worked each time....however there are some horror stories out there....PCP is OK cars in demand...they are not good on things like bog standard Vectra's/Mondeos etc
 

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Discussion Starter · #4 ·
Why a small deposit? I would of thought it would be better to put more down in the first place.
 

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bentley said:
Why a small deposit? I would of thought it would be better to put more down in the first place.
You have to get the balance of deposit vs future value vs monthly payment that is right for you. Big deposit, low monthly out going, but that capital is gone. At the end if you want to trade you'll have significantly less deposit than you have now (unless you've been saving like mad) and therefore much higher monthly payments on a new car. So you go from affordable monthly this term to challenging monthly next term.
 

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Discussion Starter · #6 ·
Ok thanks so I guess it all hinges on the future value of the car. The more it is worth the greater the deposit on the next one. I can see how once you are on the PCP cycle you find it hard to get off. Pay £18000 for a three year old car or get a new one for no outlay at the end of each PCP term.
 

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PCP's are an insurance policy as well. You get a value that's guaranteed at the end of the term, so although you pay interest on the 'balloon', you are not liable for it. Even if the car is worth less than the GMFV, you simply hand it back and walk away. The aim is to get your deposit back at the end of the term to go into the next one. So as has been pointed out, the key is to get the monthly to equal the expected depreciation. You can however put in a low deposit and 'pay-as-you-go' on the depreciation and maybe lose some/all of your deposit, or put in a large deposit and put in the depreciation up front if a lower monthly is your priority.

Now some manufactuers have had very tempting PCP deals, low customer deposits, high manufactuer 'contributions' and low monthly payments with high GMFV's. But with these you seem to go straight into negative equity as soon as you drive out the dealership and for many peeps they are trapped in the car, being unable to buy their way out and having to stay to the end of the term. LR is different, the GMFV's are lower but the vehicles have strong residuals because of demand for them, the deposit/monthly is up to you, but you tend to retain what you put in at the start. Recently the industry has had to lower their GMFV's across the board, as it was noted that too many people were having nothing left at the end of their deals. I.e. Payments too low.

So with the DS in particular why do a PCP over buying outright? Tbh, on this car buying outright is a sound decesion as I don't believe there is a risk of their values tanking overnight (unless either of those Ball's blokes get in & decide that as well as a mansion tax, there needs to be a 4x4 tax!) But with a GMFV of around £20k on these cars, you could instead see if you can do something better with that money over the term investing in the markets to offset the interest & hopefully make much more! Buy a boat? Up to you!

I think c.£500/month on this car will be a good 'average', but probably not for the first year, when I expect values to be remain strong on this new model.

Only at the end of your ownership will you know how well you did. (NB You can sell the car at anytime as it is yours. Personally never give the car back to finance company at the end, always sell private or part-ex, you will get a much better value than the finance company who will interpret 'fair wear & tear'differently to you!)
 

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Discussion Starter · #8 ·
Thanks for taking the time to reply. Very comprehensive answer and I think you are right and I am leaning towards buy the car as usual. I can see how in some circumstances a PCP is a great way to get into a brand new car
 

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Essentially, regardless of the permutations, on a car that is hopefully not going to depreciate quickly, it is essentially a loan and has an underlying interest rate. If you are in the fortunate position of having the option to pay cash, then you need to consider what other return you would get on your money. If that would be lower than the PCP interest rate then pay cash.....if not, take the finance deal
Personally, I have only financed twice - one was interest free (genuinely - after discount had been given from retail price) and the other was 4% at a time when it was possible to get that quite easily on a bank deposit account. (The good old days!!)
 

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I had a PCP once, but it's a hit and miss affair, and I wouldn't do it again, though mine worked okay and I bought the car at the end (Mondeo).

In the current climate of poor savings rates, and in the absence of 0% finance, and with a LR vehicle that keeps it's residuals very well, I think it's better to buy outright if you are able to do so, without a loan or pcp.

After the purchase, start saving again, in the sure hope that rates will improve gradually. Why pay anybody interest on a loan or pcp or hp. You know what you've paid, have the knowledge that the car has great resale value, and you're not lining the pockets of third parties.
 

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My best was in Aug '09 when our D3 was 2 years old, walked in to see the facelifted RRS with the new 3.0TDV6, salesman said I could give my D3 as the 50% deposit on an APP (Advanced Payment Plan), LR then lent me the other £30k interest free for 3 years on a factory ordered RRS 3.0 HSE! Did the same on our FL2, but it was only 2 years 0 % APR by then , now back to norm!
 

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Also when banks are offering 3.9%APR on £25k loans, why pay 6%+ with LR
 

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Discussion Starter · #13 ·
Good point about bank loan rates being low. I normally sell shares to buy cars but to be honest with my last big money car purchase it would of been more cost effective to take a loan after taking into consideration the share price movement.
 

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Not sure if I've got this right but is it not the case that if you have to borrow the money, then under a PCP you are only 'borrowing' the depreciation and not the full purchase price (less any deposit of course).
 

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I spent a lot of time trying to get my head around the whole PCP thing, then comparing it with a bank loan. I think it completely depends on individual circumstances and your attitude towards monthly payments (ie would you rather pay more up front for a monthly payment with lower monthly payments or the opposite).
The bottom line is that you pay the same capital back whichever way you do it. Then there's interest, which is where the size of your deposit comes into it.
The dealer was telling us to put a low deposit in, so that if / when you change the car at the end of the term, you can use the equity in the car as your new deposit and continue to pay the same. If you pay a high deposit and low monthly payments, if you change with another PCP then you either have to front up another deposit to maintain the low payments or increase the payments (because you don't have as much equity in the car) - Dealers wont like this because mentally, people are not going to want to front up a load of cash to swap the car and possibly would keep the current car.

An example, SE Tech @ £33,895. 6k miles per year for 3 yrs. The finance company value this at £17,320. So you will pay £16595 plus interest whether you pay 10k upfront and 6575 over 36 months or 16575 over 36 months with 0 deposit. Obviously the interest is more, the less you put as a deposit.
Based on the Evoque depreciation % (because that's all I have) the DS will be worth £23,500ish. that 23500 - 17320 = £6100ish is your capital which you can use towards a p/x, new PCP or sell the car privately and have 6k cash in your pocket. With PCP you can only put 30% deposit down.

I'm happy to be corrected on the above, it was self taught so i may have misunderstood something.

I came to the conclusion that for me, a bank loan would be better. Depending on how much you want the best rate is 3.6%, i went for 3.9% with First Direct. I'm putting 50% down, over the 3 years, this saves me about £3k. I'll probably end up keeping the car for many years, but if i were to trade it in, you'd still get the same back on trade in.
 

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bobd said:
Not sure if I've got this right but is it not the case that if you have to borrow the money, then under a PCP you are only 'borrowing' the depreciation and not the full purchase price (less any deposit of course).
You pay interest on the entire balance including the balloon. So your monthly payment is calculated by the finance company as paying down the capital to the GMFV, plus interest on this sum AND paying interest on the balloon sum.
 

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chris24747 said:
I spent a lot of time trying to get my head around the whole PCP thing, then comparing it with a bank loan. I think it completely depends on individual circumstances and your attitude towards monthly payments (ie would you rather pay more up front for a monthly payment with lower monthly payments or the opposite).
The bottom line is that you pay the same capital back whichever way you do it. Then there's interest, which is where the size of your deposit comes into it.
The dealer was telling us to put a low deposit in, so that if / when you change the car at the end of the term, you can use the equity in the car as your new deposit and continue to pay the same. If you pay a high deposit and low monthly payments, if you change with another PCP then you either have to front up another deposit to maintain the low payments or increase the payments (because you don't have as much equity in the car) - Dealers wont like this because mentally, people are not going to want to front up a load of cash to swap the car and possibly would keep the current car.

An example, SE Tech @ £33,895. 6k miles per year for 3 yrs. The finance company value this at £17,320. So you will pay £16595 plus interest whether you pay 10k upfront and 6575 over 36 months or 16575 over 36 months with 0 deposit. Obviously the interest is more, the less you put as a deposit.
Based on the Evoque depreciation % (because that's all I have) the DS will be worth £23,500ish. that 23500 - 17320 = £6100ish is your capital which you can use towards a p/x, new PCP or sell the car privately and have 6k cash in your pocket. With PCP you can only put 30% deposit down.

I'm happy to be corrected on the above, it was self taught so i may have misunderstood something.

I came to the conclusion that for me, a bank loan would be better. Depending on how much you want the best rate is 3.6%, i went for 3.9% with First Direct. I'm putting 50% down, over the 3 years, this saves me about £3k. I'll probably end up keeping the car for many years, but if i were to trade it in, you'd still get the same back on trade in.
Yup. The figure we are looking for is the 'total cost of borrowing'. So length of term and %APR, is going to determine how much you pay back. There is no magic here, the more you borrow the more it costs.

As you say, I'm probably going to get a 1st Direct loan as well, seeing as I am not worried about values crashing, so don't need the security of a PCP with the Guaranted future value. As you say a LR PCP for me over 3 years will cost just about £5k I'm interest, a bank loan just about half that.

Good thing about PCP with LR, you aren't tied in and can settle, with out charge anytime you like.
 

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bentley said:
Good point about bank loan rates being low. I normally sell shares to buy cars but to be honest with my last big money car purchase it would of been more cost effective to take a loan after taking into consideration the share price movement.
Exactly, that's the challenge, can you get a better return on your £20k over 3 years? Make the PCP or bank loan work for you. Can be more hassle than it's worth mind!
 

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Warkman said:
Always done OCP, no issues, also I take out a three year pcp but change every two years, lower monthly payments, good residual value
:cool:
 
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