Jump to content
House Price Crash Forum
reddog

How do people pay the upfront deposit on PCP car finance deals, and how do they afford it?

Recommended Posts

Was just looking at an advert offering me a new VW Golf for £195 per month.  But then the fine print says I have to put up £5000 deposit.

 

Got me interested, and I found on the web that there are deals where you have to put a much lower deposit (about £1000), presumably these deals are much worse in other respects as the seller has to get their money in the end.

 

Was just wondering how people get this deposit, as a lot of people only have about £1000 for their life savings in this fantasy country.  I heard anecdotally that a lot of people got deposits from PPI payouts recently.

 

Could we get to a point where people cannot afford the deposits on these deals?

Edited by reddog

Share this post


Link to post
Share on other sites

What I suspect is that the current boom in PCP deals will be because a PPI claim paid the deposit....

Afterwards its the difference between the guaranteed value at the end of the lease and the actual value at the end of the lease that acts as the deposit on the next car.. So things are fine if second hand prices remain artificially high but there will come a day when it all comes crushing down...

Share this post


Link to post
Share on other sites
10 minutes ago, monkeyprojects said:

What I suspect is that the current boom in PCP deals will be because a PPI claim paid the deposit....

Afterwards its the difference between the guaranteed value at the end of the lease and the actual value at the end of the lease that acts as the deposit on the next car.. So things are fine if second hand prices remain artificially high but there will come a day when it all comes crushing down...

Ah good point, so you 'only' need that £5k once to get on the merry-go-round.

 

I wonder how many cycles this will last?

Share this post


Link to post
Share on other sites

This has actually become quite an important 'industry', there must be quite a few jobs dependent on keeping things going (making the cars is probably a minimum labour input!)

 

So I guess a dose of inflation / currency devaluation as well as reduction in second hand values and they will be caught short?  

 

Probably the government will then again try to jump in with some BS scheme to keep things going?  Cash for clunkers?  Diesel scrappage?  Or some how try to inject cash into the hands of the consumer without it being too obvious.

Edited by reddog

Share this post


Link to post
Share on other sites

Or could they just stick it on the credit card. If the car manufacturer has its own plastic they'd be fools to let the banks get a piece of the action.  

Share this post


Link to post
Share on other sites
35 minutes ago, reddog said:

Ah good point, so you 'only' need that £5k once to get on the merry-go-round.

 

I wonder how many cycles this will last?

Nope. Typically the GFV of the car will be about 90% of the projected Trade value (on a typical 3 year deal). So that if you hand it back, the dealer still has some margin. If you want to use it as the deposit for the next car then you'll have to top it up.

1 hour ago, reddog said:

Was just looking at an advert offering me a new VW Golf for £195 per month.  But then the fine print says I have to put up £5000 deposit.

If you go to the VW site, there is the 195pm deal for a new Golf over 4 years. At the end the Option to buy price is £7.3K, so I'd expect the Trade value at that point to be £8K or so, therefore not much of your original deposit left.

Share this post


Link to post
Share on other sites
47 minutes ago, Unbowed said:

Nope. Typically the GFV of the car will be about 90% of the projected Trade value (on a typical 3 year deal). So that if you hand it back, the dealer still has some margin. If you want to use it as the deposit for the next car then you'll have to top it up.

If you go to the VW site, there is the 195pm deal for a new Golf over 4 years. At the end the Option to buy price is £7.3K, so I'd expect the Trade value at that point to be £8K or so, therefore not much of your original deposit left.

Ok, I get it now, you cannot use the car as a deposit for the next car.

 

You pay £5k plus £195 a month for 4 years, which is about £15k, at the end of it you have nothing, so if you want to do another round you have to find another £5k (or the inflation adjusted equivalent)

 

I guess if you have a surprise windfall, the first round feels good, but finding the second £5k could be quite painful for a lot of people.

 

The other option is after 4 years and £5k spent, you find another £7k to buy the car outright.  Total 22k.  All this for a 1.4 Golf, which you can only drive for 10k miles per year.

Edited by reddog

Share this post


Link to post
Share on other sites
2 hours ago, reddog said:

Was just looking at an advert offering me a new VW Golf for £195 per month.  But then the fine print says I have to put up £5000 deposit.

 

Got me interested, and I found on the web that there are deals where you have to put a much lower deposit (about £1000), presumably these deals are much worse in other respects as the seller has to get their money in the end.

 

Was just wondering how people get this deposit, as a lot of people only have about £1000 for their life savings in this fantasy country.  I heard anecdotally that a lot of people got deposits from PPI payouts recently.

 

Could we get to a point where people cannot afford the deposits on these deals?

I have found that there is little difference in overall amount paid over the term whether the initial payment is small or large.

That's why you read the small print and sign up for a deal with lower initial payment.

Isn't the point of PCP that if the car depreciated more than you paid in payments, you have an option of handing it back at the end of the term?

There are lots of other threads on this but let's ponder about and why of PCP and leasing in here as well.

Share this post


Link to post
Share on other sites
2 hours ago, reddog said:

Ah good point, so you 'only' need that £5k once to get on the merry-go-round.

 

I wonder how many cycles this will last?

One cycle.Actually two cycles because we have had two business cycles without interest rates going up hence so much debt and so many zombie companies and consumers.The ironic thing is as many of these fail second hand values will collapse and more people will be tempted to buy second hand.I think a lot of this is due to interest rates being so low on peoples mortgage.Instead of seeing the last 10 years as the time to whack the capital off the mortgage while we have multi-generational lows in rates,people instead used the smaller payments to finance a car on PCP.

A friends daughter had one for £200 a month + rent of £380 a month and she earned £1000 a month.She has her grandads free mobility car now though.He doesnt need it he says.Free cars for everyone.

Share this post


Link to post
Share on other sites
53 minutes ago, reddog said:

Ok, I get it now, you cannot use the car as a deposit for the next car.

 

You pay £5k plus £195 a month for 4 years, which is about £15k, at the end of it you have nothing, so if you want to do another round you have to find another £5k (or the inflation adjusted equivalent)

 

I guess if you have a surprise windfall, the first round feels good, but finding the second £5k could be quite painful for a lot of people.

 

The other option is after 4 years and £5k spent, you find another £7k to buy the car outright.  Total 22k.  All this for a 1.4 Golf, which you can only drive for 10k miles per year.

Actually to be fair, you might not always have to top up the deposit too much... depending on what you buy. Remember the adds are before you have haggled. You can knock that list price down. Take a look at some of the car discount sites like Broadspeed, DriveTheDeal or Orangewheels etc, to get a feel for how much you might be able to negotiate.

Go higher up the ranges and the discounts get bigger:

http://www.sytner.co.uk/bmw/new-offers/1-series/m140i-sport-5-door-offer/

Again, that offer is before you have haggled! There are some folk who do almost make it work on these types of cars; but you'll never manage it on a more basic Golf etc, where the haggle room is less.

I replaced my very old car last year, bought an approved used  BMW 125i (3.5 years old) as an approved used car. However, there in lies the rub, we all know that most cars are worth 40%-50% of the list price at 3 years old. But I paid well over 50% for it; so the dealer still makes a nice mark up. So I tend to keep my cars a long time (I bought the previous car .. back in January 2000)

Share this post


Link to post
Share on other sites

I would be interested to know how many people pay the final balloon payment and keep the car? Surely that would make most sense since you can buy it for less than dealer trade in price, you know the car's history and presumably you liked the car in the first place?

Share this post


Link to post
Share on other sites
1 hour ago, CunningPlan said:

I would be interested to know how many people pay the final balloon payment and keep the car? Surely that would make most sense since you can buy it for less than dealer trade in price, you know the car's history and presumably you liked the car in the first place?

Would be good to have hard figures but my guess would be not many, the dealers are very naughty in aggressively trying to get you to change your car at the 18 month / 2 year point already.

Use your "equity" for a brand new (but smaller) model and carry on with your 150 quid a month or suddenly try to find 7k to keep your "old" car. Aspiring to actually fully owning something is just beyond most.

Share this post


Link to post
Share on other sites

I did notice a lot of cheaper made small cars, which still have the big brand names. Basically fiestas with Audi badges on. Makes more sense now 

Share this post


Link to post
Share on other sites

I am surprised we have a thread on how PCP actually works, when in fact it is such a mainstream "normie" non-4chan thing.

We are outcasts.

Share this post


Link to post
Share on other sites
9 hours ago, reddog said:

This has actually become quite an important 'industry', there must be quite a few jobs dependent on keeping things going (making the cars is probably a minimum labour input!)

 

So I guess a dose of inflation / currency devaluation as well as reduction in second hand values and they will be caught short?  

 

Probably the government will then again try to jump in with some BS scheme to keep things going?  Cash for clunkers?  Diesel scrappage?  Or some how try to inject cash into the hands of the consumer without it being too obvious.

I theorised on the thread below, that the BOE & Gov turniing a blind eye to the lax lending & liar loans in pcp is the scrappage scheme. A commenter on the Zero Hedge thread  agreed re: US auto subprime 

"I suspect that a stealth cash for clunker program is in play as well."

http://www.zerohedge.com/news/2017-05-31/new-warning-signs-emerge-subprime-auto-securitizations

BoE investigates 'terrifying' rise in borrowing to fund new car purchases

http://www.housepricecrash.co.uk/forum/index.php?/topic/229784-boe-investigates-terrifying-rise-in-borrowing-to-fund-new-car-purchases/

Edited by Saving For a Space Ship

Share this post


Link to post
Share on other sites
20 hours ago, reddog said:

The other option is after 4 years and £5k spent, you find another £7k to buy the car outright.  Total 22k.  All this for a 1.4 Golf, which you can only drive for 10k miles per year.

When you strip away the marketing that's the reality of the deal. I'd wager that the same car could be obtained through a broker for about £18K.

Share this post


Link to post
Share on other sites
13 hours ago, Barnsey said:

Would be good to have hard figures but my guess would be not many, the dealers are very naughty in aggressively trying to get you to change your car at the 18 month / 2 year point already.

Use your "equity" for a brand new (but smaller) model and carry on with your 150 quid a month or suddenly try to find 7k to keep your "old" car. Aspiring to actually fully owning something is just beyond most.

I've noticed this too. Dealers get away with it because the replacement car is new and shiny and has a special selling point (e.g. better alleged economy, the latest Bluetooth blah blah). In reality it's a downgrade.

In a decade or two these people are going to be on roller skates, but they'll be the very latest version.

Share this post


Link to post
Share on other sites

Indeed, A4 -> A3, Focus -> Fiesta, Astra -> Corsa etc, with the far more impressive mpg and possibly higher spec blinding buyers into a serious downgrade. As you rightly suggest, there's only so low you can go.

If you want new, get a 2 year lease.

Otherwise, buy at the 3 year point when the deprecation curve flattens out, you'll have a 1 owner car that's been correctly serviced (as the original buyer was probably given a servicing package deal and it's a requirement of maintaining the PCP), and a car that's never been out of warranty (with an extra 1 year approved warranty for you). To get the price even lower, buy in mid December leading up to Christmas, and agree to take out their (part) HP finance to get the price down even more, they get their bonus, and you pay it off in full after the first month (make sure you can do this before hand of course).

Doing this will could get you a reliable, 5* NCAP luxury 35k (new) car for about 16k with just 30k on the clock that'll easily last another 10 years, 1 year extended warranty included. Still too much for many I know, but just outlines how ridiculous the whole situation is.

The used car buyer is only going to become ever more empowered as these 3 year PCPs continue to snowball.

Share this post


Link to post
Share on other sites

I bought a Skoda CitiGo in November last year and haggled for such a good deal that they paid me £382 to take the car off the forecourt. The minimum deposit was meant to be £500 but I point blankly refused until they agreed to refund all but the first payment. So I paid £500 upfront and they took it off by fudging the options on the finance agreement  (filling in a negative cost). 

How did I afford the first £118? I don't know :D 0% too and had for a very good price.

Share this post


Link to post
Share on other sites
16 hours ago, Broken biscuit said:

In a decade or two these people are going to be on roller skates, but they'll be the very latest version.

In a decade they will rent their electric car the same way, for the same money, even though they are far more reliable, need far less servicing, and because of this will be cheaper to produce.

Share this post


Link to post
Share on other sites
On ‎03‎/‎06‎/‎2017 at 5:29 PM, CunningPlan said:

I would be interested to know how many people pay the final balloon payment and keep the car? Surely that would make most sense since you can buy it for less than dealer trade in price, you know the car's history and presumably you liked the car in the first place?

According to an MSE article I just read, only 20% pay it off and keep the car.

Edited by LivingWithTheInlaws
Typo

Share this post


Link to post
Share on other sites
1 hour ago, LivingWithTheInlaws said:

According to an MSE article I just read, only 20% pay it off and keep the car.

Sounds about right - the scheme is basically a strategy for keeping customers on the hook of making a new car purchase every 3 years by hiding the upfront cost and breaking the rather horrific (if shown as a lump sum) depreciation on it down into seemingly affordable monthly payments for three years.

 

Share this post


Link to post
Share on other sites
On 6/3/2017 at 10:49 AM, Blod said:

Or could they just stick it on the credit card. If the car manufacturer has its own plastic they'd be fools to let the banks get a piece of the action.  

That's exactly what happens. You can't pay a house deposit on a Credit Card.. if you could, I'm sure many would! 

Share this post


Link to post
Share on other sites

Create an account or sign in to comment

You need to be a member in order to leave a comment

Create an account

Sign up for a new account in our community. It's easy!

Register a new account

Sign in

Already have an account? Sign in here.

Sign In Now

  • Recently Browsing   0 members

    No registered users viewing this page.

  • Next General Election   94 members have voted

    1. 1. When do you predict the next general election will be held?


      • 2019
      • 2020
      • 2021
      • 2022

    Please sign in or register to vote in this poll. View topic


×

Important Information

We have placed cookies on your device to help make this website better. You can adjust your cookie settings, otherwise we'll assume you're okay to continue.