- This topic has 63 replies, 27 voices, and was last updated 7 years ago by jimwah.
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0% PCP deals – Any catches?
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curiousyellowFree MemberPosted 8 years ago
Looking at one of these and the final value payment is affordable. So with deposit contribution from the dealer it looks like £2.5k off the on the road price.
I want to own the car at the end, and the payments are manageable. Is there a catch? Will I still have to obey the mileage limits and do the upkeep (including servicing from the dealer) if I intend to keep it?
MoreCashThanDashFull MemberPosted 8 years agoThe mileage limit penalties only kick in if you hand the car back. We intend keeping ours so it isn’t an issue.
curiousyellowFree MemberPosted 8 years agoHow about the damage assessments? Do you also have to take out gap insurance?
MoreCashThanDashFull MemberPosted 8 years agoMy understanding is they say – “bring the car back so we can assess it” and we will go “heres your cheque for the balance now **** off and leave us alone.”
Gap insurance was optional when we got ours – Skoda through (I think) VAG Finance.
legendFree MemberPosted 8 years agoGap isurance is optional, but general seems to be thought of as worthwhile. Not from the dealer though, http://www.ala.co.uk or the STW go-to for a fraction of the price (i need to sign up myself)
curiousyellowFree MemberPosted 8 years agoWhat is the insurance for? I thought you insure the car for what it’s worth so you’re covered.
ScottCheggFree MemberPosted 8 years agoBut if your insurance co. and the dealer disagree what that value is?
That’s what you insure.
MoreCashThanDashFull MemberPosted 8 years agoA new car instantly depreciates 20% or whatever the minute you drive it off the forecourt.
So – with simple numbers – you drive it away having paid £25k for it. One month later you write it off. The car is actually only worth £20k at that point, which is what the motor insurers will pay you for it.
To replace it with another new car you have to find the £5k “gap” between what it was worth and what another new one will cost. That is what the gap insurance covers you. IANAFA.
curiousyellowFree MemberPosted 8 years agoI see. Thanks for the info.
Does it help to just have the money in cash to cover the shortfall instead?
theotherjonvFull MemberPosted 8 years agoTo replace it with another new car you have to find the £5k “gap” between what it was worth and what another new one will cost. That is what the gap insurance covers you. IANAFA.
Or replace it with another nearly new / low mileage that has also had it’s first 20% depreciation?
curiousyellowFree MemberPosted 8 years agoSo the deals in themselves are legit if you intend to own the car at the end of the PCP term? Nothing else to watch out for?
dooosukFree MemberPosted 8 years agoThe point is you can’t just replace it with anything.
You have to pay off the remaining finance, which could be more than what the insurance co payout. Hence the gap.
curiousyellowFree MemberPosted 8 years agoSo if you have cash to cover the remaining payout then you’re ok. Got it.
the-muffin-manFull MemberPosted 8 years agoSo the deals in themselves are legit if you intend to own the car at the end of the PCP term? Nothing else to watch out for?
If you intend to keep the car you can do want you want with it – just don’t change your mind! We’ve done this a couple of times to spread the cost of a new car.
wolfensteinFree MemberPosted 8 years agoshop around for GAP Insurance there are many cheaper online than what the dealer offers(dealers always have high mark-up for this so do not get carried away). 0% PCP has no catch IME, dont worry about mileage if you are planning to keep he car at the end of PCP
matt_outandaboutFull MemberPosted 8 years agoDoes it help to just have the money in cash to cover the shortfall instead?
Would you not be better buying an ex-demonstrater/year old/nearly new that has dropped 20-30%, with cash and cheap finance? Worth doing sums I would have thought…
riddochFull MemberPosted 8 years agoIf you look at PCP as a way of reducing your monthly cost it’s not too bad, if you are going to keep the car you’d be cheaper overall with getting a bank loan. except in the case when it’s 0%, you are paying interest on the balloon payment.
When we were speaking to skoda dealers you can reduce down the final payment so you can get maximum benefit from the 0% deal.shootermanFull MemberPosted 8 years agoYes – the only catch I can see with PCP is if you intend to give the car back and you get heavily penalised with excess mileage charges.
With mine it wasn’t 0% but £1k deposit contribution and two free services (worth about £500). I took the PCP out, made one payment, paid it off (with a £300 penalty) but still had a net benefit worth around £1200 over just buying the car outright.
curiousyellowFree MemberPosted 7 years agoSorry to revive this, but I have some more questions if anyone would like to help.
I’ve seen the car at around 13% off the RRP. Is it normal for the finance calculations to include the manufacturer contribution to calculate the value? I’m assuming this is a value used for insurance calculation only?
Also, is there wiggle room to negotiate the GFV when the payment term ends? Say the GFV is £9k, can you point to cars in similar condition going for less and ask they match the amount? It doesn’t hurt to ask, but I’m trying to see if anyone has had any luck doing that.
theotherjonvFull MemberPosted 7 years agoYou could try, but anything saved on the GFV just increases the monthly payments by the same amount.
Oh, you mean actually at the end of the deal? So you have a GFV of £9K but could buy similar for £8.5?
Yes, you could try but at the end of the day it’s a contracted value so they don’t have to negotiate, they can force your hand with a ‘buy it or hand it back’ ultimatum. Your counter would then be to hand it back and buy one of the similar ones and trouser the £500. Depends if the £500 outweighs the disadvantages of you not knowing the other car.
Likewise, they can’t come to you and say ‘cars like these are actually going for £9.5K therefore we’re asking you to pay a bit more to keep it’ – you’d wave paper at them and tell them to get stretched 😉
dannybgoodeFull MemberPosted 7 years agoRead the terms of any gap cider carefully. I used to insure the car dealers slung the stuff but not anymore. Has the potential to be the next PPI misselling scandal.
Some products are OK but some are very onerous. Have to keep the car dealer serviced, can’t modify etc.
When I get chance (ie when I’m not sat by a pool in Majorca) I’ll have a look at the latest offerings and see which I think are the better ones.
Definitely do not by the dealer one. They buy it in at around £14 and flog it on for £300+ (spent a year or so researching the gap market with a view to selling it).
curiousyellowFree MemberPosted 7 years agoThanks @otherjonv and @dannybgoode
Thought it wouldn’t hurt to try.
I’d not bother with gap insurance because I’m aiming to keep the car at the end of the term. I was under the impression that it only mattered if you were going to hand it back and had a crash.
ourmaninthenorthFull MemberPosted 7 years agoGFV tends to be the one part of the equation that doesn’t change – I don’t know for sure, but I suspect that’s the part around which the financial models are built.
My observation on 0% is that the margin that an interest rate gives is now replaced with a headline price that has a lower discount.
Remember that car dealers don’t necessarily make money from you on the sale – a chunk of their income comes from volume discounts from the manufacturers. The manufacturers make money on the car and the money they lend you to buy it.
bailsFull MemberPosted 7 years agoI’d not bother with gap insurance because I’m aiming to keep the car at the end of the term. I was under the impression that it only mattered if you were going to hand it back and had a crash.
It’s not about the final value. It’s about an early write off meaning you “lose” the car when it’s worth less than the outstanding finance.
As above, if you get the car and owe £25k to the finance company then if the car is written off a week after you get it then you need to give the finance company £25k.
But the 20% depreciation from driving it off the forecourt means that your insurance will give you £20k. So you’ve got another £5k to find. No gap insurance means you crash your car into the sea, then have to pay the finance company out of your own pocket, then have to find another car.
santacruzsiFree MemberPosted 7 years agoIf using ALA for GAP insurance either get it via Quidco or insert the code ‘PISTON12’ for discount! (from Pistonheads forum!)
brFree MemberPosted 7 years agoI’d not bother with gap insurance because I’m aiming to keep the car at the end of the term. I was under the impression that it only mattered if you were going to hand it back and had a crash.
You need to go back and actually read what was originally posted when you asked about GAP insurance, but ultimately it’s your call.
footflapsFull MemberPosted 7 years agoRemember that car dealers don’t necessarily make money from you on the sale – a chunk of their income comes from volume discounts from the manufacturers. The manufacturers make money on the car and the money they lend you to buy it.
Dealer margin on a new car is about 2% across industry.
They get a kick back from the finance company for selling you the loan.
They get bonuses from the manufacturer for hitting sales targets.
Hence why they are so keen to push finance as that’s the only place they make any real money.
curiousyellowFree MemberPosted 7 years ago@b r
The way I understood it was even if I wrote off the car, I would have to keep up the payments, and then pay the GFV for the car at the end of it.
Say I write off a £10k car with a GFV of £5k. My car’s insured value is £8k taking into account the forecourt depreciation. I write it off driving out of the forecourt and the insurer gives me £8k. I use the £8k from the insurer to buy a car in similar condition. I keep up the payments on the finance. At the end I pay the GFV and my obligation on the finance is discharged.
Have I understood this wrong?
Agree on the points that lower finance rate is offset by a higher sticker price, but with things like deposit contribution it seems to be roughly the same give/take £1000-£2000. Is this the experience others have had?
FlaperonFull MemberPosted 7 years agoThey’re worth it if you get a good price and don’t want to keep the car. I’ve given back a car half way through a five year 0% deal having paid about £140/month during that time to rent it.
theotherjonvFull MemberPosted 7 years agoSay I write off a £10k car with a GFV of £5k. My car’s insured value is £8k taking into account the forecourt depreciation. I write it off driving out of the forecourt and the insurer gives me £8k. I use the £8k from the insurer to buy a car in similar condition. I keep up the payments on the finance. At the end I pay the GFV and my obligation on the finance is discharged.
Possibly not – because while you have the PCP car, if you default on payments then the finance co can relatively easily repossess the car and get most of the money back (up until i think 50% is paid off, then it’s more complex)
If you no longer have the car but have £8K in cash, I’d think you’d first have to settle the finance as they no longer have a car as security, maybe making a deal to cover the other part of the finance settlement. Then you’d need a new loan to cover the purchase of something new.
I think, I don’t know for sure.
curiousyellowFree MemberPosted 7 years ago@Flaperon how do you gauge a good price?
I tried something like this.
– Total finance payments over 3 years = x
– GFV = y
– Price of a similar aged, condition, make, model car = z
– If y < z then it’s likely to be a good deal to buy.@otherjonv thanks, I will make sure I check that. Gap insurance seems pretty cheap. I am getting £141 to cover £15k? Is that about right?
wzzzzFree MemberPosted 7 years agoA tip to add:
I just bought a 3 year old Golf with 20k miles on it for less than 50% of its new RRP from a VW dealer.
Negotiated a cash price and then the dealer offered 500 off and 2 free services on PCP at 10.9%
I took that then the day after delivery withdrew from the finance agreement (you have 14 days) and settled with VW Finance, so payed 500 less that i would have with cash and got 2 free services to look forward to!
I think you would be mad to buy a new car, although you can do the same re: finance incentives on a new car too – or even do that and re finance with 0% credit card of its a better rate.
A 0% dealer finance with be pre loaded on the purchase price. No such thing as a free meal. Go shopping a couple of weeks before end of a quarter (sales targets).
curiousyellowFree MemberPosted 7 years agoFirst family car, so looking at something less than 3 years old. I have found something that is 2/3 RRP. I get what you’re saying, they’re making money somewhere. But other cars I’m finding of a similar age are pretty close to the money. I guess you could negotiate a discount on cash, but I’d rather have the money in the bank at the moment.
TheLittlestHoboFree MemberPosted 7 years agoA few points to help out here
1) 0% PCP is all about cash flow for you. Its 0% so the only thing you are losing out on is discount (Up to you to negotiate)on the vehicle. If you had cash you still should take out the PCP.
2) As long as you intend to buy the car then its mileage and condition has diddly squat to do with the dealer. If you treat it like crap then return it, well you are gonna get shafted
3) PCP type deals are 75% more likely to result in follow up sale in 2/3/4 yrs so manufacturers throw more money at them. Its like stealth/targeted marketing. It works
4) You can manipulate it a little bit by raising the mileage on the agreement to its maximums which will reduce the Guarenteed future value or Final payment. I did this as i was happy with more monthly payment and wanted as little as possible at the end. Horses for courses. As pointed out somewhere above, whatever you reduce the GFV by you raise your monthly payments by and the other way around too.
5) What wzzzz did is possible but not very honest tbh. The dealer usually gets a recharge of the contributions used from the manufacturer for the finance if its settled in the first couple of months (I usually state 6mths to settle). I bet his dealer loves him as essentially they will have covered the £500 themselves. Not that big a deal in wzzz case but some of the deposit contributions on our vans are £4000+ from manufacturer.
6)Say I write off a £10k car with a GFV of £5k. My car’s insured value is £8k taking into account the forecourt depreciation.
I write it off driving out of the forecourt and the insurer gives me £8k. I use the £8k from the insurer to buy a car in similar condition. I keep up the payments on the finance. At the end I pay the GFV and my obligation on the finance is discharged.
Have I understood this wrong?
Yep, the finance company have financed £10k on your car. Regardless of what the insurance company settle on they want their £10k straight away as the agreement needs terminated. In that situation you would have to find £2k and have nothing to show for your troubles. GAP insurance either covers the shortfall or you can get return to invoice which is even better.
simon_gFull MemberPosted 7 years agoWould you not be better buying an ex-demonstrater/year old/nearly new that has dropped 20-30%, with cash and cheap finance? Worth doing sums I would have thought…
I used to buy cars like this. The way manufacturers now hide (big) discounts in their finance via deposit contributions and the like means it’s often cheaper to order a new car than buy a nearly-new one off the forecourt.
As for 0% PCP, it’s a decent way to avoid using your savings but structure it so that you have the smallest deposit and longest term you can get away with.
CaptainSlowFull MemberPosted 7 years agoSlight hijack – watching this with interest as I need a second car
What’s better, lease or PCP? (in general)?
I don’t think I want to buy a new car outright and want something reasonably new/safe/reliable and low hassle. It won’t be the main car so was thinking 8 or 10K 24month lease
brFree MemberPosted 7 years agoAnd it’s not YOUR car until fully paid for, so insurance company pay Finance Company directly and then the Finance Company will ask you for the difference.
Also, with some insurance policies if you have a write-off you will also forfeit the remaining premium…
FunkyDuncFree MemberPosted 7 years agoWe had a Toyota Aygo on 0% PCP from Toyota.
There is no catch with the 0% bit, they are just wanting to sell more cars.
Working out your cost per month, include the deposit in that too, its all part of the financial cost. If you walk away at the end most contracts have a small fee £100-£200 written in to them that you have to pay at then end.
We just part ex’d ours in to a dealer we bought the next car off and they paid the finance off.
Choose a brand you will want to buy off again, that’s when PCP works best.
Get Gap insurance, even if you have cash in the bank. Gap insurance should be less than £200. I’d rather pay £200 over 2 or 3 years than risk paying out £5k of my own money. (don’t buy from the dealer though, it costs way more)
Personally I would make sure you pay for the miles you intend to do, paying for that after will probably be more expensive….although work it out as if you are cash rich it may work out cheaper to get a monthly repayment and pay mileage after.
curiousyellowFree MemberPosted 7 years agoThanks for clearing that up! I did not know they would want their money back immediately, nor did I know they would settle the claim with the finance company and not the owner. That is strange. How do they stake their claim to the insurance? Do you have to list them as the owner when taking out the policy?
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