Diesels, PCP and GFV

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  • Diesels, PCP and GFV
  • prawny
    Member

    Only if you think it really will kick off.

    I’ve just bought a new (to me) Euro 6 diesel, it was what was available at a reasonable price. I reckon the price of petrols are too high at the moment because of worry and limited supply in the second hand market.

    I’d get what you fancy and can afford and not worry too much. Tax on small diesels has already gone up nearly 4 fold this year anyway, I doubt they’ll hammer Euro 6s too much if at all.

    Premier Icon ourmaninthenorth
    Subscriber

    Er, you don’t have a”guaranteed future value”.

    It’s a notional concept used by the finance company based on its forward view of depreciation based on the assumed input factors (mileage, condition etc.). It’s got nothing to do with you as the end user.

    What you have is a finance agreement with a car attached. To keep your monthly payments low, there is a large single payment at the end.

    At the end of your PCP you typically have 3 choices:

    1. Pay your final payment and take full ownership of the car.
    2. Assess whether the trade in value of your car (determined by the dealer, not the finance company) is greater or lower than the final payment (aka positive/negative “equity”). Either use any positive “equity” as the deposit on the next PCP or, if negative, fund the difference to start a new PCP or take option 3….
    3. Voluntarily terminate your PCP deal, hand the car to the finance company and walk off. Note, you can do this any time after you have paid 50% or more of the amount t originally borrowed.

    At no time has anyone guaranteed to you that your car will be worth £X at the end of the PCP..!!!

    No wonder car finance is being investigated if these concepts aren’t generally understood by consumers taking on so much debt..!

    Premier Icon Kryton57
    Subscriber

    So my PCP on a ’63 120D ends next year. I consider myself lucky enough to have a decent Guaranteed Future Value set before all this talk of Diesel Tax etc.

    At 12000 miles PA with 75% motorway, it seems the obvious choice is to give the car back and look for a hybrid / petrol lease, rather than keep it and suffer the inevitable quick depreciation.

    Am I right?

    sarkmeister
    Member

    Er, you don’t have a”guaranteed future value”.

    It’s a notional concept used by the finance company based on its forward view of depreciation based on the assumed input factors (mileage, condition etc.). It’s got nothing to do with you as the end user.

    What you have is a finance agreement with a car attached. To keep your monthly payments low, there is a large single payment at the end.

    At the end of your PCP you typically have 3 choices:

    1. Pay your final payment and take full ownership of the car.
    2. Assess whether the trade in value of your car (determined by the dealer, not the finance company) is greater or lower than the final payment (aka positive/negative “equity”). Either use any positive “equity” as the deposit on the next PCP or, if negative, fund the difference to start a new PCP or take option 3….
    3. Voluntarily terminate your PCP deal, hand the car to the finance company and walk off. Note, you can do this any time after you have paid 50% or more of the amount t originally borrowed.

    At no time has anyone guaranteed to you that your car will be worth £X at the end of the PCP..!!!

    No wonder car finance is being investigated if these concepts aren’t generally understood by consumers taking on so much debt..!

    Get over yourself.

    My wife has a car on PCP, and it is called a Guaranteed Future Value on her paperwork.

    Premier Icon Kryton57
    Subscriber

    I knew all that thanks OMITN – as Sarkmeister says, thats what its called on the paperwork with the word “MINUMUM” attached.

    For sake of argument its £9.5k. My question really is that if I really wanted to keep the car I’d have to pay the £9.5k, but I’d not like to find out that the very next day a private sale means its only worth say, £7.5k.

    However, to give it back I’d pay nothing, even it it was ow in negative equity, so I could walk away without being hit by the depreciation.

    Premier Icon simon_g
    Subscriber

    At 12000 miles PA with 75% motorway, it seems the obvious choice is to give the car back and look for a hybrid / petrol lease, rather than keep it and suffer the inevitable quick depreciation.

    All depends on how inflated the GMFV / “optional final payment” was – the German manufacturers seem to like puffing them up to keep PCP payments low. If you like the car and the numbers make sense then can be worth considering keeping it.

    There’s some good lease deals going on things like the Golf GTE – had a quote the other day for one on a 6+23 lease at £225ish a month (albeit on 10k miles a year).

    FunkyDunc
    Member

    Hybrids get good mpg around town, there is no benefit on motorway driving if anything increased cost.

    The GFV is the amount they want you to pay to take ownership of the car, I would wait until nearer the time to see what happens to 120d values. If they fall through the floor you will be paying more than you could get a similar car elsewhere.

    The GFV never ever leaves you in a position where the amount of finance to pay to get the car is less than market value

    … you have asked all this before and had it explained !

    Edit : Just seen op’s last post. It’s very easy to see how much your car is wotth at any point i.e. Auto trader, guides, going to a showroom and seeing what they offer against another car.

    Just do your own research

    Edit 2: Personally I wont buy a diesel again because we do town driving, and its likely that towns will start to ban diesel or charge.

    servo
    Member

    For sake of argument its £9.5k. My question really is that if I really wanted to keep the car I’d have to pay the £9.5k, but I’d not like to find out that the very next day a private sale means its only worth say, £7.5k.

    As mentioned above, you will have to do some research before you could claim that your GMFV is ‘decent’.

    My own PCP runs out in 18 months time and I fully intend to buy the car out right. However, if blue cars suddenly become really unfashionable and undesirable then I might just walk away.

    Tallpaul
    Member

    Unless the value of the car is equal to or less than the GMFV, walking away at the end of the term is the worst option in financial terms (obviously).

    You won’t know what the value of your car is until nearer the time. But, bear in mind that the value is dependent on what you intend to do with it.

    BMW will offer you a sum as p/ex against a new BMW. Another marque’s dealership will value it completely differently (typically around the WBAG value). I private buyer will offer yet another figure. Then there’s its value to you under continued ownership – the fact you’ve already paid for the steepest part of the depreciation and that it’s a know quantity in terms of its history.

    prawny
    Member

    Edit 2: Personally I wont buy a diesel again because we do town driving, and its likely that towns will start to ban diesel or charge.

    This is the important part

    Euro6 engines are in the clear for now at least, but if you do a lot of town driving I wouldn’t get a diesel. I can’t remember the last time my car went into a town centre other than Cannock or Stafford, so congestion charging makes no odds to us. If I was driving to Brum on a daily basis I’d have a hybrid of some sort, not point in having a petrol, I’d be bankrupt in a couple of weeks, the official MPG on modern petrols are even more hopeful than the diesels.

    Premier Icon iainc
    Subscriber

    if diesel fits your driving needs get another diesel on a PCP. The joy of the PCP system is that as long as you haven’t abused the car, you just hand it back at the end of the term – walk away or enter a new deal for whatever suits your needs in 3 or 4 years – future proof and low risk.

    Premier Icon Kryton57
    Subscriber

    You forgot to mention saving top for a new deposit as its unlikely to end with equity.

    Premier Icon iainc
    Subscriber

    no, I didn’t forget. I don’t think many folk expect to have equity in the car at the end of the PCP, I certainly don’t.

    Saving for a new deposit, yes, just like saving for holidays, new TV etc, but that is not related to the choice of vehicle – it’s saving cash in the bank/ISA etc. If you are taking a PCP over 4 yrs, then putting away £30 a month covers the deposit.

    FunkyDunc
    Member

    You forgot to mention saving top for a new deposit as its unlikely to end with equity.

    Deposit should be absolutely minimal, we have never put more than £500 in to a PCP.

    Certainly don’t walk in saying you have s £1,500 deposit !

    P-Jay
    Member

    The think most people can grasp what a GFV means, it’s a no lose gamble – people are very anti-PCP all of a sudden, but if anything they’re too good to be true for the manufacturers, the current worry is VWFS, BMWFS et al are going to come unstuck when all these cars come back because they’re not going to worth the GFV – I dont think they’re too bothered though – mostly because if you set the prices of new cars yourself you can control the market – new car prices have lept massively in recent years – perhaps just to discount them back in form of “manufacturer support” for cheap PCP deals, plus the dealers are given enough wiggle room to keep you on the merry go around forever more.

    As for the OP I’m not sure a hybrid works that well at a constant motorway speed, they need breaking to recharge the battery.

    Premier Icon Kryton57
    Subscriber

    Deposit should be absolutely minimal, we have never put more than £500 in to a PCP.

    I believe i know why you said that – but just in case could you clarify? Because this just leaves you with higher monthly payments…?

    P-Jay
    Member

    ^^

    Personally I agree. I’ve never considered a PCP as ‘buying’ a car, it’s a long term rental. Whilst in theory (and practice a lot of the time) a greater deposit will reduce the payments – the dealers hold all the cards because they decide what the price is.

    Even if take them at their word, an extra grand deposit will reduce the payments by £20 a month over a 4 year term – I’d rather have the money in the bank.

    Premier Icon andy4d
    Subscriber

    Does a bigger deposit not reduce your your monthly payments plus mean your final payment due is lower, giving you your next deposit or mean buying the car out right is a lower final payment? Obviously not what you want to do if you are walking away but can mean less money to find at the end of your term.

    Premier Icon somouk
    Subscriber

    Your deposit makes no difference to the final value, it will lower your payments as you have to borrow less to reach that value.

    It’s a fine balancing game to get a decent deal on PCP.

    P-Jay
    Member

    Does a bigger deposit not reduce your your monthly payments plus mean your final payment due is lower, giving you your next deposit or mean buying the car out right is a lower final payment? Obviously not what you want to do if you are walking away.

    In theory it could – but you only get the use the money once – so if you just reduce the GFV then you’re wasting the best part about a PCP, the chance to wash your hands of a car that’s not worth when it’s expected to be.

    If you absolutely want to buy it out at the end, then PCP probably isn’t the right product for you – get a HP deal with or without a balloon, or just keep the grand in the bank to use towards the final payment – yes you’ll pay some extra interest (but money is ‘cheap’ at the moment and some PCP is 0%) but you get the chance to change your mind.

    Honestly and truthfully, if you’re the kind of person who wants to buy a car and keep it for a decade or until it’s either becoming a liability or just sick of the sight of it – don’t buy a new car, buy a good 2 year old car with a decent warranty from a good dealer and let someone else pay the massive intial depreciation.

    PCP is best for people who want a new car every 3-4 years (or less) I know it seems terribly wasteful and flash harry on tick to some people, but that’s what it’s for – you just pay for the bit of the value you want and give it back.

    It’s horses for courses – I worked in finance for 10 years, high end motors and expensive kit for business – the scope of my experience far exceeds anyone you’ll find working in a car dealer. I have never, not once, paid more than £4k for a car of my own, and I doubt I ever will. My current car is a company car.

    My wife on the other hand, has always had newish cars, she gets an allowance from work and needs a totally reliable car because of what she does, we PCP her car for less than her allowance and it’s a tool we rent.

    Premier Icon iainc
    Subscriber

    It’s a fine balancing game to get a decent deal on PCP.

    Ageed, and the higher the residual value, the lower the monthly payments, hence how it will often work out, with the same deposit, mileage, and length of contract, to pay lower monthly payments for an Audi, Merc or BMW, than an equivalent Skoda, Seat or VW, as the former have residuals significantly higher.

    Premier Icon Kryton57
    Subscriber

    she gets an allowance from work and needs a totally reliable car because of what she does, we PCP her car for less than her allowance and it’s a tool we rent.

    This is me. I have fallen for my 120d tbh whereas i didnt think i would. Not sure about other marques but BMW will apply pcp to nearly new cars.

    If i do carry on with this route – im also considering lease but you still need a deposit – im tempted to move to VW / Skoda as ill be turning the cars over before they get rattly.

    Thanks for the hybrid notes. Looks like ill stick with diesel then. The other reason to be tempted to buy mine is thats its £30 ved…

    Premier Icon ourmaninthenorth
    Subscriber

    For sake of argument its £9.5k. My question really is that if I really wanted to keep the car I’d have to pay the £9.5k, but I’d not like to find out that the very next day a private sale means its only worth say, £7.5k.

    In which case, you’ll only get more certainty on the crystal ball nearer the time. But you know that. In the meantime, just keep valuing it using Autotrader (for example) and track that against the total currently owing. Most PCPs only really line up towards the end – hence why the “GFV” (final payment) is set as it is: it’s designed to land slightly under the trade in value and so give the impression of equity you can use for the next car….

    Not sure about other marques but BMW will apply pcp to nearly new cars.

    Pretty much every used car can be bought on PCP. But it’s worth noting two things: (1) it’s usually much more expensive (often c10% APR) for the borrowing and (2) the market’s against you because of the way PCP has allowed manufacturers (and their in house finance arms) stitch up the “approved used” (i.e. With manufacturer warranty) market and carefully seed stock back into the market and keep used (and new) prices artificially inflated.

    FWIW I bought my current car with HP. I pay for Mrs North’s car on PCP. My next car (being built at the moment) is to be leased for 2 years.

    I do worry that the current level of consumer debt tied up in cars will prove the be problematic at a wider level when the next recession comes – as we all know, it’s all about the monthlies….

    Premier Icon ourmaninthenorth
    Subscriber

    Ifi do carry on with this route – im also considering lease but you still need a deposit – im tempted to move to VW / Skoda as ill be turning the cars over before they get rattly.

    Don’t think of it as a deposit on a lease: just like the people selling PCPs use the words “guaranteed minimum value” when they mean nothing if the sort, so “deposit” on a lease is equally misleading.

    Leases are usually 2 or 3 years (can be longer/shorter) for a set mileage. For that there’s a total amount payable. The way it’s often presented is, for example, as 3+23: 3 months initial payment followed by 23 monthly payments of the same amount covering a total term of 24 months.

    Say the monthly payment is £250, the that equates to 3 x 250 in month 1 then 250 per month thereafter. For the total term of 24 months that’s £6500 (i.e. 750 + 5750). In reality the effective monthly payment is 270.83 (6500 / 24) because it isn’t a deposit.

    The secret to leasing is to pounce on good deals when they come up: the car I’ve got coming is a Seat Leon Cupra 300 on a 1+23 @ £249 per month. I don’t have everything I’d like – e.g. Semi auto gearbox – but at that price I get a hot hatch for buttons and none of the aggro of my worn out 7 year old car. When it goes back in 2 years, I may or may not do the same.

    Have a look on the Pistonheads lease deals thread..

    Premier Icon Kryton57
    Subscriber

    Thanks

    Lots to think about – Mrs K needs a car first, and thats a hybrid/petrol SUV as its a shopping / school run veiclemwith occasional m/way. Probably only of those turbo’d 1.4 jobbies. She wants hers as a long term purchase.

    Need to think of my own options, obs.

    wobbliscott
    Member

    It’s a fine balancing game to get a decent deal on PCP.

    It’s a car. There is no such thing as a decent deal no matter how you fund them. They only ever cost you money. People think they get a good deal when buying cars, but they don’t, they only ever walk away with the deal the salesman wanted them to walk away.

    My view is that £x per month goes onto a car. If I buy its a case of funding by a small amount of cash from the sale of the previous car then using a loan to make up the difference for my next. Using this method I used to get a 3-5 year old car against a 5 or 6 year loan. Once the loan was up it the cycle repeated. For the same or similar outlay under PCP I get a brand new car every 4 years or so, and I don’t have to take the reliability and maintenance risk as the cars is under warranty and usually with a service package included. It’s a no-brainer really.

    Premier Icon iamtheresurrection
    Subscriber

    3. Voluntarily terminate your PCP deal, hand the car to the finance company and walk off. Note, you can do this any time after you have paid 50% or more of the amount t originally borrowed.

    I suspect this is probably what you meant, but for clarity you can hand it back once you’ve repaid 50% or more of the total amount payable under the agreement, includng interest and fees. It’s not 50% of the amount borrowed…

    P-Jay
    Member

    In regards to Voluntary Termination or VT.

    It’s your legal right but it is recorded as the VT on your credit file rather than “Settled”.

    It’s one of those things they’re not supposed to consider as a negative when underwriting. It’s mostly automated now – but if I was looking at a credit application and I see the last 2 vehicles they had ended in VT and they’re coming to use for a 3rd with a small deposit meaning asset security isn’t going to be great at the 50% mark, then I’d turn it down.

    Premier Icon Ben_H
    Subscriber

    I recently worked out that, over 16 years, I’ve spent an average of £350 on cars. That includes repairs, but excludes insurance and fuel. It accounts for direct purchases and company car payments.

    £350 per month sounds reasonable, doesn’t it? But… it adds up to £65,000 over that time.

    If I’d invested £350 per month over that period and returned 5% growth, that would be worth £103,000 today. (In reality, my investment returns have been closer to an annualised rate of 8%).

    There are lots of different ways to reduce car costs over the long term, including buying used cars, bangers etc. But even buying two really nice new or nearly-new cars (say, at £20k each) and keeping them for 7-8 years would have made a big difference – and allowed the rest to be invested.

    Just food for thought…

    Premier Icon scotroutes
    Subscriber

    £350 per month sounds reasonable, doesn’t it?

    Err, no. Not really.

    servo
    Member

    I compared the PCP and HP deals when I bought my current car. PCP was a lower interest rate and worked out a bit cheaper than the HP. I’m going to pay the lump sum off so I’m not really the ideal PCP customer but it worked for me.

    I did get a little bonus though. I had to wait 6 months in the end for the car and in the mean time the GMFV went down (maybe a new model will affect residuals) by £500.

    Because my monthly payment was agreed already, the only way to adjust the figures was to drop the car price by £500! So I ended up paying £500 less for my deposit! 🙂

    If I had gone for HP, nothing would have changed.

    prawny
    Member

    Agree with scotroutes to an extent, I’m currently paying the most I’ve ever paid per month for a car following a couple of poor/necessary decisions and it’s £275ish, up to a year ago I’d never paid more than £200 p/m.

    God knows how people can afford the PCP deals on new mercs and BMs. Baby boomers obvs 😉

    Premier Icon ourmaninthenorth
    Subscriber

    I suspect this is probably what you meant, but for clarity you can hand it back once you’ve repaid 50% or more of the total amount payable under the agreement, includng interest and fees. It’s not 50% of the amount borrowed…

    Yep..!

    I just track Mrs North’s PCP on a spreadsheet using thhe total cost of ownership to determine where I’m really up to on the payments.

    FWIW I always make sure Inpay every fee I can as cash, so only the main debt is then paid on the drip….

    cheers_drive
    Member

    If you can find a lease deal it’s usually much less than PCP (with the disadvantage of being tied in).
    You also sometimes get the option to buy. I got the option of buying my 2 year old, 15k miles, Skoda Octavia Scout for £15k, the new price was £24k, 2 years of leasing cost me £5500. I needed a bigger car (a Superb, which incidentally despite being nicer inside is actually not but larger boot wise) or else I’d have jumped at that.

    Premier Icon Ben_H
    Subscriber

    scotroutes – Member
    £350 per month sounds reasonable, doesn’t it?
    Err, no. Not really.

    I suspect that many “£250 per month” cars mentioned already here will cost a similar amount once deposits, tyres, servicing, tax, parking schemes, breakdown cover and any repairs are included.

    Some will be +/- depending on the car, and I accept that lease deals may lower the above and / or that my buying decisions may not have been the best. However, there will be plenty of people out there will an actual cost equivalent to at least £350 a month.

    Premier Icon Kryton57
    Subscriber

    God knows how people can afford the PCP deals on new mercs and BMs. Baby boomers obvs

    Well, mines £128 per month…

    God knows how people can afford the PCP deals on new mercs and BMs. Baby boomers obvs

    Maybe because the residuals are higher so they don’t actually cost much/any more than a Ford, Nissan, Pug etc on PCP? My mate pays more for his 308 than we do for our 1 Series and I paid similar for my old Focus.

    Premier Icon iainc
    Subscriber

    ^^^ +1. Mine is £40 a month less for same engine and DSG box in an Audi than it was going to be in a same or smaller sized Skoda.

    I was in a similar position to you recently OP and had the same fears about diesel.

    Options considered were:

    1- Trade the Kuga in for another Ford at the same garage where they would have ignored the slightly higher than agreed mileage and given me £1000ish extra towards a new one.

    2- Hand it back but probably get charged for the slightly higher mileage and expect every slight imperfection to be picked up.

    3- Get a low rate loan to cover the amount owed at the end of the PCP.

    Went 3 in the end as I didn’t really fancy anything Ford were offering this time and didn’t want to getting stung for extra cost if I went with 2.

    From my experience the GFV is always around PX price which gives them wiggle room to offer a better deal. The cars I have had seem to go back on the forecourt for 2k above the GFV so prices would have to nose dive for them to take too much of a hit.

    My plan is to get rid of the Diesel asap if things turn sour and I am now in a position to do so.

    prawny
    Member

    Where are these bargain new PCP deals? A new 3 series is over £300 5s getting on for £400 at my local dealer. I could have got a new 2AT for the same per month as 2 year old one I bought, but I’ll own this one after the same time, so was worth it.

    How much did you put down to get something for £128?

    Edit – New 320d GT on PCP is £500pcm with a £500 deposit. GFV is £13700.
    I’ll have one if I can get it for £128 😆

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