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You certainly did on the CLC deal - the £3K deposit means the real residual is more like 40% than the 60% you trumpted.

A high GFV % is easily achievable as the CLC deal demonstrates, because you've effectively already paid a chunj of the depreciation in advance!! How mad is that?
Oh dear. Rory, best will in the world , you have got this all upside down, inside out and in a real bugger's muddle. PCP's may seem complicated but they need not be if you grasp the basic facts.

1. The deposit you pay does not affect the residual.
2. The residual on a PCP is the GFV (the guaranteed final value) -at least!
3. The residual MAY be higher if at the end of the 3 years (or whatever period you choose) if the dealer offers you a higher value in part exchange. But it cannot be less than the GFV.
4. What you pay for on a PCP is depreciation that will occur over 3 years (up to a maximum of whatever you pay for the car minus the GFV). AND
5. You also pay interest on capital borrowed at the APR rate they must show you.

So in effect you are buying over 3 years, say, half the car. If it loses half its value in 3 years, you pay for that -and you pay interest on the loan. You do not pay the whole cost of the car as you would on HP.
6. Where I think you are confused is that what you pay is not just the payments but also the deposit. The easiest way to allow for this is to say that the annual cost to you of buying the car is the sum of one third of the deposit (on a 3 year deal) plus the monthly payments. And the total cost to you over 3 years is the 36 payments plus the deposit (plus of course any arrangement fees etc).

That is it. No smoke. No mirrors. What you pay is what they tell you- a deposit and the monthly payments. What you get is what they tell you - a new car for three years for the payments shown. At the end you can buy the car for the GFV, or refinance it, or part ex against a new one, or walk away with nothing more to pay.

It does exactly what it says on the tin. If it didn't the FSA, 'Which' magazine and all the finance sections in quality papers would tell you so.
 
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1. The deposit you pay does not affect the residual.
Of course it does, or at least it could - all the elements of a PCP deal are flexible, within limits set by the (usually manufacturer owned) finance company.

Earlier you wrote the following:
Worth looking at the great PCP deals on the MB website for the new CLC. Only 6.9% APR and GFVs not far short of 60% of new price.

Now, that limited presentation of the facts is not wrong, but that's an example of why I *hate* percentages.

In round figures the £20K CLC has a GFV of £12K. There's your 60%.

**But** that makes it look like you only lose £8K. The reality is that the £3K deposit required means you've lost £11k, and, worse, that £3K was paid right at the beginning, not even amortised over the 3 years.

So, the **real** GFV is £9K (and a fair bit less if you count the loss of interest over 3yrs on the £3K up front deposit).


I know you don't think this, but a lot of people think they somehow get that deposit back - they genuinely don't realise that as soon as they hand it over it's gone.
 
I have always aunderstood that the GFV is fixed. In fact, it's not, because the dealer can play with it a bit), but let's assume it is.

If the car is £20k and you put down £3k, you then need to finance £17k. If the GFV is £12k (all as in Rory's example above), that leaves £5k to finance over the three years (plus interest on the full £17k).

If you put down £5k deposit, then the GFV is still £12k, so now you only have to finance £3k over the three years, and therefore your monthly payments are lower.

Rory said:
**But** that makes it look like you only lose £8K. The reality is that the £3K deposit required means you've lost £11k, and, worse, that £3K was paid right at the beginning, not even amortised over the 3 years.
But you don't lose it, the car does. If the car drops in value by £8k over three years, then you have to finance that £8k, in a combination of deposit and repayments. The deposit is not in addition to the cost of the car
 
Rory, Nearly all you have said here is wrong. IMADOOFUS is right in what he says. The deposit does not affect the residual.

The residual on the MB website is 60%, like it or not.

The cost of the car over 3 years is just exactly what I say in my posting -it is the deposit plus the monthly payments (plus any admin fees if separate). SIMPLE. No need to complicate it.

If you put down a deposit of £3,000 and make payments of, say £2,000 per year for 3 years then the car costs you £9,000 over the three years. Or £3,000 per annum. SIMPLE.

There is no fiddle, no smoke and no mirrors except in your mind.

Trust me: take a third of the deposit and add on twelve monthly payments and that is what it costs each year to own the car for three years.

Or take the deposit and add on 36 monthly payments and that is the total it costs you over three years. Divide by 3 for an approx annual cost.

Then add VED, insurance, fuel, servicing, tyres etc ........
 
A PCP with high GFV is both a good and a bad thing.

Good, because it reduces monthly payments.

Bad, because if it's too high and you want to keep the car at the end you're going to have to pay more than market value for it.

PCP is a good thing if you want to finance your car and don't want to run a risk with the depreciation. You know what its going to cost over the term.

I s'pose you can define depreciation in many ways, but I think the std approach is to use list price and the value after n years.

Your actual experience of depreciation may vary because of discounts, extras added and so on.

When buying you have to consider your situation, expectations, attitude to risk and the deals being offered. Sometimes PCP will be the way to go and sometimes it won't.
 
'Depreciation' also includes an element for profit margin/warranty/etc. unless you are both buying and selling privately. This is not time-based; buy a car from a dealer and sell it next day ... you will not get back what you paid. This isn't depreciation as such.
 
If you're happy to take a £5k hit annually to fund a car purchase then I guess its a reasonably safe way to buy in the current climate.

I simply couldn't justify this sort of expense on a car. Not when you can run the same car (albeit a 3 year old) for around a fifth of that money.

Hey, I'm still driving the same car I purchased approaching seven years ago that cost me a paltry £2000 and its still a better drive than most cars on the road today. :bannana:
 
I s'pose you can define depreciation in many ways, but I think the std approach is to use list price and the value after n years.

.

Agree with much of what you say.

I accept that predicted residual values are normally expressed as a percentage of list price and that’s fine for getting the likely residual value. If list is £20k and the predicted residual is 50% then the predicted residual is £10k.

However, list price is not the right thing to use for calculating your own actual depreciation. What matters is what you actually paid for the car, regardless of what the list price was. So if you buy a car for £2k off list, the predicted depreciation on your car is £20k-£2k -£10k=£8k.

On high GFVs. If the dealer sets it way too high, fine, you pay less and walk away after three years. If you really want to buy the car, you will have more to find --but will have paid less over the first 3 years
 
If you're happy to take a £5k hit annually to fund a car purchase then I guess its a reasonably safe way to buy in the current climate.

I simply couldn't justify this sort of expense on a car. Not when you can run the same car (albeit a 3 year old) for around a fifth of that money.

Hey, I'm still driving the same car I purchased approaching seven years ago that cost me a paltry £2000 and its still a better drive than most cars on the road today. :bannana:
You must compare like with like. You cannot take a 3 year old Astra and compare with a new E class, of course. So being an MB forum, my examples will all be MB cars.

On a new car you will lose about 50% from list if it is a popular model Mercedes with not too many extras. But you will get a discount. So if you buy well and choose well you can keep depreciation to a bit under 50% of list over the first 3 years.

He who buys 3 years old, a good example with full MB service history from an MB dealer with a 12 month warranty as I would definitely choose, will pay at least 50% of list price and over the next 3 years will see the car go down -on average -- to about 15% of new list price. So they lose about 35% of list over 3 years. Yes, they lose less. But they will probably have more bills. I shall do 30k miles in the first 3 years on each of my A's. From my brother's records (which I posted) I shall need two services, no new tyres, no pads, no discs, no exhausts, no ATF to change, and so on. I agree the guy buying 3 years old PROBABLY saves money compared with buying new, but nothing like as much as many claim. And having new every 3 years is worth something as is the peace of mind of a 'good as gold' warranty.

By the way my cars do not cost £5k p.a. in depreciation etc. The payments are under £2,500 p.a and the deposit was £3,000. So that's about £3,500 p.a. AND that includes interest on the £20k of car. With a PCP I do not need to provide that £20k of capital and can leave it invested (most can easily earn about 5% net of tax so that's £1,000 per year off the costs).

The really cheap way to run a car is to buy older than 3 years old and be lucky with repairs........

Or buy a make that depreciates a lot more rapidly than a Mercedes so you pay much less for a 3 year old one.

But I want MB and prefer new or nearly so, and peace of mind.
 
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I have always aunderstood that the GFV is fixed. In fact, it's not, because the dealer can play with it a bit), but let's assume it is.

If the car is £20k and you put down £3k, you then need to finance £17k. If the GFV is £12k (all as in Rory's example above), that leaves £5k to finance over the three years (plus interest on the full £17k).

If you put down £5k deposit, then the GFV is still £12k, so now you only have to finance £3k over the three years, and therefore your monthly payments are lower.
That's one way of doing it, but PCPs can be cut many ways - in fact Honda have a 12mth PCP on Jazz at the moment for £5 per month. It's done by having a more or less 50/50 split of deposit and GFV and a very low APR.
But you don't lose it, the car does. If the car drops in value by £8k over three years, then you have to finance that £8k, in a combination of deposit and repayments. The deposit is not in addition to the cost of the car

Think of it this way:

On the CLC deal (roughly £20K car, £3K deposit, £12K GFV):

You go into the dealer and you have no money, but the dealer wants a £3K deposit, which you pay. So you're -£3K.

You run the car for 3yrs and at 3yrs the GFV is £12K. You're still -£3K in the bank but you decide to buy it, so now you're -£15K.

If the GFV stays the same then same if you paid £5K deposit, except now you're -£17K.

All the £3K/£5K deposit did was it reduced your monthly payments as there was less to finance.
 
That's one way of doing it, but PCPs can be cut many ways - in fact Honda have a 12mth PCP on Jazz at the moment for £5 per month. It's done by having a more or less 50/50 split of deposit and GFV and a very low APR.


Think of it this way:

On the CLC deal (roughly £20K car, £3K deposit, £12K GFV):

You go into the dealer and you have no money, but the dealer wants a £3K deposit, which you pay. So you're -£3K.

You run the car for 3yrs and at 3yrs the GFV is £12K. You're still -£3K in the bank but you decide to buy it, so now you're -£15K.

If the GFV stays the same then same if you paid £5K deposit, except now you're -£17K.

All the £3K/£5K deposit did was it reduced your monthly payments as there was less to finance.

Rory I don't know your specialist subject is, but it sure as heck isn't finance.
1. Nobody will sell you a Jazz for £5 per month. That would be £60 per year. Either there is a huge deposit to pay as well or a big amount owing after a year, or something. Cannot make sense can it?

Now the CLC deal. It does not cost you £3k deposit plus £12k residual. It costs you £3k deposit and 36 monthly payments.

Then if you want to buy it outright you pay the GFV.

If you put down a bigger deposit, the 36 monthly payments will fall because in your example you have put down an extra £2k up front. You will now pay in total the £5k deposit, the new lower 36 monthly payments and then can decide whether to buy, or part ex or walk away. If you buy you pay the £12k GFV in your example. More deposit =lower monthly payments.
 
Just been to Honda site. Here are the facts. It is not a PCP deal but hire purchase. It is not £5 per month but is as follows: -

To buy a car for £9177 you pay
FIRST £4,593.50 up front deposit
SECOND 11 monthly payments of £5
THIRDLY 1 final payment of £4.613.50

Total paid £9,262

Fine if you want to buy the whole of the car over just one year -and can afford to do so. Then you own it and you take the risk on depreciation.

But PCP over 3 years gives much lower outgoings and no need to buy the car outright. And you take no risk on depreciation.
 
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Your figures are seriously skewed hawk.

On a typical C class, over 3 years you'll likely lose £15k+ on a PCP deal. If you buy a 3 year old car, you could lose as little as £4k over the same time period. Look at autotrader... there's plenty of 3 year old mercs being advertised for less than a third of their original purchase price. Buy for 8k, drive for three years and sell for £4.5k...

BTW, I also drive Mercs and not an Astra so I speak from real world Mercedes experiences and for what its worth, newer isn't always better... I'll stick with my W124CE anyday over one of the newer more temperamental, less reliable rustbuckets.

[ducks and runs for cover] :D
 
Your figures are seriously skewed hawk.

On a typical C class, over 3 years you'll likely lose £15k+ on a PCP deal. If you buy a 3 year old car, you could lose as little as £4k over the same time period. Look at autotrader... there's plenty of 3 year old mercs being advertised for less than a third of their original purchase price. Buy for 8k, drive for three years and sell for £4.5k...

BTW, I also drive Mercs and not an Astra so I speak from real world Mercedes experiences and for what its worth, newer isn't always better... I'll stick with my W124CE anyday over one of the newer more temperamental, less reliable rustbuckets.

[ducks and runs for cover] :D
I think we went round this circle once before in postings with numbers in the 60's and early 70's.
 
Yes but you had your head in the sand at the time. :D

Anyone would think you sell cars or something the way you keep praising these PCP deals. :confused:
 
Rory I don't know your specialist subject is, but it sure as heck isn't finance.
1. Nobody will sell you a Jazz for £5 per month. That would be £60 per year. Either there is a huge deposit to pay as well or a big amount owing after a year, or something. Cannot make sense can it?
I've seen that you can now see that it does. The final payment is optional, so it's just the same as PCP.
Now the CLC deal. It does not cost you £3k deposit plus £12k residual. It costs you £3k deposit and 36 monthly payments.

Then if you want to buy it outright you pay the GFV.
...so then it *does* cost you the deposit plus the GFV plus the payments?
If you put down a bigger deposit, the 36 monthly payments will fall because in your example you have put down an extra £2k up front. You will now pay in total the £5k deposit, the new lower 36 monthly payments and then can decide whether to buy, or part ex or walk away. If you buy you pay the £12k GFV in your example. More deposit =lower monthly payments.
There's a neat graphic on the Honda website, which illustrates how the various components of a PCP *inlcuding the GFV* can be varied. Pay more deposit and the GFV goes down. http://www.honda.co.uk/car/finance/personalFinance.html

There *has* to be a reasonable amount to finance, because that's where the profit is for the manufacturer.
 
I've seen that you can now see that it does. The final payment is optional, so it's just the same as PCP.

So, to own a Jazz for one year will cost you over £4600 if you don't make that last payment. Thats 50% depreciation in one year.

This is not a good deal.

If you do pay the final amount you've effectively had an interest free loan of 50% of the list price for one year, worth, say, £300 to £400.

Wonder if that's a good deal? Doesn't sound like a big discount.
 
I've seen that you can now see that it does. The final payment is optional, so it's just the same as PCP.



There *has* to be a reasonable amount to finance, because that's where the profit is for the manufacturer.


Nowhere does it say the final payment is optional on the website I visited and it would be a complete nonsense if it was optional as you would then have paid for over half the car's value in one year just to give it back and own nothing!:) What is that, even on your way of looking at these things? FIFTY per cent plus depreciation in one year.

As to your point that there 'has to be a reasonable amount to finance as that is where the profit is made for the manufacturer' -well that is hardly the case on the Honda deal where the finance is provided at 1.9% APR is it? And the MB deals are typically under 6%. Less than LIBOR. You have it the wrong way round. OFTEN the finance deal is subsidised to make profit on other parts of the operation.

As for your other points you need to go back to your postings around 80-82 to see what you were saying before and which I have already answered.
 
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Anyone would think you sell cars or something the way you keep praising these PCP deals. :confused:
I'm not praising PCP deals, so much as trying to refute unfair criticism of them and trying to clear up some frequently held misconceptions so that we fairly see their good and bad points.

They are not a 'man for all seasons' but they are sometimes very beneficial to some people provided the price is right.
 
Nowhere does it say the final payment is optional on the website I visited and it would be a complete nonsense if it was optional as you would then have paid for over half the car's value in one year just to give it back and own nothing!:) What is that, even on your way of looking at these things? FIFTY per cent plus depreciation in one year.
Of course it's a complete nonsense - I posted it to indicate the extremes to which these deals can go to.

It is noted in the details the the final payment includes an option to purchase fee. It doesn't really matter whether it a PCP or HP deal, you can walk away when you've paid 50% of the outstanding balance anyway.
As to your point that there 'has to be a reasonable amount to finance as that is where the profit is made for the manufacturer' -well that is hardly the case on the Honda deal where the finance is provided at 1.9% APR is it? And the MB deals are typically under 6%. Less than LIBOR. You have it the wrong way round. OFTEN the finance deal is subsidised to make profit on other parts of the operation.

Again - Exactly. The finance arm buys the car at transfer pricing anything up to 40% lower than the list price. That's why the finance arms of the main manufacturers are often the only part of the company that makes money. These things are a way of smothering the ridiculous list prices of cars here and the more they're used, the more they help maintain those high new car prices.
 

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