How to Buy a Gas Guzzler

[hawk20]

hawk20, thank you.


What I am buying is a C63 ( no other car involved ie. part ex)


The deal I have with MB PCP has the interest rate at an APR of 10%, that is the best I could wrangle out of them for this car, even on Saturday. Cheers
Mark.

Mark I would never take a PCP at 10% APR. That is daylight robbery. Get quotes from Lloyds TSB, the AA, Direct Line, Alliance and Leicester or try DrivetheDeal.com

Have you considered that you could get an S class for that money. And a deal from MB at sensible APR's and a guaranteed residual. Do you really want a car that can exceed every speed limit in the land while still in bottom gear? Does it make sense? Obviously your choice but thought I would mention.

Mind you I wouldn't touch a 6.3 with my own money nowadays. The residual will be appalling. But if a company is paying different ball game. Crazy company though.

 

[hawk20]

Yes I would always encourage people to invest wisely. Any sums not used in a car deal could work better for you in a high interest account. Problem is there are plenty of other calls to spend our money and before you know it the PCP GFV has to be met.

I know two people who were in PCP deals and both of them have a bitter taste having left these deals. Sorry, can't remember the specific details.

It depends on your own mindset. For me, I still believe cash is king and being on a finance contract which either leaves me with nothing or taking out another contract is not a good idea.

Fine. Whatever turns you on, as they say. But while I can borrow at a lower rate than I can invest, I will go on doing so. Luvly jubbly. And if someone is prepared to guarantee the rate of depreciation on a new car, and give me a big discount and a subsidised interest rate, then as an economist I am afraid I simply cannot resist.

 

[mw_C32]

Mark I would never take a PCP at 10% APR. That is daylight robbery. Get quotes from Lloyds TSB, the AA, Direct Line, Alliance and Leicester or try DrivetheDeal.com

.

Correct they (MB) wont budge so I wont take it, hence the loan.

Have you considered that you could get an S class for that money. And a deal from MB at sensible APR's and a guaranteed residual. Do you really want a car that can exceed every speed limit in the land while still in bottom gear? Does it make sense? Obviously your choice but thought I would mention.
.

Not even entered my thoughts to get an S... maybe in 10 years time. Nearly every car sold today can exceed the speed limit its just that I like the way this one might--do it!!! Besides it not just about speed, for me its a deisgn icon, a sound beacon, and just something special...

Mind you I wouldn't touch a 6.3 with my own money nowadays. The residual will be appalling. But if a company is paying different ball game. Crazy company though.

Good job I own it then.

The way I figure it is to get the company to pay for mileage used on this car which just so happens to be about £10k per year. 40% of which would normally go to the tax man.

M.

 

[hawk20]

Given that the govt is daft enough to let companies tax deduct the cost of gas guzzlers, while clobbering low income people with 7 year old Zafiras, who can blame you. Enjoy.

Are ther no competitive PCPs around? Because large petrols are apparently becoming almost unsaleable so that some underpinning of depreciation would be nice. What GFV did MB offer?

 

[mw_C32]

Given that the govt is daft enough to let companies tax deduct the cost of gas guzzlers, while clobbering low income people with 7 year old Zafiras, who can blame you. Enjoy.

Thanks I will, Hmmm! yes I agree with your 2nd statement, not right at all

What GFV did MB offer?

Er, £32000! see previous posts.

M.

 

[hawk20]

Thanks I will, Hmmm! yes I agree with your 2nd statement, not right at all



Er, £32000! see previous posts.

M.

Well that is pretty tremendous. Presumably after 2 years. I'll go back and look at your figures. I tried to keep to Scumbags figures while trying to get over the logic of PCPs.

Let me give you a true tale of woe. Friend buys E55 in 2006 with the trimmings it came to around £68k. ONE YEAR LATER he struggled to get £34k for it in part ex against another new Mercedes and nobody else got near that figure. Depreciation on big petrols is horrendous. And this was before petrol rushed up from $70 to over $140 dollars per barrel and before darling Darling raised VED rates.

Interesting question: is it worth paying 10% on a PCP to get that guaranteed residual? I'm thinking.

 

[hawk20]

Anyway, if I was on PCP I would still be in the car I didn't like very much. HP is much more flexible and IMO that flexibility usually makes up the "hedge" of the GMFV afforded by a PCP

You simply cannot generalise. What you say is not true of the MB offers on the website at the moment. They are pretty remarkable deals.

The PCP you were offered was awful. You don't say the APR but that will usually tell you most of what you need to know. High APR usually means lousy deal. The MB offers are all under 6% APR. Excellent value. And a good discount and really good GFVs as well. That is the 3 bits to look for.

In fact, in many ways the PCP is more flexible. After 3 years you can walk away and do not have to sell a car in order to start afresh. Or you can buy the car at the GFV value. Or you can part ex against a new or a secondhand car. You can hardly get more flexible than that. As the song says, 'put a hundred down and buy a car'. Works for some.

 

[timskemp]

Do you really want a car that can exceed every speed limit in the land while still in bottom gear? .

Doesn't everyone?

 

[hawk20]

Mark: - First the figures you give are price £55k, deposit £18k and payments 24 at £500. You say they give you a GFV after 2 years of £32,000 (which is way above what I expect the market to give in two years time). But the APR they tell you is 10%.

First I assume you have to pay an admin fee of £180 and an option to purchase of £95. If that is so, the law requires them to include those costs in the APR. I have done so and I get the APR to be about 11%. Ask them to check. Even if they agree to waive those charges I still calculate the APR to be about 10.6% (varies a tiny bit with when exactly the payments are made).

Is it a good deal?
First I need you to confirm: -
I reckon you are paying £7,000 in interest payments plus £180 admin and 95 option to buy –a total of £7,275. Please confirm

In this PCP deal you are paying £12,000 in monthly payments (which include the £7,000 of interest) and are paying £18,000 deposit. You also pay £180 admin with the first payment and £95 option to purchase if you decide to buy after two years.

Basically with this PCP deal you are borrowing at nearly 11% APR but you are getting an excellent guaranteed residual. I assume you have got a good buying price as well?

CLEARLY the question is: does the excellent GFV justify you paying nearly 11% APR to borrow money?

The second deal is a straight loan. You say you are leaning towards this deal. I would not do that if I were you. Again the APR is nearly 11% (I’m assuming an admin fee of £180) and you get nothing for that except a loan. Surely your company can borrow for less than that. If not try the names I listed earlier who lend at 8% or less to buy cars.

Outright purchase gives you a rate of return on your capital of nearly 11% since it will save you the payments you have listed. Unless you can invest elsewhere at a better rate or need the money in your business that looks very attractive.

Now back to the PCP for a second. If you decide to borrow at around 11%, or cannot get funds cheaper and cannot sensibly buy for cash, then I would grab the PCP deal. Solely because the guaranteed final value is way above what I think you will get in the open market on such a huge petrol engine.

How much are you paying over the odds in interest to get that guarantee? Not a lot it turns out. Apologies if this is getting a bit complex. But the answer is near. I reckon that even if you could borrow at a sensible mortgage rate of 7.5% you would end up paying about £5,000 in interest on the PCP deal instead of the £7,000 you have been offered. So at the worst you are paying £2,000 in extra interest to get the residual guaranteed. In these very uncertain times, I would happily take that.

So to conclude: the PCP is better than the loan you’ve been offered. And to me the PCP is even better than a loan at 7.5% as you remove the risk of the market value of this car being disastrous in two years time. They are offering you a residual that is 58% of the price you say you are paying. Grab it say I unless you have cash to buy outright and you are happy to take the risk on depreciation.

 

[scumbag]

Hawk

I don't mean to be rude but I have already done mw-c32's figures in post 86 if you would like to check them for accuracy.


however I do have to question this bit.

In fact, in many ways the PCP is more flexible. After 3 years you can walk away and do not have to sell a car in order to start afresh. Or you can buy the car at the GFV value. Or you can part ex against a new or a secondhand car. You can hardly get more flexible than that. As the song says, 'put a hundred down and buy a car'. Works for some.

Please explain how you can do that..

If you buy the car cash, you have its market value throughout your ownership period so you can indeed part ex.

If you borrow by loan you have the market value of your car throughout the period of ownership, providing you don't default on the loan.

under PCP you never own the car unless you pay the GFV, And by using the example figures that MW-C32 supplied, and you assertaion that it wont be worth anywhere near that, you have no equity whatsoever to part ex with.

Now the question still remains, How is this beneficial? It costs you more over that term, to use PCP using the figures supplied. Walking away leaving them with the car id an extremely daft idea. You have indeed paid for something which you no longer benefit! and you still need to fund another car.

I am sorry I am struggling to get this, but when its written down in simple terms, it just does not add up. unless, as I stated before. you are only interested in lower monthly payments at the expense of the cost of ownership, or you are not able to fund the car outright and this gives you a means to an end. This is another way of saying you are buying above your means!

It seems to me that PCP are delusional and that they are only for people who need to buy a car that they otherwise would not be able to do, and are happy to give it back as they don't have the money for it in the first place.

One would assume that these cars would not be looked after and therefore would not be good second hand buys!

and to save you looking here is post 86.

Copied my old post and added in new information.


I have tried to put it in my terms given the figures you have supplied.

Option 1.

Cash, cost £55k, 2 years time, car worth market value. No interest earned and none to pay. Accordingly GFV £32k means £32k for a new car

Option 2.
HP or Loan. Price £55k. Deposit £30k, £25 to finance over 24months. No interests earned on £30k, interest to pay on £25k and car worth market value.
Accordingly GFV £32k means £32k for a new car
Cost of borrowing £27183.84. + £30k = £57183.84. (plus cost of no interest on £30k deposit).

You can borrow this on APR OF 7.2 %.




Option 3. PCP.
Cost £55k
Deposit £18k, finance interest on £37k, capital payments on £5k. 2 years time car needs £32k to own, or give back. No money for new car. ( plus Loss of interest on £18 for deposit.)

previous information had £500 x 24 =£12000. Plus £18k = £30k and £32k for GFV =£62000. if you want to keep the car, or £30k and have nothing for a new car.


So cash means you lose interest on the whole lot but have a car worth £32k.
Cost is £55k minus any saving you manage to scrap together in the 2 years.

HP means you pay out £57183.84, have a car worth £32k and £2000 in interest. So thats just over £55k costs with this option.


and pcp means you pay out £30k, have almost £3k in interest and no car, or pay out £62k, have almost £3k interest and have a car worth £32k. That means its cost you just over £59k for this option.

is the PCP worth £4k just to have lower payments?

or am I missing something again?

 

[Rory]

You simply cannot generalise. What you say is not true of the MB offers on the website at the moment. They are pretty remarkable deals.

....

The MB offers are all under 6% APR. Excellent value. And a good discount and really good GFVs as well. That is the 3 bits to look for.

The question is: Why are MB offering those "remarkable deals" - in a fit of generosity? Unlikely.

And, as someone else has already mentioned, on the larger cars the deals are only being offered on diesels, so wouldn't help your ex-E55 driving friend. If he'd have got a PCP quote before he took the car them it's likely the predicted GFV would have been as horrendous as the p/x value.

 

[hawk20]

The question is: Why are MB offering those "remarkable deals" - in a fit of generosity? Unlikely.

And, as someone else has already mentioned, on the larger cars the deals are only being offered on diesels, so wouldn't help your ex-E55 driving friend. If he'd have got a PCP quote before he took the car them it's likely the predicted GFV would have been as horrendous as the p/x value.

Who cares why they are offering them? The point is they are. And they are good value if you happen to want to buy one of the cars on offer.

And if you want a gas guzzler like a 4x4 or large car where you are scared by the possible depreciation it makes a deal of sense.

 

[hawk20]

Scumbag, my earlier posting deals with Mark's problem. Back to yours:

You say: -
“Please explain how you can do that..

If you buy the car cash, you have its market value throughout your ownership period so you can indeed part ex.

If you borrow by loan you have the market value of your car throughout the period of ownership, providing you don't default on the loan.

under PCP you never own the car unless you pay the GFV, And by using the example figures that MW-C32 supplied, and you assertaion that it wont be worth anywhere near that, you have no equity whatsoever to part ex with.”

• Yes if you buy for cash you own the car and can part ex it later.
• Yes if you do HP you eventually own the car and can part ex it.
• This is where your problem is. Yes, you have no equity (in simple terms but see below). BUT as I keep saying that is because you have not paid for any equity. You get what you pay for. PCP is much cheaper. You only pay the depreciation over 3 years, and interest on capital.

And with PCP if you like changing every 3 years and having a brand new car under guarantee, then you can. And you have no bother with a car to sell first, which if it is a gas guzzler, may prove difficult to sell at any reasonable price.

BTW you may have some equity via PCP. Often the car –at least in the past- has been worth more after three years than the PCP. The surplus can be put towards your next deposit.

Oh and if you don’t want to trade every three years, you don’t have to. You can buy at the GFV. Or go off and buy another make. Very flexible. Because you have bought no equity you can walk away.

P.S. Please let's stick to your figures (the £15k car etc) and not move on to Mark's. Yours are simpler and easier to understand and I have too many spreadsheets going! And Mark's is complex because he is not comparing like with like. In the PCP he borrows a totally different amount from the loan deal. I show in an earlier posting one way to deal with his problem.

 

[Rory]

Who cares why they are offering them? The point is they are.

It matters because people are being manipulated into financing a car in a way which may not suit them, or be best for them.

There's a very good reason why it's being done, and that's to maintain the rolling new car every 3yrs cycle. Not everyone will renew at 3yrs, but enough do to make it worthwhile for MB.

And they are good value if you happen to want to buy one of the cars on offer.

Hmmm...better value might be more realistic new car pricing. I know you'll no doubt reproduce MB's accounts, but if they're making next to nothing selling cars, then how come they can afford these heftily subsidised PCP deals?

 

[hawk20]

I know you'll no doubt reproduce MB's accounts, but if they're making next to nothing selling cars, then how come they can afford these heftily subsidised PCP deals?

Rory, the economics of car production and selling are very complex. Most make very little money -even if you won't believe it.

But who cares? We are not trying to solve the economic problems of MB and others. We are simply looking at buying cars at the prices on offer either with cash, or HP or PCP.

Anything I write here is for intelligent adults who are capable of deciding whether or not they want to change cars every 3 years or keep them for longer.

 

[st4]

Anything I write here is for intelligent adults who are capable of deciding whether or not they want to change cars every 3 years or keep them for longer.

I think that's what separates the PCP buyers from the cash buyers, is the notion of a definite change every 3 years or not. My old man PCP's a Porsche Boxster but not his other cars as its the porka he wants to change at set intervals.

 

[hawk20]

I think that's what separates the PCP buyers from the cash buyers, is the notion of a definite change every 3 years or not. My old man PCP's a Porsche Boxster but not his other cars as its the porka he wants to change at set intervals.

Interesting point.
In addition, think of it another way. The PCP (provided it is a good deal) turns everything into an anuual cost. Instead of needing big wads of capital and then finding your car is worth miles less than you expected and will cost a bundle to change -instead of that you get honest accounting. You pay each year all the depreciation and the interest on capital. Sort of pay as you go and no nasty surprises.

 

[st4]

Interesting point.
In addition, think of it another way. The PCP (provided it is a good deal) turns everything into an anuual cost. Instead of needing big wads of capital and then finding your car is worth miles less than you expected and will cost a bundle to change -instead of that you get honest accounting. You pay each year all the depreciation and the interest on capital. Sort of pay as you go and no nasty surprises.

HP is a bit like that, but the depreciation is stored up @ the end come PX time.

And again, the method of budgeting that you've given does usually suit the sort of person who changes their car at fixed intervals and wants to be able to plan their budget effectively, and that leads into the sort of person who knows how much they'll drive their car and the milliages associated with it. And again suits them as there are no surprised whatsoever with a PCP albeit maybe a pleasant one if the car has equity in it after the term (i.e. its worth more than the GMFV).

Usually then PCP will suit someone on a steady/secure income (eg employee of a decent sized company) and is not really suitable for someone who's income/circumstances fluctuate dramatically (eg self employed builder).

 

[hawk20]

I agree with your points ***. PCP suits another two categories though IMO. People who have savings and could pay cash, but who see that the current MB deals are so good that it is economic to do the PCP and keep your cash invested.

And people who want to buy a large engined car, or just a large car, but think as I do that the residuals will be awful and so want the safety of a guaranteed residual.

But they need to be secure in income and meet your other requirements too.

BTW has anyone checked whether we are all right in assuming the offers are mainly on diesel cars. I see it says on the website that similar offers are available across the E class range.

When I bought the A's the examples on the website were just the A150 but I discovered you could do similar deals on all A's. Might be worth checking if someone wants a petrol version.

 

[scumbag]

And people who want to buy a large engined car, or just a large car, but think as I do that the residuals will be awful and so want the safety of a guaranteed residual.

.

But you don't have any safety net. Irrespective of whether we use my or Mark's figures, clearly PCP works out dearer over the whole term if you wish to keep your car.

It also works out dearer if you wish to purchase a new car at that time, as you don't have any equity on your car if you have PCP'd it. And here I am using your example of a car that will potentially retail at less than the GFV.

At the end of the term, you have paid the interest on the full amount, you have deferred payment until the end of the term, and then you either walk away from something you have paid for but not benefitted for, or you fork out the money at the end, and by doing so it costs you more overall.

I am sorry, I do not yet see why this way makes it cheaper other than for the reasons I have already stated. That being you cannot afford this car any other way other than to offload a significant proportion of the cost. Cost that you cannot afford otherwise you would not follow this route.


And, I am sorry to bang on about this, where is the depreication in actual money terms. where can I actually see what it does to these deals to make them any different to what we have already said?