[Closed] 0% PCP deals - Any catches?

The mileage limit penalties only kick in if you hand the car back. We intend keeping ours so it isn't an issue.

How about the damage assessments? Do you also have to take out gap insurance?

My 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.

Gap isurance is optional, but general seems to be thought of as worthwhile. Not from the dealer though, www.ala.co.uk or the STW go-to for a fraction of the price (i need to sign up myself)

What is the insurance for? I thought you insure the car for what it's worth so you're covered.

But if your insurance co. and the dealer disagree what that value is?

That's what you insure.

A 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.

I see. Thanks for the info.

Does it help to just have the money in cash to cover the shortfall instead?

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.

Or replace it with another nearly new / low mileage that has also had it's first 20% depreciation?

So 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?

The 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.

So if you have cash to cover the remaining payout then you're ok. Got it.

So 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.

shop 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

Does 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...

Ex demos I've seen are not much cheaper.

If 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.

Yes - 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.

Sorry 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.

You 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 😉

Read 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).

Thanks @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.

GFV 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.

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.

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.

If using ALA for GAP insurance either get it via Quidco or insert the code 'PISTON12' for discount! (from Pistonheads forum!)

[I]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. [/I]

You need to go back and actually read what was originally posted when you asked about GAP insurance, but ultimately it's your call.

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.

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.

@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?

They'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.

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.

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.

@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?

A 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).

@wzzzz

First 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.

A 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.

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...

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.

Slight 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

And 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...

We 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.

@TheLittlestHobo

Thanks 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?

Booked a test drive for this weekend.

Anything I need to watch out for on the hard sell? Already know about Gap insurance and things like glass protection or whatever it is. Is there anything you can ask for to sweeten the deal? Free servicing, floor mats etc?

Most reputable car insurance companies will pay out the purchase cost of a new car in the first year, I'd check with yours to see if they do the same. Also check if that covers cars on pcp as you may not "own" it.

Then buy gap insurance for 12 months less than the pcp term from whoever has the best deal within a month of buying the new car and defer the policy start date until the car is one year old.

This saves you a year of gap insurance premiums

curiousyellow - if you HPI any car it shows up wether there is finance showing on it. I dare say ins companies will do this in the case of total loss claims. The V5 can show your name, the invoice show your name etc etc. But we have all seen enough of them police programmes where the previous owner had finance on the car, sold it and then failed to settle the finance. Thats pretty much what not settling the finance on a car that has been written off amounts to.

So either you declare it when the car is written off and send a copy of the finance settlement to ins co to settle. Or they pay you and you settle. Either way, finance company will want settlement.

Anything I need to watch out for on the hard sell? Already know about Gap insurance and things like glass protection or whatever it is. Is there anything you can ask for to sweeten the deal? Free servicing, floor mats etc?

Simplest thing is don't sign anything on the day. And if you've already decided on a make and model of car get a price from at least 2 dealers.

IME - there is little room for bargaining on these PCP type deals though. You may get deals if you take a spec or colour they have in stock rather than a built-to-order car.

muffin man is right. The PCP deals tend to be manufacturer led. They support them with mega bucks deposit contributions because they have the highest return rate but in return the dealer has very little to play with. You may time it right that they are desperate for numbers so get it below cost but how much is usually not a lot. If you feel the dealer is looking after you, then that may be worth a few hundred quid more than driving 100mls each way to get a car from a faceless competitor.

Dont be shafted though. Again, compare the price (People on here usually come up with amazing price comparrisons), then see what the best deal you can get from the dealer you feel most comfortable with. Even better, do your homework before you go in for the test drive, see how you feel and then you would be in control of any conversations. As a salesman, i always prefer to deal with someone who knows what they want but is reasonable enough to realise its better for everyone to be happy, they are always the best deals.

@captmorgan
It's a used car, but I will check to make sure how much they will pay out in the first year.

@TheLittlestHobo
Any tips on how/where to check HPI? I can google it, but if you have any recommendations then please let me know 🙂

@the-muffin-man
Will do. My research on prices is based on Autotrader searches for the same make/model. I believe there is some wiggle room because there are similar models with additional features (safety pack) around the same price. I was going to see if they could at least throw in some services, fuel, floor mats etc to sweeten the deal if I can't get a discount on price.

It's a used car, but I will check to make sure how much they will pay out in the first year.

The car you are looking at buying on PCP is used?

How used? I would only get a PCP if I get to hand the car back when it is still under warranty and doesn't need an MOT

Less than a year. Is it normal for the dealer to not want to discuss finance over the phone? If they pull any bait and switches then I will leave immediately.

Is it normal for the dealer to not want to discuss finance over the phone?

Yes - they'd rather have you sat in front of them. You're more likely to buy if you can see the lovely, shiny new car across the forecourt! 😀

Haha! I thought that! It would be good to know exactly what they can offer before I pop down though. Is it not normal to have PCP on nearly new cars? Not averse to a straight finance deal as long as terms are right.

Is it not normal to have PCP on nearly new cars?

Nearly new - yes. But it would have to be really low mileage and nearer 6 months old than a year old for me. I wouldn't take nearly new over more than 3 years either.

The main idea of PCP is you can get into a [b]new[/b] car cheaply.

Is it not normal to have PCP on nearly new cars

Yes they are about.

Regardless of how you finance the car you need to be looking at the total cost.

Personally if I was leasing (which a PCP is) I would want a new car.

Go in knowing how much you can get finance for on the high street.

Plus if the car is nearly new then I can not imagine PCP will much if at all more expensive on a new car. Main dealers like to shift new cars so you can tend to get better deals on them.

Of course you are looking at exactly at the wrong time at the start of a financial quarter...

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.

Hang on, I take offence at any implication of dishonesty.

The right to withdraw without penalty within 14 days is there in black and white on the finance agreement.

The salesman was well aware I was going to do this as I specifically asked about the wording of this section when negotiating.

I don't care what the dealer thinks of me! He pushed the deal through before the end of the month to get his sales target bonus. We both win.

Don't forget folks, you can always overpay your finance to reduce the cost to you (obvs makes no difference on 0%).

@FunkyDunc
When is the end of the quarter? September month end?

As per my insurance - they pay out full market in first year so GAP not necessarily needed if 0%.

Privilege.

Buy GAP for year 2+ online. Don't let the monkeys build it into your quote automatically, as they will posh wax treatment. It's a new car FFS , why does it need a treatment on top of its factory finish!! And then, do it yourself.

PCPurchase is not leasing.

PCHire is.

RE: Mileage on PCP, if you're covering more miles than you had intended, is it worth contacting the Finance Company before the end of the contract and having the payments adjusted?

I'm 2 years into a 4 year PCP on a fiat 500 (I know) and I'm now doing at least 12k miles pa due to a change of work, in our little 'run-about' car that was on an agreed mileage of just 5k.

Also the finance is 10k, the car now worth 6k... and looks like I'm too late to GAP insure it as I've had it 2 years now. In the event of total write off do I need to find 10k immediately? Or could I buy another equivalent value run about and just continue the finance? I know this has been covered but I couldn't quite grasp the gist of it.

In all honesty I'm counting down the days until I can get rid of it, but financially I think I'm stuck with it for a long time yet.

1/ depends on what your mileage excess is. So your 4 year limit is 20K and you're now on for what, 40K. That's 20000 say at maybe 8ppm = £1600. Plus you might need to check your paperwork, in case there's a clause for massively excess mileage.

2/ Finance might be for 10K but you've already paid 'half' of it off so you actually only owe 5K (not exactly true as you usually pay more interest initially, but you will have paid off at least some of the capital) There might still be a gap between what you owe and what it's worth but it won't be as high as the total finance.

3/ You need to read the T&C's carefully. You might be able to just hand it back and cancel the deal if you have paid a certain proportion, and if you haven't caned the mileage yet the excess might be manageable, whereas in 2 years time at +7K py extra it won't be. You'll lose the deposit you paid and have nothing to show for it but weigh it against having to pay a big excess mileage at the end.

4/ Or you can let it run and then buy the car with the final GFV payment. You'll be paying over the odds for the car because it'll be substantially higher mileage but then again you'll have been underpaying on a monthly basis where you've been devaluing it through extra mileage.

At the end of the day the PCP deal is car price = deposit + monthly payments + final payment*; if you underpay on one then you'll have to make it up elsewhere, and the * bit is that if you don't want to pay the final payment to own the car you can hand them back a car with the miles and condition you agreed it would be in at that point. Hand them something ragged and shagged and expect to be shafted in return.

Thanks for that info - based on that I'll have a good pick through the documents this weekend, for some reason 12ppm rings a bell but not 100% on that. It was bought without due care and attention on my part frankly, just handed in my old fiat and drove off in a new one, but times have changed drastically and I have to be much more careful with the £££ these days. Outstanding finance is currently 10k (total was 14k), car value is £5200, so a potential £5k shortfall if it got totalled is worrying, on top of excess mileage concerns. I might park it up on a relatives driveway, and go buy a £500 px'er from one of the dealerships I work for! Literally kicking myself, but as they say, live & learn.

Ordered the car yesterday. Really grateful to everyone who has helped me understand what I'm getting into! Now I play the waiting game.

What did you order in the end?

We've just taken delivery of my other half's new MINI on a PCP - it basically reduces her fuel bills and fixes her monthly motoring costs. Her 330 had a drink problem as it wasn't suited to her short trips and was due tyres. Plus on an older car there was the risk of something going pop. When we bought that it was the right car but things change. I know there is the depreciation argument but she wasn't interested!

I used a broker to get a price and the nearest dealer wouldn't entertain the fact that there were discounts to be had whereas the dealer from the same chain near my office matched the broker's deal and got my order. They were pretty good to deal with - listened when I said no to stuff like their paint protection etc. We did order near the end of the quarter and I think they needed / wanted out car in that quarters figures because they sent a transporter to the factory to get it a week earlier.

I don't think they expect us to see the deal through because they've already said that they'd call us in two or three years time. I don't really have an issue with it as I'm not likely to keep a car forever (boredom).

We did look at leasing but it didn't seem to be cheaper even when factoring in lowish mileage.

Mazda 6 Tourer.

I used a broker too (Carwow, thanks to someone who posted here!). I tried two dealers who couldn't match the price I got through the broker. I'm after as much car as I can get for as little money as I can spend from a quality manufacturer.

Hope this helps

jimwah - Member

RE: Mileage on PCP, if you're covering more miles than you had intended, is it worth contacting the Finance Company before the end of the contract and having the payments adjusted?

[b]Usually yes it is worth letting them know. As you are on a PCP then its calculated on a final value which tbh will be less now that you are doing more miles. I have seen these range from 6-12ppm. Easier to pay this in increased monthly payments rather than one big lump at the end. One way or another it will need to be covered unless you buy the car at the end. The good part of that is the fact that for every penny it raises your monthly, it should reduce the final payment by this much too[/b]

I'm 2 years into a 4 year PCP on a fiat 500 (I know) and I'm now doing at least 12k miles pa due to a change of work, in our little 'run-about' car that was on an agreed mileage of just 5k.

Also the finance is 10k, the car now worth 6k... and looks like I'm too late to GAP insure it as I've had it 2 years now. In the event of total write off do I need to find 10k immediately? [b]Yes you would need to settle the finance. You cant just continue the finance on something else[/b] Or could I buy another equivalent value run about and just continue the finance? I know this has been covered but I couldn't quite grasp the gist of it.

In all honesty I'm counting down the days until I can get rid of it, but financially I think I'm stuck with it for a long time yet.

[b]Finally, because you are a private individual you sign a contract which is called a Regulated agreement. Basically this means it has a few protections built in for joe public. A couple of them are 1/2's & 1/3rds. Once you have paid 50% of the total agreement (Including interest and charges) then you are, by law able to hand the vehicle back to the finance company without any issues to your credit worthiness. So i take it you have another £3k to go before you reach this position. £14k/2= £7k. £10k-£7k=£3k. Painfull to get out of tbh because i reckon your payments will be about £200 per month so thats most of the balance of your payments over 2yrs (Especially when you factor in the higher mileage you are doing will increase them payments /reduce final payment). There isnt right or wrong answer but you are going to end up having to pay on your monthlys or at the end. I would prefer monthly tbh. Then hand it back and walk away.[/b]

My wifes car was a fiat 500 on pcp. Got 0.3% finance rate and the final payment was based on car doing 20,000mls per annum when in fact it did 5000mpa. Think it was about £2500. Car was £10500 and i paid £10594.50 in total including the finance.

Cheers for taking the time Hobo - I sat down at the weekend with my calculator to figure it all out. After some deliberation I have extended out an existing loan to clear the finance on the car, I intend to sell it, and then pay back the majority of the loan extension.

The shortfall between car value on the private market (while it has relatively low miles and good condition) versus outstanding finance is much more bearable than any other option. I guesstimate this will be about £1.5k ish hopefully, versus £3k expense for halves, or running it for another 2 yrs + excess miles (£1500 in itself by my calculation). Actually my immediate monthly outgoings will look a lot rosier for now - none of it is ideal but this seemed like the best option from a bad lot.

I've laid it on a bit thick at work re: new baby etc and I'm being considered for a company car, probably a little Fabia or maybe an Octavia if I'm lucky - fingers crossed!