[moonshine]

Forgive me for re-posting this - i initially posted it in an existing thread on whether PCP ever worked out well, but the question seemed to get lost in wider discussions on the merit (or otherwise) of PCP so i thought i'd ask it stand alone thread

Answers on the back of a postcard!

A question re depreciation and GFV and how this relates to likely values of cars in3 or 4 years for the forum.
Take a 335xD Touring with options with a £49K list price, which discounts to say £40K otr.
The BMW GFV is quoted at
• 3yrs/ 30K miles is £20,400 3yrs / 36K miles is £19,700
• 4yrs / 40k miles is £16,800, 4yrs/ 48K miles is £16,100
When considering depreciation, would you agree is pretty much standard to write off “extras” costs as nice to have and increase the saleability of the car but add little to the value (however the absence of certain options like satnav or leather on a premium motor could seriously damage the value). What would the basis for a depreciation calculation be? The list price of a basic model (at £42K), the discounted price of the motor OTR (£40K) or the discounted price of a basic car OTR (say £37k)
See below for examples


I guess the question is how closely do we reckon the BMW GFV tallies with the actual value of the car if it were to be bought & traded in against another motor at the 3/4yr end point. I appreciate the BMW GFV bears no real bearing on reality except to BMW at time to trade, but the overall idea is to leave the PCP holder with some equity to take on to the next car purchase / lease
Would it be unreasonable to expect / assume the actual value of the car (or the price offered by the dealer at the end of the contract) would be say a couple of grand greater than the GFV? If we take this assumption, would it be unreasonable to draw the following “conclusions” / or estimates?


Discuss....

The other question is how much is a readonable PCP deposit & how much is too much?
I'd be looking at my car as a PX @ £6.5k

[nordberg]

I think a lot depends on what you do with the car at the end of the term.

If you sell it privately, you will more than likely attract more buyers if you have a well kitted car. You can also expect to get more money for it over a basic spec providing you attract the right kind (knowledgeable) buyer.

If you take to a BMW dealer and trade it in, you MAY get some extra pennies for some of the options fitted to the car.

If you decide to trade it in for another marque - expect the value to be based purely on the headline. Eg, they will look at the value of a 3 yr old 335d MSport in CAP/Glass and that's it. They don't care about options.

It's an interesting question... When I started looking, I was looking to PCH my car. Soon into the process, I found that I could PCP it for pretty much the same price. On further investigation, I found that the GFV offered on my car was substantially less than the trade price of a current 3 yr old equivalent model. In theory, this means I should have some equity in the car in 3 years time. In reality, I'm not banking on it...I took the gamble and the gamble equates to £500 over 3 years (£500 made up of the the difference between PCP and PCH over the term), so I figured it was worth a punt.

[HighlandPete]

In my view there is a lot of guessing when we look 3 - 4 years ahead into the future car market. GFV at least gives you a minimum figure to work with. I would personally see any balance at trade-in as a bonus, as values can depend on so many factors at the time. Glut in the market, timing of model changes, how our particular model has been received into the market over the 3 - 4 years, etc..

As to the deposit, I see it that if your own money can earn more (at low risk) than the interest paid during the PCP, then a small deposit is appropriate. But if we are more concerned with keeping monthly payments down, (a multitude of reasons why we may see that an advantage), we may want to make a higher deposit, particularly if we have cash available not earning much interest.

HighlandPete

[davyk31]

Most dealers I spoke to reckoned on a deposit around 20% of the car cost, this gives you a decent chance of not being in negative equity or at least not too far in the early stages.

[nordberg]

Originally Posted by davyk31

Most dealers I spoke to reckoned on a deposit around 20% of the car cost, this gives you a decent chance of not being in negative equity or at least not too far in the early stages.

I don't really see any correlation between the deposit size and equity - negative or otherwise??

[Waitey]

I will be selling privately at 3 years old. Best all round compromise for me.

[NISFAN]

Originally Posted by nordberg

I don't really see any correlation between the deposit size and equity - negative or otherwise??

Deposit only affects monthly payments, it has no effect on equity as you rightly say.

[Tengocity]

Originally Posted by nordberg

I don't really see any correlation between the deposit size and equity - negative or otherwise??

You are correct. What a large deposit would help with is not owing more on finance than it is worth. Either way if you sell a car soon after you bought it new, expect to lose a heap of value! Everyone knows that though!

The trade in value of your motor to a dealer will also depend on whether they will sell it themselves as an approved used or whether it gets punted to a trader. A car going to trader gets straight book value, but something nice they can sell themselves that won't need much money spent on it (to bring up to approved used standards), and they can price higher due to spec or miles, will give you more negotiation room.

[moonshine]

Originally Posted by nordberg

I don't really see any correlation between the deposit size and equity - negative or otherwise??

This simplified table shows my understanding on the effect of increacing deposit. For simplicity I have assumed 0% APR so no interest is paid on the loan.

[nordberg]

Originally Posted by moonshine

This simplified table shows my understanding on the effect of increacing deposit. For simplicity I have assumed 0% APR so no interest is paid on the loan.

Yes - no effect on equity....

[moonshine]

I guess that if you put down a substantial deposit and asked for a settlement after say a year, you might lose say 8k, so be £2k in surplus, whereas putting £5k deposit in would leave you with a £3k shortfall.. The loss would remain the same at £8k tho.