PCP and depreciation

[Velma's Dad]

Surely the question of what will (ICE) Cali resale value be in, say, 2025 isn't whether or not an EV Cali exists and is practical by then. Rather it depends on whether prospective used van buyers in 2025 believe that an EV Cali is, at that stage, just around the corner or still a decade away.

We can reasonably conclude that EVs are a threat to the future resaleability of ICE Calis, but the degree of that threat is imponderable.

But maybe we could ask ourselves a different question: if we knew that deprecation of a new Cali would be double the current rate (say, in effect, straight line down to zero over ten years) would we still buy one? I probably would.

 

[Johnboy]

Beware the PCP and the "flat rate" of interest. If a flat rate is applied to the finance, then it doesn't matter what the residuals are, you pay the same total. They could give you any residual but it makes no difference - you pay the same.

I did use our old skoda (on PCP) as a payment towards our new skoda. We had done less miles than the agreement so we got a bit of credit towards the new car (well they were trying to get another car sale....), conversely if you exceed the stated mileage the opposite would be true.


I recently checked my sons finance on his car - lo and behold his payments were £200.00 per month with a fairly hefty balloon payment - when I quizzed him it transpired they asked him how much he could afford per month.... and then they set the finance accordingly. I checked my other sons finance... it was the same.
When I bought my Cali I checked that I did not have a "flat rate" before I signed. It didn't matter any way because I was going to pay it all off after I received the £700 discount they offered.... however I did notice that the interest rate was double that offered by skoda. When I got the finance paperwork from Skoda it was a division of VW finance. So I felt VW owners were being taken for a ride.... high price vehicles = high interest rates.

Often you can get better deals from GoCompare.

I use a spreadsheet to check payments and interest rates before I sign - call me cynical if you like but I don't trust the money grabbing b4rs4rds with their "flat rate". It is rife in the auto market.

 

[ArunAlec]

Surely the question of what will (ICE) Cali resale value be in, say, 2025 isn't whether or not an EV Cali exists and is practical by then. Rather it depends on whether prospective used van buyers in 2025 believe that an EV Cali is, at that stage, just around the corner or still a decade away.

We can reasonably conclude that EVs are a threat to the future resaleability of ICE Calis, but the degree of that threat is imponderable.

But maybe we could ask ourselves a different question: if we knew that deprecation of a new Cali would be double the current rate (say, in effect, straight line down to zero over ten years) would we still buy one? I probably would.

Agree, it’s going to be down to the prospective used buyer’s perception of the future and with the growing climate of “anti diesel“ (Portsmouth, Bristol etc) I fear people will be less confident about spending lots on used Cali’s.

 

[Borris]

Why do so many use PCPs to aquire new vehicles? Yes, the customer drives away in a shiny new vehicle that otherwise he/she probably couldn't afford. However, look deeper and almost everything else is to the dealers/manufacturers advantage.

Unless you stump up a small fortune, you are tied to that contract for it's duration and even then you don't own the vehicle. Things get even more costly still if the strict conditions aren't followed. If you fail to service it correctly, damage it and/or exceed the annual mileage etc, the overall costs can soar. Since the vast majority of people will not have sufficient funds to pay off the final balloon payment/GFV then the dealers/manufacturers know full well that the customer will almost certainly opt to replace that vehicle with another shiny new one on yet another PCP.

Here's an article on PCPs that's worth a read:

Personal Contract Purchase (PCP) car finance explained

The personal contract purchase (PCP) is the most popular type of finance for both new and used cars in the UK. The Car Expert has the most comprehensive and independent guide to PCP car finance, to help you understand exactly how it all works.

www.thecarexpert.co.uk

The most startling thing about this article is the following paragraph:
"Despite its enormous popularity in recent years, research from 2015 found that a staggering 88% of men and 75% of women could not explain what a PCP was. A more recent study found that nothing has changed, with about 90% of people not understanding the fine print in their finance contracts".

I've always felt that PCPs are very little more than a racket. The above paragraph tends to bear that out. If the motor trade are flogging these contract plans to all in sundry knowing full well that most of their customers don't really understand what they are signing up to, then that is just what it is.

Having said that, I concede that buying a California on PCP with a view to long term ownership MAY well be a reasonable proposition due to it's incredibly slow depreciation. I really don't know as it's not something that I have ever looked into. However, for anyone contemplating this, it's worth considering the following excerpt from the same article. "Statistically, there’s about a 90% chance you won’t have enough cash available to pay off your balloon/GFV amount at the end of your agreement to keep your car, so you’d have to borrow more money to pay off the balloon. Yet you have already paid interest on the balloon amount, so you are paying more interest on that money all over again".

Regarding the future value of ICE Californias, well who knows? Personally I'm not that concernered about future depreciation for the following reasons:
1. I didn't buy any of our three Calis to date as an investment. I bought them to enjoy the lifestyle. The fact they depreciate slowly is a bonus but not the be all and end all.
2. I doubt if an Electric California will be available in the very near future. If I'm wrong and VW do pull one out of the hat, then will it be able to compete with the current van in terms of price, range, depreciation and more to the point practicality?
3. The vast majority of aspiring California owners won't be able to afford a EV Cali so the value of secondhand ICE Calis should remain firm.
4. I doubt if the average Cali owner enters inner cities much prefering instead to head for the wide blue yonder. I can't see why an ICE Cali wouldn't have a future outside of inner cities.

So if a PCP is your preferred choice to finance your van then for what it's worth, my bet is that there's no need to worry too much about a rapid drop in values of Californias.

 

[Euge]

Why do so many use PCPs to aquire new vehicles? Yes, the customer drives away in a shiny new vehicle that otherwise he/she probably couldn't afford. However, look deeper and almost everything else is to the dealers/manufacturers advantage.

Unless you stump up a small fortune, you are tied to that contract for it's duration and even then you don't own the vehicle. Things get even more costly still if the strict conditions aren't followed. If you fail to service it correctly, damage it and/or exceed the annual mileage etc, the overall costs can soar. Since the vast majority of people will not have sufficient funds to pay off the final balloon payment/GFV then the dealers/manufacturers know full well that the customer will almost certainly opt to replace that vehicle with another shiny new one on yet another PCP.

Here's an article on PCPs that's worth a read:

Personal Contract Purchase (PCP) car finance explained

The personal contract purchase (PCP) is the most popular type of finance for both new and used cars in the UK. The Car Expert has the most comprehensive and independent guide to PCP car finance, to help you understand exactly how it all works.

www.thecarexpert.co.uk

The most startling thing about this article is the following paragraph:
"Despite its enormous popularity in recent years, research from 2015 found that a staggering 88% of men and 75% of women could not explain what a PCP was. A more recent study found that nothing has changed, with about 90% of people not understanding the fine print in their finance contracts".

I've always felt that PCPs are very little more than a racket. The above paragraph tends to bear that out. If the motor trade are flogging these contract plans to all in sundry knowing full well that most of their customers don't really understand what they are signing up to, then that is just what it is.

Having said that, I concede that buying a California on PCP with a view to long term ownership MAY well be a reasonable proposition due to it's incredibly slow depreciation. I really don't know as it's not something that I have ever looked into. However, for anyone contemplating this, it's worth considering the following excerpt from the same article. "Statistically, there’s about a 90% chance you won’t have enough cash available to pay off your balloon/GFV amount at the end of your agreement to keep your car, so you’d have to borrow more money to pay off the balloon. Yet you have already paid interest on the balloon amount, so you are paying more interest on that money all over again".

Regarding the future value of ICE Californias, well who knows? Personally I'm not that concernered about future depreciation for the following reasons:
1. I didn't buy any of our three Calis to date as an investment. I bought them to enjoy the lifestyle. The fact they depreciate slowly is a bonus but not the be all and end all.
2. I doubt if an Electric California will be available in the very near future. If I'm wrong and VW do pull one out of the hat, then will it be able to compete with the current van in terms of price, range, depreciation and more to the point practicality?
3. The vast majority of aspiring California owners won't be able to afford a EV Cali so the value of secondhand ICE Calis should remain firm.
4. I doubt if the average Cali owner enters inner cities much prefering instead to head for the wide blue yonder. I can't see why an ICE Cali wouldn't have a future outside of inner cities.

So if a PCP is your preferred choice to finance your van then for what it's worth, my bet is that there's no need to worry too much about a rapid drop in values of Californias.

You’ve sort of answered your own question.
Many people want a vehicle but can’t afford the initial outlay.
Plus, if the vehicle is looked after, taking into account fair wear and tear, there’s a guaranteed buy back price from the dealer. Quite often dealers throw in free servicing etc if PCP is taken out, softening the financial hit.
I’ve had several vehicles over the years on PCP and it’s worked for me.
I’m sure we’d all rather had paid cash for our houses too but just as I choose to pay the bank an exorbitant amount of money every month to live in a quiet house in a reasonably nice neighbourhood instead of the 13th floor of a run down tower block, I prefer to drive a New Cali rather than than a second hand Jalopy.

 

[Euge]

Beware the PCP and the "flat rate" of interest. If a flat rate is applied to the finance, then it doesn't matter what the residuals are, you pay the same total. They could give you any residual but it makes no difference - you pay the same.

I did use our old skoda (on PCP) as a payment towards our new skoda. We had done less miles than the agreement so we got a bit of credit towards the new car (well they were trying to get another car sale....), conversely if you exceed the stated mileage the opposite would be true.


I recently checked my sons finance on his car - lo and behold his payments were £200.00 per month with a fairly hefty balloon payment - when I quizzed him it transpired they asked him how much he could afford per month.... and then they set the finance accordingly. I checked my other sons finance... it was the same.
When I bought my Cali I checked that I did not have a "flat rate" before I signed. It didn't matter any way because I was going to pay it all off after I received the £700 discount they offered.... however I did notice that the interest rate was double that offered by skoda. When I got the finance paperwork from Skoda it was a division of VW finance. So I felt VW owners were being taken for a ride.... high price vehicles = high interest rates.

Often you can get better deals from GoCompare.

I use a spreadsheet to check payments and interest rates before I sign - call me cynical if you like but I don't trust the money grabbing b4rs4rds with their "flat rate". It is rife in the auto market.

I might not be understanding the point you are making but surely residuals do matter. Assuming someone has the money to pay off the final balloon balance, the market value of the vehicle is relevant. You could be paying £15k for a vehicle that’s with £10k or in another scenario paying 15K for a vehicle that’s worth £25k.

 

[SimonK]

Only ever bought one car on PCP. Never again.

GMFV on our MINI JCW Convertible is a smidgen over £12k after 4 years. The car is now 18 months old and is in about £16k to trade in against any other brand as it is. We'll be handing it back to the finance company at the earliest opportunity because it'll probably be in negative equity until the end of the contract.

Going back to used cars in the future.

 

[Borris]

You’ve sort of answered your own question.
Many people want a vehicle but can’t afford the initial outlay.
Plus, if the vehicle is looked after, taking into account fair wear and tear, there’s a guaranteed buy back price from the dealer. Quite often dealers throw in free servicing etc if PCP is taken out, softening the financial hit.
I’ve had several vehicles over the years on PCP and it’s worked for me.
I’m sure we’d all rather had paid cash for our houses too but just as I choose to pay the bank an exorbitant amount of money every month to live in a quiet house in a reasonably nice neighbourhood instead of the 13th floor of a run down tower block, I prefer to drive a New Cali rather than than a second hand Jalopy.

Hi Euge,
My question was rhetorical.
I suppose views on PCPs depend on an individual's mindset in relation vehicle finance and ownership. As I've said, the case for a Cali on a PCP MAY be a good one. Anyway, as long as the system is working well for you then that's all that matters.

 

[Euge]

Hi Euge,
My question was rhetorical.
I suppose views on PCPs depend on an individuals mindset in relation vehicle finance and ownership. As I've said, the case for a Cali on a PCP MAY be a good one. Anyway, as long as the system is working well for you then that's all that matters.

Hi Borris, as Simons pointed out above, it works for some and not for others.
I must be one of the lucky ones.

 

[Euge]

Only ever bought one car on PCP. Never again.

GMFV on our MINI JCW Convertible is a smidgen over £12k after 4 years. The car is now 18 months old and is in about £16k to trade in against any other brand as it is. We'll be handing it back to the finance company at the earliest opportunity because it'll probably be in negative equity until the end of the contract.

Going back to used cars in the future.

If a brand new vehicle is paid for in cash it’s generally worth less the minute you leave the showroom with it so isn’t much different from negative equity.
As you say, the best way to save is generally to bye second hand or ex demo.

 

[Sunstoner]

So, I agree that EVs don't make sense for everyone yet, but I wouldn't be so certain that they never will.

They will eventually. It stands to reason, batteries will get smaller but go longer etc. I wouldnt be investing in an electric car for at least 10 years. Too soon for me personally from a technology point of view. However for those opting for electric cars now youre probably getting the best of it, in terms of cheap running costs.

Possibly in 10+ years time when the government starts losing ££s at the fuel pump they'll shift it onto some kind of electric tariff or some such. It wont matter if youre getting it via the sun at home. You'll be got moneywise somehow. Increase in council tax or some other scheme. They wont lose out. So you're winning right now if you own an electric car, if it fits your situation. But im not keen at all.

PS clean transport is definitely a good thing. Cant argue that. Well when it becomes clean that is. Shifting your CO2 output onto powerstations really doesnt count. But perhaps one day.

PPS. I've a friend who waits and waits for new tech and hardly ever buys because whats around the corner. I tell him, just buy now and be satisfied or you'll just never buy. #JustDoIt

 

[Sunstoner]

I’m not sure where he can buy a £30k conversion vw from either. I guess it’s £30k on top of suppling the van yourself.
Most conversions are near on the same price as a Cali and can even be higher!

and this is why im on the cusp of buying my first Cali! .

 

[Amarillo]

I've always felt that PCPs are very little more than a racket.

When we recently bought our Skoda Citigo, the dealer wouldn't sell us one unless we bought it PCP (well he would, but it would have cost us £2000 (~20%) more if we paid cash!) We succumbed and bought PCP, then cancelled the contract and paid off the loan as soon as the paperwork was all in our hands.

PCP is a legal scam. There is no way that becoming indebted to a car finance company should be cheaper than paying cash - in fact, I see PCP as a form of enslavement. So many people and up having to work for substantial periods of their lives to repay the capital and interest to the finance company.

 

[willwander]

....in fact, I see PCP as a form of enslavement. So many people and up having to work for substantial periods of their lives to repay the capital and interest to the finance company.

Haha, an old conspiracy theory of mine going back to my backpacking days.

Modern societies are based on debt enslavement, mortgage debt, student loans, cars, stuff etc. It is in the interest of governments to ensure we are all in as much debt as possible.

If we are all busy working to repay our debt we have no time to look around and question or demand change.

It subdues the masses and makes populations easier to control

Sorry to go all hippy on you ..but I own a camper van...an illusion of freedom, what do you expect.

 

[Velma's Dad]

When we recently bought our Skoda Citigo, the dealer wouldn't sell us one unless we bought it PCP (well he would, but it would have cost us £2000 (~20%) more if we paid cash!) We succumbed and bought PCP, then cancelled the contract and paid off the loan as soon as the paperwork was all in our hands.

PCP is a legal scam. There is no way that becoming indebted to a car finance company should be cheaper than paying cash - in fact, I see PCP as a form of enslavement. So many people and up having to work for substantial periods of their lives to repay the capital and interest to the finance company.

The chief business of car dealerships is now hawking credit, and indeed their workshop income stream also hinges on that (as PCP purchasers are usually 'locked in' to dealership servicing while cash buyers like me can use independents for servicing).

I find the whole business of changing cars dispiriting and deeply tedious, having to repeat until I'm blue in the face that I just want to make a bank transfer for the car at the agreed price, I'm just not interested in PCP, GAP insurance and the rest. I think I tend to hold onto cars for longer than I otherwise might because the whole process is such a bore.

 

[Elmo3]

Haha, an old conspiracy theory of mine going back to my backpacking days.

Modern societies are based on debt enslavement, mortgage debt, student loans, cars, stuff etc. It is in the interest of governments to ensure we are all in as much debt as possible.

If we are all busy working to repay our debt we have no time to look around and question or demand change.

It subdues the masses and makes populations easier to control

Sorry to go all hippy on you ..but I own a camper van...an illusion of freedom, what do you expect.

Companies as well. An old boss of mine, when hiring, would try at interview stage to work out which candidates were in the most debt. When he said jump, they’d ask how high.

 

[Amarillo]

Modern societies are based on debt enslavement, mortgage debt, student loans, cars, stuff etc. It is in the interest of governments to ensure we are all in as much debt as possible.

I see mortgage debt as a very different sort of debt to car finance. Unless you buy a new home, housing is usually an appreciating asset. That is a very significant difference.

 

[Velma's Dad]

Haha, an old conspiracy theory of mine going back to my backpacking days.

Modern societies are based on debt enslavement, mortgage debt, student loans, cars, stuff etc. It is in the interest of governments to ensure we are all in as much debt as possible.

If we are all busy working to repay our debt we have no time to look around and question or demand change.

It subdues the masses and makes populations easier to control

Sorry to go all hippy on you ..but I own a camper van...an illusion of freedom, what do you expect.

Not just a conspiracy theory, it's probably a fair way of contemplating modern economies. It's long been argued that the creation of the national debt from the 17th century onwards was a successful initiative by wealth-holders (ie those in political power) to generate a return by lending their money to the state. Once national debts had been max-ed out, after the Second World War, the invention of large scale consumer credit offered a new way for the rich to maintain returns on their capital assets.

I'm not a historian but keep meaning to read up a bit more on how that all came about. Or maybe I'll just go and paint some flowers on Velma.

EDIT: Just for fun... just found this. A little-publicised fact that taxpayers were paying right up until 2015 for the compensation paid out to slave owners at the time of slavery abolition in 1833. As always, It's The Rich Wot Gets The Gravy...

https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/680456/FOI2018-00186_-_Slavery_Abolition_Act_1833_-_pdf_for_disclosure_log__003_.pdf

 

[Elmo3]

I see mortgage debt as a very different sort of debt to car finance. Unless you buy a new home, housing is usually an appreciating asset. That is a very significant difference.

That may well be the case, but you’ve still got to service and repay the debt every month...

 

[Amarillo]

GAP insurance and the rest.

Our cowboy Skoda dealer made us sign five separate documents to say that we didn’t want gap insurance. What the hell was that about!? All we wanted was a car, five years warranty and pre paid servicing for four services. He was reluctant to sell us the extended warranty and at one point told us it wasn’t possible on stock cars. How can we have known more than him!?

Martin at SMG Tonbridge understood from the outset the type of purchaser we were when we bought Amarillo. A wholly different sort of buying experience.

 

[Velma's Dad]

Our cowboy Skoda dealer made us sign five separate documents to say that we didn’t want gap insurance. What the hell was that about!?

The dealership companies have persuaded their sales teams that it is an FSA compliance issue and they MUST get you (the prospective buyer) to sign to say that they've fully explained the 'benefits' of GAP insurance but that you are evidently financially reckless enough to put your new (or even used) shiny tin box onto the road without it.

I think the sales people actually believe this, bless.

 

[ArunAlec]

Our cowboy Skoda dealer made us sign five separate documents to say that we didn’t want gap insurance. What the hell was that about!? All we wanted was a car, five years warranty and pre paid servicing for four services. He was reluctant to sell us the extended warranty and at one point told us it wasn’t possible on stock cars. How can we have known more than him!?

Martin at SMG Tonbridge understood from the outset the type of purchaser we were when we bought Amarillo. A wholly different sort of buying experience.

Trouble is all those salesman watch The Apprentice as part of their training.

 

[Euge]

I honestly can’t see what the problem is with it.
Like any contract, whoever it might be with, do your homework on it instead of believing what your told by the seller.
I’ve paid most of mine off early and brought the overall cost down a bit, with money i knew I would be coming into recently but didn’t have two years ago when I set my heart on buying a van.
If you assume the vehicle isn’t going to be worth much more than the ballon payment when that becomes due, you won’t give yourself any surprises.

 

[willwander]

I see mortgage debt as a very different sort of debt to car finance. Unless you buy a new home, housing is usually an appreciating asset. That is a very significant difference.

Yes I agree, however for many, there is little hope of ever paying the mortgage off.

A perpetual debt serves a similar purpose to an Orwellian perpetual war.

 

[Keith Smith]

We "bought" a diesel SUV with PCP last year as a way of offsetting the risk that in three years time it may have lost most of its value. I'm treating it more like a rental agreement so the car doesn't really feel like it's ours. Not something I would like to do with the Cali but I think PCP can sometimes work in your favour if you weigh the options carefully.