[Porscha!]

Right, before I start no I'm not turning into the dark world of new cars LOL (after sitting in a brand new M3 today I wish I could afford it though!)

Today I was helping my best friends mum purchase a brand new Z4 (not an interesting one just a 2.0ltr Sport with a few options) anyway she has decided on doing this BMW PCP deal, which is apprantely set to 5.5% flat.

The quote was as follows:
BMW deposit contribution - £1000
Discount - £1000
Equity from old car - £1000 (this is on a four year HP, three years into it.)

£498 pcm x 36 months with a GFV of £13000 (just over) you normally break even after two year on a three year PCP so she worked out by putting no money in and swapping after two years she will pay - £11,952

With £1000 cash deposit it bought the payment to - £466 which after two years she will have paid - £11,184 an will have in essence lost £262! So it is cheaper for her to put no cash deposit in whatsoever!

Is this the best way to finance a new car? It certainly is the cars I sell (Peugeots) as the finance is only 5.9% APR! Thinking about it, I think it probably is with the BMW too, as the car will lose the £4000 VAT as soon as it steps out the showroom, so in actually depreciation to break even buying cash the car would lose £3976 per year in depreciation, I personally think the car would lose more. Not to mention most people haven't got circa £28000 lying about but most have got a few hundred pounds per month.

Sometimes it makes driving, owning, modifying and maintaining a couple of old car seem insane. How much cars cost me, I could have a brand new one for dare I say it, less!

[CrimsonRedE93]

Its easy to get the PCP and get a new car, the thing to consider is what you will do at the end of the PCP.

Are you ok with keep paying the same PCP amount for the next car after you hand back after 3 years or do you want a deposit for your next car?

Avoid buying brand new if you can, 6-10 month old cars can save you a lot of money which works well if you dont keep them that long anyway.

[Porscha!]

Originally Posted by CrimsonRedE93

Its easy to get the PCP and get a new car, the thing to consider is what you will do at the end of the PCP.

Are you ok with keep paying the same PCP amount for the next car after you hand back after 3 years or do you want a deposit for your next car?

Avoid buying brand new if you can, 6-10 month old cars can save you a lot of money which works well if you dont keep them that long anyway.

That is probably true for BMWs as you lose the substantial amount of VAT as soon as it comes out of the showroom! The cars I sell it's all different and it is cheaper to buy new (due to the 5.9% and massive discounts!) Do BMW offer the same rate of interest to a new as well as a used car though?

My best friends mum that is all she ever does, always had cars on finance, so PCP is certainly the best option for her.

I on the other hand after working out have spent in the last year circa £8500 on my old cars (taking into account, buying and selling them (depreciation), Maintainance, MOTs, Servicing and Modifications) keeping in mind I have at least two cars at one time and not taking into account increased fuel consumption over a new car or insurance costs.

If working out monthly I spend around £708.33 on cars which I can hardly believe myself as some months it's nothing the next month its a massive bill. Perhaps I coul afford that E92 M3 after all? LOL!

[CrimsonRedE93]

I think the rate is the same for new and used (as long as the value is not drastically different).

They will drop thier rates if pushed but they are still expensive, I found the best choice was to buy outright which will save about 6K in total.

Make sure you don't use thier total loss insurance you can get it for about £120 for 10K cover BMW want at least 3 times that.

I went to 3 different dealers until I found one which would try and do a deal on every aspect, the first one nearly laughed at me when I suggested making it a better deal for me

[Porscha!]

Originally Posted by CrimsonRedE93

I think the rate is the same for new and used (as long as the value is not drastically different).

They will drop thier rates if pushed but they are still expensive, I found the best choice was to buy outright which will save about 6K in total.

Make sure you don't use thier total loss insurance you can get it for about £120 for 10K cover BMW want at least 3 times that.

I went to 3 different dealers until I found one which would try and do a deal on every aspect, the first one nearly laughed at me when I suggested making it a better deal for me

Unless you got a fantastic deal I really don't see how you are saving £6000, due to depreciation though if you aren't planning on changing your cars anytime soon, I suppose you will save! Though changing your car every two years what depreciation you will lose will make up (and even maybe a little more) for the interest.

GAP Insurance is a joke at BMW I did tell her that, they were wanting near on £500 for it! Considering I sell it for £199, I just said don't do it LOL!

From what I've seen if BMW dropped there rates to about 4% flat, you have actually got the best deal on the PCP, so long as you get a good discount too.

The only new BMWs I would want are the E92 M3, the Z4M Roadster or that 135i Coupe has got to be a laugh, would be extremely expensive to finance anyway (135i Coupe due to probably shocking residuals, Z4M and the new M3 are a small fortune to buy anyway!)

On a sensible point of view a new or nearly new car does make sense though

[CrimsonRedE93]

I found a 15K gap insurance for 3 years for £143 which is really worth doing with a large outlay.

My 6K saving was a combination of inital discount, much better trade in value and basically switching from a PCP to a better method as I do change cars a lot and know I will lose money in the long run but I will lose less

You should have a good advantage being in the trade though.

[CD]

Originally Posted by CrimsonRedE93

I found a 15K gap insurance for 3 years for £143 which is really worth doing with a large outlay.

dont get GAP confused with Short fall insurance .. actually lets not go there its confusing

[Raggie]

Porcha, as you sound like your in the trade, can you maybe help me with something?

You mention the VAT on new cars, and the dealer loosing ths amount on the sale, well my personal circumstances mean I am swaping my car after 14 moths of ownership.

Trading in exisitng car (thats on a PCP), taking VAT into consideration, the price I paid at the time etc, the dealer is buying back my car at a a figure of about £1500 more than he got for it the first time?

Now I am getting a small discount on the New car but not as great as last time, with the trade in during the negotiation I was looking at the montly and the cost to change, more than the relative price of new and price of trade in.

But I am curious how do they square the accounting side, with the same vehicle going through the books, buying it back at more than they sold it.. (if you subtract the vat)?

[NFS]

Originally Posted by Porscha!

Right, before I start no I'm not turning into the dark world of new cars LOL (after sitting in a brand new M3 today I wish I could afford it though!)

Today I was helping my best friends mum purchase a brand new Z4 (not an interesting one just a 2.0ltr Sport with a few options) anyway she has decided on doing this BMW PCP deal, which is apprantely set to 5.5% flat.

The quote was as follows:
BMW deposit contribution - £1000
Discount - £1000
Equity from old car - £1000 (this is on a four year HP, three years into it.)

£498 pcm x 36 months with a GFV of £13000 (just over) you normally break even after two year on a three year PCP so she worked out by putting no money in and swapping after two years she will pay - £11,952

With £1000 cash deposit it bought the payment to - £466 which after two years she will have paid - £11,184 an will have in essence lost £262! So it is cheaper for her to put no cash deposit in whatsoever!

Is this the best way to finance a new car? It certainly is the cars I sell (Peugeots) as the finance is only 5.9% APR! Thinking about it, I think it probably is with the BMW too, as the car will lose the £4000 VAT as soon as it steps out the showroom, so in actually depreciation to break even buying cash the car would lose £3976 per year in depreciation, I personally think the car would lose more. Not to mention most people haven't got circa £28000 lying about but most have got a few hundred pounds per month.

Sometimes it makes driving, owning, modifying and maintaining a couple of old car seem insane. How much cars cost me, I could have a brand new one for dare I say it, less!

5.5.% flat rate is too high. BMW (if pushed) will match the cheapest personal loan rates - which are still around 6.5APR%

As has been said, with PCP's the most relevant decision is what you will do at the end of the term.

You will usually have paid in a lot more than the depreciation over the term. So if you hand the car back it's an expensive way to buy. If you buy it an the end then the costs reduce, but it would still be cheaper to do a personal loan if you want to own it.

If you definitely do NOT want the car a lease purchase might be better, which is like PCP, but you take the risk on resale values. That way the amount you pay in is closer to the depreciation.

As to the 2 year exit strategy - she needs to get some settlement figures from BMW to be sure of her position. As this will be more than a £25K loan it will be unregulated and BMW do not provide these unless requested.

The other significant factor is the finance cost itself. You haven't given the loan value, but your mum would probably end up paying £6k interest over the 4 years.

Quick loan caluculator here:

http://www.grosvenor-butterworth.co....alculatot.html

Detailed spreadsheet tool created by a forum member here:

http://www.redoak.co.uk/BMWFinance.xls

[gIzzE]

Originally Posted by Porscha!

£498 pcm x 36 months with a GFV of £13000 (just over) you normally break even after two year on a three year PCP so she worked out by putting no money in and swapping after two years she will pay - £11,952

Sorry, haven't got time to read the whole post nut this sentence alone means PCP is the worst type of finance package for her to use.

You should only do a PCP deal if it is 100% guaranteed you will stay in the car for the full term.

5.5% flat on a 3 year PCP deal that you get out of after 2 years will mean an APR equivilent of over 20%!!

If she wants to keep the costs down then she should be looking at a lease purchase scheme.


Flat rate is what most dealers use because it is exactly that, you are paying a flat percentage on the initial amaount borrowed.
So on a £30k car even at year 4 you are still paying 5.5% on £30k even if you only owe £7k.
Also because it is flat the only way you can do it is add it to the front of the loan, so say you borrow £30k over 48 months, teh interest is 6,600, this is added to the £30k borrowed, leaving you with a total of £36,600.
Say you agree a future value of £12k, you divide the £24,600 (which is the £30k less £12k balloon + the interest of £6600) by 48 leaving £512 a month.
Not bad??

Well no, it isn't if you see the full term out, however if you want/need to get out after 24 months you will have paid off £12288 leaving a settlement figure of.... £24312!

Now there is no way that a new £30k car is going to be worth £24k after two years, and this is where people have a shock.



In comparison, a lease purchase for £30k over 48 months will cost you £516 a month (at 6.9% apr) but you will only owe £10k at the end, so for £4 a month more you will have £2k more equity at the end.

Also you are charge interest on teh amount outstanding each month, so it works like a mortgage, you are paying off capitol from day one, and as you get towards the end of the term the capital being paid off starts to get to be more than the interest being paid, but at least you are paying it off from day one.

After 2 years of a 4 year deal you would owe £20500, much better than oweing £over £24k.

At 12 months you would owe £25500 with this scheme, on the PCP you would owe £30456, so £456 more than you borrowed.

PCP is a nasty scheme that I think should be made illegal, it is only good for the dealer, definitely not the customer.

Be careful!!

[gIzzE]

If you drop me a PM I can put you in touch with someone who will get her into a proper deal.

[NFS]

Originally Posted by gIzzE

Flat rate is what most dealers use because it is exactly that, you are paying a flat percentage on the initial amaount borrowed.
So on a £30k car even at year 4 you are still paying 5.5% on £30k even if you only owe £7k.
Also because it is flat the only way you can do it is add it to the front of the loan, so say you borrow £30k over 48 months, teh interest is 6,600, this is added to the £30k borrowed, leaving you with a total of £36,600.
Say you agree a future value of £12k, you divide the £24,600 (which is the £30k less £12k balloon + the interest of £6600) by 48 leaving £512 a month.
Not bad??

Well no, it isn't if you see the full term out, however if you want/need to get out after 24 months you will have paid off £12288 leaving a settlement figure of.... £24312!

Now there is no way that a new £30k car is going to be worth £24k after two years, and this is where people have a shock.

In comparison, a lease purchase for £30k over 48 months will cost you £516 a month (at 6.9% apr) but you will only owe £10k at the end, so for £4 a month more you will have £2k more equity at the end.

Also you are charge interest on teh amount outstanding each month, so it works like a mortgage, you are paying off capitol from day one, and as you get towards the end of the term the capital being paid off starts to get to be more than the interest being paid, but at least you are paying it off from day one.

gIzzE really knows his stuff and has some great finance contacts.

However, the above isn't quite right in respect of BMW finance and so could cause some confusion

ALL bmw finance deals for private customers apply interest in the same way.

All BMW settlement figures are based on rebates of the total interest. So if you settle after 2 years of a 4 year loan they will typically 'waive' 40% of the interest.

BMW lease purchase and PCP are identical on this. The only difference is that lease purchase lets the customer define the level of the final 'balloon' payment and the customer must make this either in cash or by selling the car.

This means that you can set your final payment higher, at a level that more realistically reflects the resale compared to a PCP deal. So that you are really just funding the depreciation rather than paying in capital.

On a PCP deal you ARE paying in capital because the GMFV is ususally falsely low and if you don't by the car you will have thrown that money away.

[CrimsonRedE93]

Originally Posted by CD

dont get GAP confused with Short fall insurance .. actually lets not go there its confusing

Quite right CD there is a difference with the different insurances, Gap/VRI/Invoice Insurance or whatever names they would like to call it

[BWMan]

Originally Posted by NFS

.

On a PCP deal you ARE paying in capital because the GMFV is ususally falsely low and if you don't by the car you will have thrown that money away.

Hi,

Even if the GMFV in a PCP is set falsely low, cant one just sell the car at the end of the PCP period for the real avlue, pay BMW the GMFV and pocket the difference?

To illustrate, if the GMFV is £12000, and at the end of the PCP period the real value is 15000. So cant one sell the car outside for £15,000, give BMW Finance £12000 and pocket £3000?

Rgds,
Sam

[gIzzE]

BMW offer 4 schemes to private customers.

Select - agree a GFV and pay over a set period, at the end hand the car back and start again, with you seeing any extra that is in teh car.
BMW will give you a discount for ending the deal early, by discount I mean they will knock off a certain percentage of charges at various point sof the agreement, so halfway through you get something like a 40% disocunt. This does not sound too bad, but by half way through you have actually paid all the interest and all the charges and you have just started eating in to capital, so it is actaully really poor when you sit down and do the maths.
Look at it another way, it is a bit like cancelling an interest free loan with the dealer at that point to start another one with an apr of 10%!

Contract Hire - pure and simple a hire scheme, you agree a monthly rental and pay it for the term agreed. Hire it for 48 months and want to change after 6 months?? No problem, pay the remaining 42 months and hand it back.
Do not do this unless you know you are going to stay in it.

Hire purchase - Same as above but he payments cover the price of the car, so at the end you keep it, it is a hire car until the last payment.
If you are going to do this just get a loan from the bank.

Lease Purchase - This allows you to set the final payment, there is no mileage penalty or anything like that, you are simply paying £XXX.XX amount each month for the term and then a final payment.
The final payment is not guaranteed, but because of that the inetrest rate is generally alot lower as they are not gambling on being out of pocket.
On my 335i because the interest rate was lower for the same monthly payment I got a balloon of £13k after 48 months comapred with Select offering £18k over the same period. There is no way that car would have been less than £18k at 4 years old, so not really a gamble, and I would have walked away with £5k deposit for the next car come trade in.
To me this is a no brainer.
Also the interest is worked out on the amount outstanding each month, so no penalties for swapping 6 months in, you are paying it off from the start.





The only time a PCP deal is good is when the manufacturer is throwing money at it.

For example, a 730d sport with a couple of options is £60k.
At 3 years old and 36k miles it will retail for £32k with a trade in of £28k.

To buy that on a regular lease will cost you £1175 a month with £1000 deposit, that is wih an apr of 8% and a balloon of £27k at the end. You should walk away with your £1000 deposit back come trade in time.

However, BMW were throwing money at these, that same 730d sport costs BMW £42k cost, they also know that they can sell it for £32k on the forecourt in 3 years time.
So they can make no money on that car at all and only have to finance £10k over 3 years, £42k - £32k.
You put in £1000 deposit that is a grand they have made already.
They then get you to finance the £10k over 36 months at a rate of 11.5% apr, and remeber the apr of 11.5% is on the whole amount, so £42k at the sart and £32k at the end, not just the £10k.
This gives you a monthly figure of £599, nearly half the price of buying it yourself.


So in this case a PCP deal works for you as you are in a new £60k for £599 a month, the depreciation on that car is more than that a month so you would be a fool to do it any other way, including paying cash.

So it is not all balck and white, but at the same time PCP or Selct or whatever they call it is always behind a lease purchase 99 time out of 100.


Edit: Before someone asks why they would sell a 730d for no money, well the answer is they don't, they want cars seen out on the road so they are prepared to loose a bit, but they still make over £12,000 out of you through the finance.
You have to decide if being charged £12k for fianance is easier to swallow than being charged £6k for finance and loosing £18k in depreciation.

[BWMan]

[QUOTE=gIzzE;2664782]Lease Purchase - This allows you to set the final payment, there is no mileage penalty or anything like that, you are simply paying £XXX.XX amount each month for the term and then a final payment.
The final payment is not guaranteed, but because of that the inetrest rate is generally alot lower as they are not gambling on being out of pocket.
On my 335i because the interest rate was lower for the same monthly payment I got a balloon of £13k after 48 months comapred with Select offering £18k over the same period. There is no way that car would have been less than £18k at 4 years old, so not really a gamble, and I would have walked away with £5k deposit for the next car come trade in.
To me this is a no brainer.
Also the interest is worked out on the amount outstanding each month, so no penalties for swapping 6 months in, you are paying it off from the start.
QUOTE]

Hi Gizzie, thanks for detailing the different options. I wish I had come to this forum earlier .

I recently purchased a 320d SE on Select. The Value was fixed at £23,900. For a 24 month Select, at 20,000 miles per year GMFV is £12,100. I paid a deposit of £1500 and Mnthly payment is £543.

Would you reckon that I should have gone for a Hire purchase instead? For the same monthly payment, I would have got a final payment of only say £10000 or so?

Rgds,
Sam

[gIzzE]

To be fair over a short term like 24 months you will be fine mate, if you had done a lease purchase it would have been about £520 for a balloon of £11k.
So not worth worrying about.

A lease purchase could have been 36 x £440 with a balloon of £9500.
Meaning you kept you rmonthly payments down, and you could still have walked away after 24 months or earlier.

Or for £545 a month over 36 with a balloon of £9450 you could have been in a 320d Editions M-Sport with nav, leather, 18" wheels, bluetooth and whatever else it comes with, that is how lease purchase pays off, you get into a better car.

Put it like this, you are paying £23 a month more for your 320d than I was paying for my 535d M-Sport touring with all the toys including pano roof and heads up display. That was a £51k car and only 8 months old when I bought it.

Lease purchase works well when buying 3-6 month old cars.

[BWMan]

Originally Posted by gIzzE

To be fair over a short term like 24 months you will be fine mate, if you had done a lease purchase it would have been about £520 for a balloon of £11k.
So not worth worrying about.

A lease purchase could have been 36 x £440 with a balloon of £9500.
Meaning you kept you rmonthly payments down, and you could still have walked away after 24 months or earlier.

Or for £545 a month over 36 with a balloon of £9450 you could have been in a 320d Editions M-Sport with nav, leather, 18" wheels, bluetooth and whatever else it comes with, that is how lease purchase pays off, you get into a better car.

Put it like this, you are paying £23 a month more for your 320d than I was paying for my 535d M-Sport touring with all the toys including pano roof and heads up display. That was a £51k car and only 8 months old when I bought it.

Lease purchase works well when buying 3-6 month old cars.

Thanks again Gizzie.

I had moved to a job which involves a lot of driving, and thats why I chose a 320d, heard it had good mpg, and reckoned that the money I would save on the dielsel reimbursements would pay for the car. (On an average week, I spent about 30-40 quid of diesel on Business mileage, and I get about 140-150 quid from the company (at 40p per mile), so the 100 quid extra per week pays for the lease charges.)

I now realize that if I had done better research, I could have a better spec car for roughly the same deal that I got.

Well, we live and learn

Sam

[gIzzE]

Hey mate, the 320d is pretty impressive car in any, imagine if you had have bought an A4, you could have bored yourself to death in two years of ownership!!

[BWMan]

Originally Posted by gIzzE

Hey mate, the 320d is pretty impressive car in any, imagine if you had have bought an A4, you could have bored yourself to death in two years of ownership!!

Funny you say that Gizzie, I had thought about getting an A4 initially. I must admit I really liked the looks of it. Then most (actually, ALL) reviews said its not even in the same planet as the 320d.

As for the 320d, this is my first Beamer, and I must say I am really happy with it. It really is a great drive. Just that the more you read you realize that there could have been better options, both on the finance and the spec. But no regrets really on the car.

[NFS]

Originally Posted by gIzzE

Lease Purchase ..... Also the interest is worked out on the amount outstanding each month, so no penalties for swapping 6 months in, you are paying it off from the start.

gIzzE - you were a huge help to me when I bought my car and I'm very grateful for all the advice you have given me. However, I wouldn't want anyone to enter into a lease purchase deal in the mistaken belief that it is a cheaper option when ending the loan early. That just isn't the case since Lease Purchase is simply Hire Purchase with a balloon payment.

BMW Financial Services settlement figures for lease purchase and hire purchase are calculated in the same way and the interest charges for early exit are the same.

I bought my previous car via HP over 4 years and the interest applied in the settlement figures works as follows:

1. After 12 months - 48% of total interest
2. After 24 months - 74% of total interest
3. After 36 months - 95% of total interest

The settlement figures for my current lease purchase deal work the same way.

In this case of my earlier HP deal the loan value was £23,000 and total interest was £3,165 and the fees were £125 (total payable £26,255). The monthly payment was £541

After 24 months the situation would have been:

Paid to date  £ 13,109 (24*£541+£125 initial fee)
Settlement   £ 12,325
Total Cost    £ 25,434

This is £ 821 less than I would have paid if the loan had gone full term, which is a reduction in the total interest charges of 26% (£821/£3165).

You might consider that to be a penalty as you have been charged 74% of the interest when the loan term has been reduced by 50%. However, when you consider that, as you correctly say, interest is calculated each month on the amount owed, it is actually perfectly fair.

Hire Purchase and Lease Purchase both work in this way and I believe that PCP (select) does as well.

[NFS]

Originally Posted by BWMan

Hi,

Even if the GMFV in a PCP is set falsely low, cant one just sell the car at the end of the PCP period for the real avlue, pay BMW the GMFV and pocket the difference?

To illustrate, if the GMFV is £12000, and at the end of the PCP period the real value is 15000. So cant one sell the car outside for £15,000, give BMW Finance £12000 and pocket £3000?

Rgds,
Sam

Yes, but that £3000 is actually your money. It's the amount that you would have 'overpaid' within your monthly payments.

If you simply hand the car back - which is the aspect many people like about PCP- then that overpayment is lost.

With lease purchase you avoid the overpayment altogether, by setting the final payment at the retail value. However, this places greater risk on the customer.

If you do what you propose with PCP then you avoid this risk, but the price of doing so is to lock your money away for the period of the loan.