PCP - Positive Equity

WhiteFSport · June 8, 2017

Hola,

For those who have previously purchased vehicles on a PCP –this is for you!

I bought an IS300h F-Sport for £29k on a PCP. Got a ridiculous APR of 2.9% at the time of purchase, so it was a no brainer. I bought it on a 42-month deal; It’ll be two years in November 2017 since I’ve owned the car and I’m already into positive equity – just. As the months go on, that figure will grow proportionately.

I just want to fully understand how this positive equity will benefit me if I was to change my car at the end of my agreed term, or maybe when I’m eligible for an early upgrade – whenever that might be. I’ve spoken to my local dealer and he can get me into a Lexus NX for roughly the same money, but I think I might wait and bide my time so I can build the equity up and go for something else, maybe an RCF or a GSF. So, at what point does positive equity become useful?

Muchas gracias.

200h · June 8, 2017

your lucky im in negative equity with my pcp

stevet · June 8, 2017

How do you come to that conclusion? Did you pay a huge deposit?

200h · June 8, 2017

i had a look at another IS 2 months ago and went back to lexus stoke and then told i needed £2500

to clear the finance as i owed more than they said the car is worth needless to say i didnt change my car

i love my IS its a 63 plate with 33000 on the clock so low milage, what i looked at wasnt worth the extra £5000

i would have to pay to change.

200h · June 8, 2017

25 minutes ago, stevet said:

How do you come to that conclusion? Did you pay a huge deposit?

i paid a £5000 deposit when i bought the car

WhiteFSport · June 8, 2017

2 hours ago, stevet said:

How do you come to that conclusion? Did you pay a huge deposit?

I paid a £7k deposit and got a low APR deal, so I'm only paying £1200 interest. Which isn't bad at all. I'm just a little bored of the car now, so I would like a change. I'm not fully aware of when positive equity can actually be a good thing. Plus, my dealer hasn't called me to tempt me into anything else from Lexus, I did receive a promotional letter about the new facelifted IS300h but it doesn't quite appeal to me.

I'm wondering, if I keep the car until the end of term, just how much positive equity will I accumulate? Furthermore, how much equity will be available as a deposit for a change in vehicle?

Any thoughts guys?

Thanks.

ganzoom · June 9, 2017

14 hours ago, WhiteFSport said:

I’ve spoken to my local dealer and he can get me into a Lexus NX for roughly the same money, but I think I might wait and bide my time so I can build the equity up and go for something else, maybe an RCF or a GSF. So, at what point does positive equity become useful?

Your not going to have enough equity to swap into a RCF ot GSF without putting in another load of deposit. The NX is not that much more expensive than the IS, that's why the dealer can potentially swap you into one.

Whats your final payment on the IS? To work out just how much equity you have simply go to WBAC (or similar), and see how much they till give you compared to your final payment.

Casa1862 · June 9, 2017

WBAC are actually spot on with IS values, I got £16250 from them, much less from Evan Halshaw, but eventually they matched and gave them a little. This was more than the Lexus px of £15500, I ended up selling privately for £16500. This was for a 23 month old exec with low mileage and full history. Expect just over half from main dealer at 2 years, forget what you see them advertised for, they've been there for ages.

stevet · June 9, 2017

8 hours ago, WhiteFSport said:

I paid a £7k deposit and got a low APR deal, so I'm only paying £1200 interest. Which isn't bad at all. I'm just a little bored of the car now, so I would like a change. I'm not fully aware of when positive equity can actually be a good thing. Plus, my dealer hasn't called me to tempt me into anything else from Lexus, I did receive a promotional letter about the new facelifted IS300h but it doesn't quite appeal to me.

I'm wondering, if I keep the car until the end of term, just how much positive equity will I accumulate? Furthermore, how much equity will be available as a deposit for a change in vehicle?

Any thoughts guys?

Thanks.

Still can't see how you are in positive equity. PCP normally leaves you with nothing until right at the end. You have loaned £23200 (£29k - £7k + £1.2k) and car is worth about £14k in px so £9.2k left. You would have to of paid over £484 per month so far just to break even. That's £16200 just to rent a Hybrid for 19 months. You could have bought an ISF outright for that and it would be all yours and still be worth £15k now.

WhiteFSport · June 9, 2017

4 hours ago, ganzoom said:

Your not going to have enough equity to swap into a RCF ot GSF without putting in another load of deposit. The NX is not that much more expensive than the IS, that's why the dealer can potentially swap you into one.

Whats your final payment on the IS? To work out just how much equity you have simply go to WBAC (or similar), and see how much they till give you compared to your final payment.

Hello Ganzoom.

Although they've taken a bit of a hit recently, the GSF/RCF are a little on the expensive side. If I can be havily persuaded by Lexus to own either of them, I might take it into consideration. But, I think that I'll move away from the brand for a few years and try something new. At the grand old age of 29, I'm on my third Lexus - as lovely as they are, I just fancy taking a ride in something else for a few years.

41 minutes ago, stevet said:

Still can't see how you are in positive equity. PCP normally leaves you with nothing until right at the end. You have loaned £23200 (£29k - £7k + £1.2k) and car is worth about £14k in px so £9.2k left. You would have to of paid over £484 per month so far just to break even. That's £16200 just to rent a Hybrid for 19 months. You could have bought an ISF outright for that and it would be all yours and still be worth £15k now.

Hi Stevet.

I'll paste the VERY short e-mail from my dealer from a few months ago.

Your car is worth about £18000.00, you owe or settlement is £18771.66, so not bad at all. £771.66 negative equity.

Regards

WBAC gave me a valuation of circa £17k last month - don't quote me 100% on that figure, but it was roughly thereabouts. I would have bought a high performance car, but insurance was the problem. As I was getting a great deal on an IS300h (with all of the goodies except ML) it was difficult to say no at the time. Now I'm 2 years older, wiser and with more NCBs, I feel it's the right time to go for something sportier. I've got a quote of £1,300 insurance on an F80 BMW M3, £1,000 on a Mercedes C63 AMG (the 6.2) and I've still to check the quotes for a 2017 Audi S4/S5 or S7, which are the only models in the lineup that appeal to me.

ganzoom · June 9, 2017

1 hour ago, WhiteFSport said:

Hello Ganzoom.

Although they've taken a bit of a hit recently, the GSF/RCF are a little on the expensive side. If I can be havily persuaded by Lexus to own either of them, I might take it into consideration. But, I think that I'll move away from the brand for a few years and try something new. At the grand old age of 29, I'm on my third Lexus - as lovely as they are, I just fancy taking a ride in something else for a few years.

Never driven a GSF/RCF but if you want bargain performance go and have a look at any the turbocharged 6 cylinder BMWs or the Golf R. Your get ALOT more bang for your money than with the GCF/RCF.

WhiteFSport · June 9, 2017

22 minutes ago, ganzoom said:

Never driven a GSF/RCF but if you want bargain performance go and have a look at any the turbocharged 6 cylinder BMWs or the Golf R. Your get ALOT more bang for your money than with the GCF/RCF.

Hi Ganzoom.

I ran a 2016 Audi S3 saloon for a couple of weeks and to be honest, I wasn't bowled over by it. Don't get me wrong, it was really quick, handled brilliantly and wasn't too expensive on fuel. But it made me drive like an absolute yobbo. Personally, I'd prefer something with a big engine. I love the 6.2 C63 AMGs, but I've yet to drive the new one to see how it compares. I'll end up keeping my Lexus for a few months, just to build the equity up. It's in mint condition as it is - all the goodies except the ML sound system and it's only got 26k on the clock with full service history. I don't see myself keeping it until the end of agreement though.

dazed · June 12, 2017

On ‎09‎/‎06‎/‎2017 at 8:40 AM, stevet said:

Still can't see how you are in positive equity. PCP normally leaves you with nothing until right at the end. You have loaned £23200 (£29k - £7k + £1.2k) and car is worth about £14k in px so £9.2k left. You would have to of paid over £484 per month so far just to break even. That's £16200 just to rent a Hybrid for 19 months. You could have bought an ISF outright for that and it would be all yours and still be worth £15k now.

It's horrific when you peel back the PCP marketing and spin and lay it bare like that. There's a little bit of me that thinks PCP will be the next PPI - the compensation from which, ironically, formed many of the deposits for PCP deals in recent years.

The lending behind PCP feels like a financial bubble that will have to burst when/if second hand valuations fall.

Malc · June 12, 2017

so tell me, you've paid a deposit of £x ? and a monthly payment of £ ? ...... to end up with a car how old and actually worth £? as a cash sale or as a trade-in / swap ?

Thanks

Malc

WhiteFSport · June 12, 2017

1 hour ago, dazed said:

It's horrific when you peel back the PCP marketing and spin and lay it bare like that. There's a little bit of me that thinks PCP will be the next PPI - the compensation from which, ironically, formed many of the deposits for PCP deals in recent years.

The lending behind PCP feels like a financial bubble that will have to burst when/if second hand valuations fall.

In hindsight, I would have bought a car outright and I think it's what I'll do with my next purchase. I'm not for dealers charging extortionate amounts of money for services either. Mine went in for a service in December and it came to just under £450. Granted, they do a fair bit of work during the service, but Lexus prices are extortionate. This is their way of milking the cow to pay for the fancy showrooms etc.

1 hour ago, Malc said:

so tell me, you've paid a deposit of £x ? and a monthly payment of £ ? ...... to end up with a car how old and actually worth £? as a cash sale or as a trade-in / swap ?

Thanks

Malc

Hi Malc.

I paid £7k deposit and I've been paying £350 for the past 19 months. So the total stands at £13,650 at present. I'm not sure how my dealer has done the maths, but to me, that seems like I haven't paid back enough to be in +ve equity just yet. I guess I could recheck with my finance company and see what they have to say about this.

As for the vehicle, it's 2 years old with under 27k on the clock. WBAC gave me a value of around £17k (I think) last month.

dazed · June 12, 2017

25 minutes ago, WhiteFSport said:

I paid £7k deposit and I've been paying £350 for the past 19 months. So the total stands at £13,650 at present. I'm not sure how my dealer has done the maths, but to me, that seems like I haven't paid back enough to be in +ve equity just yet. I guess I could recheck with my finance company and see what they have to say about this.

I suspect the maths has been worked out so that at the end of the contract you have a vehicle that is worth the guaranteed future value (+/- a tiny bit). Because depreciation is not linear, but your payments are, you'll inevitably spend some (perhaps most) of the contract in negative equity depending on the size of the deposit.

This must be a dilemma for the car manufacturers. On the one hand they want to make their monthly payments as low as possible (to entice punters to rent cars that, to be honest, they probably can't really afford to drive). But on the other hand they really need to ensure that there is some equity in the vehicle at the end of the deal, so that they can get another shiny new car on the road (which means higher monthly payments).

This whole business model feels unsustainable to me and ultimately has to result in punters downgrading at each contract renewal point as economic reality bites, even if financing costs remain as low as they currently are.

WhiteFSport · June 12, 2017

21 minutes ago, dazed said:

I suspect the maths has been worked out so that at the end of the contract you have a vehicle that is worth the guaranteed future value (+/- a tiny bit). Because depreciation is not linear, but your payments are, you'll inevitably spend some (perhaps most) of the contract in negative equity depending on the size of the deposit.

This must be a dilemma for the car manufacturers. On the one hand they want to make their monthly payments as low as possible (to entice punters to rent cars that, to be honest, they probably can't really afford to drive). But on the other hand they really need to ensure that there is some equity in the vehicle at the end of the deal, so that they can get another shiny new car on the road (which means higher monthly payments).

This whole business model feels unsustainable to me and ultimately has to result in punters downgrading at each contract renewal point as economic reality bites, even if financing costs remain as low as they currently are.

Hi dazed,

In all honesty, I doubt I'll be buying a new-ish car again. At the time of purchasing this, I could have paid outright for the vehicle but other commitments (mortgage) dictated that I had to take the PCP route. You're right - it is a unsustainable business model. Anything remotely similar to my current car will mean that my monthly payments will increase. As I don't fancy downgrading, it leaves me in a dilemma as to what would be a sensible option. Fortunately, I don't travel many miles to and from work - circa 16 miles round trip. So I can purchase something older, upto 4-6 years older, (saving on the new VED rates) and preferably, something with a bigger engine and more power.

B1001 · June 12, 2017

2 hours ago, WhiteFSport said:

In hindsight, I would have bought a car outright and I think it's what I'll do with my next purchase. I'm not for dealers charging extortionate amounts of money for services either. Mine went in for a service in December and it came to just under £450. Granted, they do a fair bit of work during the service, but Lexus prices are extortionate. This is their way of milking the cow to pay for the fancy showrooms etc.

Hi Malc.

I paid £7k deposit and I've been paying £350 for the past 19 months. So the total stands at £13,650 at present. I'm not sure how my dealer has done the maths, but to me, that seems like I haven't paid back enough to be in +ve equity just yet. I guess I could recheck with my finance company and see what they have to say about this.

As for the vehicle, it's 2 years old with under 27k on the clock. WBAC gave me a value of around £17k (I think) last month.

So you've paid £718 a month pro-rata, that's a lot of money for an IS. I buy cars on straight 5 year loans with very little deposit. The nature of PCP deals means you can't rely on getting any equity back, even if you've put down thousands.

dazed · June 12, 2017

1 hour ago, WhiteFSport said:

Hi dazed,

In all honesty, I doubt I'll be buying a new-ish car again. At the time of purchasing this, I could have paid outright for the vehicle but other commitments (mortgage) dictated that I had to take the PCP route. You're right - it is a unsustainable business model. Anything remotely similar to my current car will mean that my monthly payments will increase. As I don't fancy downgrading, it leaves me in a dilemma as to what would be a sensible option. Fortunately, I don't travel many miles to and from work - circa 16 miles round trip. So I can purchase something older, upto 4-6 years older, (saving on the new VED rates) and preferably, something with a bigger engine and more power.

That sounds like a plan - all the best. I tend to look for something a couple (or three years old) with low mileage, good spec and FSH.

Mortgage, food, bills and pension contributions all have to come first.

WhiteFSport · June 12, 2017

47 minutes ago, dazed said:

That sounds like a plan - all the best. I tend to look for something a couple (or three years old) with low mileage, good spec and FSH.

Mortgage, food, bills and pension contributions all have to come first.

Not to forget the imminent arrival of a little bundle of joy...I might keep the car till the end of my agreement. Otherwise, I'll look for an alternative and bite the bullet. Currently looking at 2015 BMW 335d XDrive, which looks like a very tempting prospect. But the monthly payments seem too high for it. With those kinds of figures, I may as well fork out on something newer.

Malc · June 12, 2017

2 hours ago, B1001 said:

So you've paid £718 a month pro-rata, that's a lot of money for an IS. I buy cars on straight 5 year loans with very little deposit. The nature of PCP deals means you can't rely on getting any equity back, even if you've put down thousands.

I know I'm living in a timewarp with my Ls400 but for heavens sake, do you guys feel happy paying out £718 a month, presumably from your after taxed income, for a car ? that's going to have zilch value to you when you do change to another ?

You'd be heaps of ££££ better off by popping that £718 ( plus the tax relief presumably making it possibly £1000 a month ) into your pension pot and buying something you actually NEED for maybe a couple of months effective payments, rather than maybe a status symbol AND into your pension pot, assuming a return tax free on FTSE equities , if that's your thing, of about 4% pa which grossed up year on year to your retirement will provide a better time for you later in life AND of course you can maybe take 25% of that in tax free cash anyway at the time.

Just my thoughts............... from an OAP with more money than sense maybe and happy with the best built car ever on the road ..... and still 0 - 60 in 6.9 secs and 155 mph

Malc

Verbout · June 12, 2017

That ^^^^.

4 year bank loans, shop around.

Expensive keeping up with the Joneses.

dazed · June 12, 2017

15 minutes ago, Malc said:

I know I'm living in a timewarp with my Ls400 but for heavens sake, do you guys feel happy paying out £718 a month, presumably from your after taxed income, for a car ? that's going to have zilch value to you when you do change to another ?

You'd be heaps of ££££ better off by popping that £718 ( plus the tax relief presumably making it possibly £1000 a month ) into your pension pot and buying something you actually NEED for maybe a couple of months effective payments, rather than maybe a status symbol AND into your pension pot, assuming a return tax free on FTSE equities , if that's your thing, of about 4% pa which grossed up year on year to your retirement will provide a better time for you later in life AND of course you can maybe take 25% of that in tax free cash anyway at the time.

Just my thoughts............... from an OAP with more money than sense maybe and happy with the best built car ever on the road ..... and still 0 - 60 in 6.9 secs and 155 mph

Malc

Totally agree with you Malcolm. PCP is the crack cocaine of the car industry and sadly most people can't see it for what it is. I've got people in my office earning less than £30K p/a driving around in new BMW 1 series every three years and they're always complaining that they've got no money.

I also come across people who try to convince me that PCP really is a smart way to buy a new car. But when I look at their figures I discover that they don't really understand how deep a discount can be negotiated off a new car and how cheap conventional sources of lending can be if you've got a clean credit file.

Large balloon figures also mean more outstanding debt for longer which equates to more interest payable, no matter how low the interest rate is.