Porsche PCP calculations

[PaulR]

Can you stipulate zero GFV?

Definitely not. But has been pointed out, that would equate to a Hire Purchase or bank loan. The PCP product is based around the fact a car has a future value, and that your loan can be split into an interest-only portion and a repayment-only portion. The interest-only portion is the bit that reduces your monthly payment (as per an interest-only mortgage). However it's also the bit that means you're paying more for your car in interest payments (again, as per an interest-only mortgage).

The dealer can fiddle around around with the GMV, but only within a certain range. They can increase it to help you get your monthly payment down. But that's risky for them (in case car is worth less at end). It's also bad for you as it increases the interest you pay and therefore your TCO.

Say you purchase a £50K car with a £5K deposit:

If the GMV is £25K, then you'll have an interest-only loan portion of £25K and a repayment portion of £20K.
If the GMV is £15K, then you'll have an interest-only loan portion of £15K and a repayment portion of £30K.

Your monthly premium is less on the first scenario. But the amount paid on interest is much more.

This is the main reason PCP works out very expensive compared to other ways of financing. You're doing the opposite of what you really should do with a loan - i.e. pay off as much of it as quickly as you can! With PCP, you're paying off the bare minimum and therefore attracting an awful lot of interest. No wonder the finance companies and dealers love it so much!

[PaulR]

If there was even a hint that future values were going to plummet you can bet the finance companies would have reflected that in the GFVs already which so far they haven't.

The Macan is supposedly going to be 'replaced' by a new all-electric one in the next two years. However Porsche will continue to sell the current ICE Macan for a couple of years in parallel after then.

So that takes us to about four years time, possibly longer, when Porsche is still selling ICE Macans. Now no one would buy them if they were going to be depreciating disasters. So I can deduce from that, that any ICE Macan purchased today shouldn't plummet too much in value. If there's going to be demand for brand new Macans in four years, I can assume there will be demand for used ones too. There might actually be more demand for used ones!!

[mcnallys]

Can you stipulate zero GFV?

Definitely not. But has been pointed out, that would equate to a Hire Purchase or bank loan. The PCP product is based around the fact a car has a future value, and that your loan can be split into an interest-only portion and a repayment-only portion. The interest-only portion is the bit that reduces your monthly payment (as per an interest-only mortgage). However it's also the bit that means you're paying more for your car in interest payments (again, as per an interest-only mortgage).

The dealer can fiddle around around with the GMV, but only within a certain range. They can increase it to help you get your monthly payment down. But that's risky for them (in case car is worth less at end). It's also bad for you as it increases the interest you pay and therefore your TCO.

Say you purchase a £50K car with a £5K deposit:

If the GMV is £25K, then you'll have an interest-only loan portion of £25K and a repayment portion of £20K.
If the GMV is £15K, then you'll have an interest-only loan portion of £15K and a repayment portion of £30K.

Your monthly premium is less on the first scenario. But the amount paid on interest is much more.

This is the main reason PCP works out very expensive compared to other ways of financing. You're doing the opposite of what you really should do with a loan - i.e. pay off as much of it as quickly as you can! With PCP, you're paying off the bare minimum and therefore attracting an awful lot of interest. No wonder the finance companies and dealers love it so much!

Agree with on that, but if deposit was big and monthlies are big, leaving a smallish lump - also seems like you can also make lump sum payments also...... again it’s tweeking to make it work and a lesser interest hit.

[mcnallys]

Can you stipulate zero GFV?

Definitely not. But has been pointed out, that would equate to a Hire Purchase or bank loan. The PCP product is based around the fact a car has a future value, and that your loan can be split into an interest-only portion and a repayment-only portion. The interest-only portion is the bit that reduces your monthly payment (as per an interest-only mortgage). However it's also the bit that means you're paying more for your car in interest payments (again, as per an interest-only mortgage).

The dealer can fiddle around around with the GMV, but only within a certain range. They can increase it to help you get your monthly payment down. But that's risky for them (in case car is worth less at end). It's also bad for you as it increases the interest you pay and therefore your TCO.

Say you purchase a £50K car with a £5K deposit:

If the GMV is £25K, then you'll have an interest-only loan portion of £25K and a repayment portion of £20K.
If the GMV is £15K, then you'll have an interest-only loan portion of £15K and a repayment portion of £30K.

Your monthly premium is less on the first scenario. But the amount paid on interest is much more.

This is the main reason PCP works out very expensive compared to other ways of financing. You're doing the opposite of what you really should do with a loan - i.e. pay off as much of it as quickly as you can! With PCP, you're paying off the bare minimum and therefore attracting an awful lot of interest. No wonder the finance companies and dealers love it so much!

Agree with on that, but if deposit was big and monthlies are big, leaving a smallish lump - also seems like you can also make lump sum payments also...... again it’s tweeking to make it work and a lesser interest hit.

Sorry, meant lease purchase - big up front, decent monthly and a bit at the end.

[kmacuk]

My understanding of PCP and repayments is a little different from the example quoted.
£50k purchase and £5k deposit would result in the entire £45k attracting interest for the duration of the loan.
The repayments are calculated on the non balloon/final payment - so if GFV = £25k you pay interest on this part only plus interest on the £20k (Depreciation) part, but you also pay back the capital (monthly payments); any extras you add also get added to the repayment part of the agreement, so these make a big difference your monthly repayments.

The only way to reduce your payments (not the interest) is to add fewer extras or have the dealer increase your GFV.

The best way to reduce repayments & interest is to increase your deposit (also add fewer extras), self finance is the best if funds allow. Buying a car with the extras you want will also increase GFV and therefore reduce payments vs. adding similar extras to a base model.

My £65k build had a £77k repayable with £10k deposit - £12k of interest. Santander select customers get 3% interest rate on a £25k loan value with around £1.3k of interest

[PaulR]

My understanding of PCP and repayments is a little different from the example quoted.
£50k purchase and £5k deposit would result in the entire £45k attracting interest for the duration of the loan.
The repayments are calculated on the non balloon/final payment - so if GFV = £25k you pay interest on this part only plus interest on the £20k (Depreciation) part, but you also pay back the capital (monthly payments); any extras you add also get added to the repayment part of the agreement, so these make a big difference your monthly repayments.

Yes, interest is paid on the whole £45K. The £45K loan is split:

£25K = interest-only portion
£20K = capital-repayment portion (which includes interest)

By the end of the agreement, you owe £25K.

BTW the last thing you want to do at the end of the contract is take a separate loan to cover the £25K. You'll pay even more interest on something you've already paid interest on. It works about about three times as much interest compared to having a full repayment or HP from the outset.

[Bobby1]

Useful discussion - thanks. I like PCP for a couple of reasons. As long as my investment portfolio returns net 6% plus, I don’t want a large chunk of cash tied up in a fast depreciating asset that is not particularly fungible. Second, with vehicle regulation open to potential major regulatory change in both CO2 and local emissions curtailment and EVs coming to market faster than earlier projections, I like the finance company to hold the risk. So for me, I’m £ neutral on cash vs PCP financing, have better ability to access cash if I need it and have a floor on the potential future depreciation of my car. I appreciate that is not going to be true for everyone.