Financing your Macan

All Porsche Macan Related Discussion
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Pivot
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Post by Pivot »

Very insightful info!

I think I am going to put down 50% deposit and do HP for the rest, so I own it after 3-4 years.

I suspect that it will be a keeper!
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jk88
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Post by jk88 »

PaulR wrote: Sat Dec 15, 2018 6:07 pm My first post, although I feel like I've been a member for years! Thought I'd wade in here, as I'm fascinated by the fact so many cars are now financed on PCP. I've done tonnes of research of this, much to the boredom of everyone I know. I've spreadsheets showing how the options compare. In summary, cash is always the cheapest way to purchase a car. I've never found anything else that works out cheaper. And the most expensive way to finance a car? PCP.

This is what makes PCP so fascinating. It's the most expensive way to finance a car, yet it's the most popular way to do so. It's a finance plan that's designed to look cheap, and it does this by having a lower monthly payment than other types of finance. It's similar purchasing a house on an interest-only mortgage versus one on a repayment. The interest-only mortgage has a lower monthly payment, however you pay more in interest over its term. With PCP, part of the loan is 'interest-only' and part is 'repayment'. The loan amount up to the GMV is interest-only and the rest is repayment. As you increase the GMV, you increase the interest-only portion, and this results in a smaller monthly payment. This might sound good - but a larger amount of your monthly premium is interest. The TCO of the car is increased.

Versus any other types of finance (assuming similar interest rates) PCP simply works out the most expensive way to finance a car. Every other type of finance will give you a lower TCO. And cash gives the lowest TCO of them all.

I'm absolutely not knocking PCP or other forms of finance; they're all there for a reason to suit different people's circumstances. PCP in particular is popular for a reason!
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eakae
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Post by eakae »

This has been a great post and everyone has provided some great insights. Clearly there are a number of variables to consider when buying a car that’s not just limited to the option list.

1. Do you have the cash to buy outright or not.
2. What forms of financing are available: PCP, hire purchase or leasing.
3. What rate of interest is the OPC offering as well as other 3rd party providers (e.g. Clydesdale, FD or Oracle)
4. Consider the opportunity cost of not having the cash available.
5. The rate at which the car will depreciate
6. Tolerance for risk.

In my case, I intended to buy the car outright. However, I discussed and listened to the available options available when I went to my local OPC. In the end I opted for hire purchase as VW Financial Services UK offered me a HP rate of 1.9% for 18 months. I thought I could generate a greater ‘post tax’ return on my cash in a simple portfolio of diversified assets.

This happened to be in Q2 2016. Fortunately I benefitted from this decision and the investment gains I made will help offset much of the inevitable depreciation on the car.

I completely appreciate this is not for everyone as it requires investment composure, a degree of risk tolerance and the ability to accept that investments may go down so you could be significantly worse off.

I just wanted to highlight that it’s worth listening to the options available, understand the variables and make an informed decision that you personally feel comfortable with. Only you know your personal circumstances.
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Pivot
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Post by Pivot »

I agree in principle, except looking at my portfolio over the last few months it is taking serious battering, largely because of Donald’s Trade Wars and Teresa’s Brexit uncertainty... and I don’t see any attractive asset class right now.

This is why I was thinking of buying Macan for cash. However, I want to keep some cash available for when the sentiment changes, right now I don’t want to be catching falling knives.
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Nosmo
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Post by Nosmo »

PaulR wrote: Sat Dec 15, 2018 6:07 pm My first post, although I feel like I've been a member for years! Thought I'd wade in here, as I'm fascinated by the fact so many cars are now financed on PCP. I've done tonnes of research of this, much to the boredom of everyone I know. I've spreadsheets showing how the options compare. In summary, cash is always the cheapest way to purchase a car. I've never found anything else that works out cheaper. And the most expensive way to finance a car? PCP.

This is what makes PCP so fascinating. It's the most expensive way to finance a car, yet it's the most popular way to do so. It's a finance plan that's designed to look cheap, and it does this by having a lower monthly payment than other types of finance. It's similar purchasing a house on an interest-only mortgage versus one on a repayment. The interest-only mortgage has a lower monthly payment, however you pay more in interest over its term. With PCP, part of the loan is 'interest-only' and part is 'repayment'. The loan amount up to the GMV is interest-only and the rest is repayment. As you increase the GMV, you increase the interest-only portion, and this results in a smaller monthly payment. This might sound good - but a larger amount of your monthly premium is interest. The TCO of the car is increased.

Versus any other types of finance (assuming similar interest rates) PCP simply works out the most expensive way to finance a car. Every other type of finance will give you a lower TCO. And cash gives the lowest TCO of them all.

I'm absolutely not knocking PCP or other forms of finance; they're all there for a reason to suit different people's circumstances. PCP in particular is popular for a reason!
One observation if I may. In addition, the benefits to an interest only mortgage is that over the normal life of a mortgage (20 - 25 years) inflation erodes some of the capital amount of the mortgage whilst the asset itself appreciates. For a long term appreciating asset, getting someone else to stump up the capital in the form of a mortgage is cheap money... (not at 1990s 10 - 20% but still)
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PaulR
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Post by PaulR »

Here's a real example showing the difference in financing a car on PCP versus a repayment loan. It assumes a £70K car, a £10K deposit and a 9.6% interest rate over four years (as quoted from a Porsche dealer). Also a £36,000 GMV.

The point of this is to illustrate just how expensive PCP is versus other types of loan - even when the interest rate and other parameters are the same.

PCP
Price: £70,000
Deposit: £10,000
Financed amount: £60,000
- Interest only portion: £36,000
- Repayment portion: £24,000
Monthly cost: £902
- Interest only portion: £288
- Repayment portion: £614
Total payable (excluding final payment): £52,424
Final payment: £36,000
Total payable (including final payment): £88,424
Total interest: £18,424

Repayment/HP
Price: £70,000
Deposit: £10,000
Financed amount: £60,000
- Interest only portion: £0
- Repayment portion: £60,000
Monthly cost: £1,536
- Interest only portion: £0
- Repayment portion: £1,536
Total payable (excluding final payment): £82,222
Final payment: £0
Total payable (including final payment): £82,222
Total interest: £12,222

So PCP costs £902 pm with total interest payable of £18,424. The repayment is £1,536 pm with total interest payable of £12,222.

The PCP looks cheaper if you only focus on the monthly amount. But you pay much more in interest. Not only that, you end up with nothing at the end of the term. If you want to buy the car, you need to find £36,000. The worst thing you could possibly do is finance that, as you'll pay even more in interest.

Which is why most people, once on a PCP deal, are stuck on them car after car. All other options considered, it really is a terrible way to finance a car.

As has been mentioned, those of us with the cash to buy outright might want to finance on the basis our cash (or investments) can earn more than the car interest. When compared to a repayment (or HP), then it's a case of ensuring our cash is getting a higher interest rate. However, when compared to PCP, as I've alluded to above, our cash needs to get a significantly higher rate in order for it to work out better.
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Paul
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Post by Paul »

Can’t argue with the figures, or the logic, but, if you only have £900 a month “spare” (or don’t want to put £1500 a month in) then PCP offers affordability.

PCP also offers (as Peteski alluded to) total protection against poor residuals. Not that that is an issue with Porsche but the safety net is there.

Funding a much greater sum over the whole period getting a guaranteed opt out is what costs the money.
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PaulR
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Post by PaulR »

Paul wrote: Mon Dec 17, 2018 8:13 pm PCP also offers (as Peteski alluded to) total protection against poor residuals. Not that that is an issue with Porsche but the safety net is there.
I feel the finance company (or dealer) would need to have seriously screwed up their figures for the car to end up being worth less than the GMV. They're in the market to make money rather than gamble on the GMV. They tend to err on the side of caution and make the GMV less than what they really expect the future value to be. (That small amount of equity giving you a small deposit towards your next car, assuming you go onto another PCP deal.) Besides, in this example, we've paid an extra £6K in interest (versus a normal loan) - so car would need to be worth that much less than the GMV for PCP to be viable.

Of course anything is possible. I presume 'dieselgate' has impacted the resale of certain vehicles?
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Post by Paul »

Dieselgate yes, ...Peteski’s example was specific to EV.
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Post by Deleted User 1874 »

Paul wrote: Mon Dec 17, 2018 8:56 pm Dieselgate yes, ...Peteski’s example was specific to EV.
That's right, my example really doesn't apply to Porsche finance. I wouldn't personally touch PCP with a bargepole if buying a Porsche as it's horrifically expensive, but it's convenient for those who have plenty of disposable income, but no significant savings and absolutely need to be driving the car here and now! Also appears to work well for those entrepreneurial types who can effortlessly convert all their money into 20%+ investment returns 8-)

Anyway, the OP's idea of putting down half the cash and financing the other half on HP is a good compromise and will be way cheaper than a Porsche PCP.
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