Contract Purchase

[Lance]

A warning really, although I'm sure you're all pretty smart about this by now, I thought I'd share my story though.

Near the end of last year, last summer really, my 2003 SLK 200K had a problem with the small rear window not coming up with the roof. It was sorted out via Mobilo Life, which I was quite happy about as it didn't cost anything, and I got a hire car. Anyway, whilst at the dealers, I went for a spin in the new shape SLK. I wasn't going to bother, but my SLK is black, with siam beige leather, lots of extras, and wood kit, so it looks the business really, and I keep it immaculate. When I went to collect it, a salesman there said he knew someone who wanted the exact spec of my car (colour outside and in leather etc) and he could call them and they would have it. He seemed very keen and said that he could do a great deal on a new one and I therefore had a test drive of a new one. It was an 06 200 model (56 wasn't out) unregistered, delivery mileage, and, from memory was around £31,000 although he never actually told me the price. It was an auto, metallic, leather, with airscarf. No Sat Nav. I'd told him that I didn't want to be paying more than £200 per month. He still seemed keen.

After the test drive he "Spoke to the boss" and then came back. What he said shocked me. First of all he said "Oh it's good news actually". The "deal" he offered was this:

He'd give me £14,000 for my SLK (after seeming so keen, how come he offered me at least £2000 less than book? At the time)

He then said it would be £250 over 60 months, with a balloon payment after that of £13,000 or so. I looked at him and he honestly looked like he was offering me a good deal.

I asked him why he only offered me £14000, to which he replied that he'd give me £16,000 if that's what I wanted. I said no I wanted more than that. I then said if that was the case, the payments and my deposit (car) would add up to the new cars price, so why would I have to pay an extra £13000 to keep it? He couldn't answer. I'd end up paying £43,000 for the car, which amounts to about 30odd % interest, assuming I paid the £13,000 in cash!

It really made me think. Firstly not to touch contract purchase with a barge pole again (I'd done it once and actually changed the car at the perfect time)
and secondly I know that as long as I do my homework, I'll never get ripped off by a dealer again. Luckily the SLK isn't under finance, so I intend just keeping it now.

I also recommend to people thinking about contract purchase to do the maths first. In my opinion it's a complete con.

 

[jberks]

A lesson well learned. They can make the payments as low as you like, but they have to make it up somewhere so if you can't see where his profit is, he's just hidden it well. It's there, just keep looking.

I remember my Wife wanting a Jeep. She had an Audi and knowing that the Audi was £4k less than the Jeep I was pretty sure we couldn't do it. Anyway, the Audi was on a 3 year lease (I'd done the sums carefully so knew what I was in for) I said, you can have one if it doesn't cost any different.
A week later I get a call from a salesman. He's managed to do the deal!!!
He explains that he's matched my monthly payments as requested. It wasn't easy but he's done it. So, I get the pen and paper out and start to go through it. Sure enough, he has matched the payments...but .... at the end of the deal, the baloon payment wouldn't be the £5k I had on the Audi (which would trade at £11k). No it would almost perfectly match the trade in value of the Jeep - hence at the end of the deal, I'd have absolutely nothing. I would have lost the £6k I'd just spent the last few years building up in the Audi and have to start again from scratch.

I did buy a jeep in the end, but I paid cash for a used one instead.

There are lots of people out there that sadly just look at the weekly payments - hence these car supermarkets that say "No deposit and £99 per month!". What they don't mention is that you'll still be paying long after the car is scrapped!

 

[Rory]

Are these deals lease purchase, or PCP's (is the balloon payment the same as the final value in a PCP?)?

Apparently these deals work well elsewhere in Europe and in the US because (and I don't know why) used values are much higher.

I've seen comments that PCP's work well on new E Classes because the guranteed final values can be more that the car is actually worth. The main problem with a PCP seems to be that it's very expensive to get out early.

 

[calum]

The main problem with a PCP seems to be that it's very expensive to get out early.

yup, that really is a disaster. Although they're supposed to meet at the end of the lease, the amount owing reduces linearly, but the depreciation doesn't, obviously.

A change in circumstances meant I wanted out of my lease early, and it cost a fortune. Saved in the long run, but only because I wasn't using the car much, and so don't miss it. Depressing to *pay* money to *lose* a car, though

 

[Lance]

Yes, that's the problem. With £13,000 to pay after 5 years, this would certainly be more than the car was worth, because I was only offered £14,000 for mine, which was, at the time, only just 3 years old and, according to him, very desirable owing to it's colour and spec. I know that he then offered more, but a weaker punter might be forced into parting for less. So a 5 year old car would probably be more likely to bring about £10,000 in Part Ex.

 

[Topboy]

I know that a lot of finance deals are done on an assumed final value which 'should' cover the outstanding final or baloon payment.

This gets the punter into paying out a fixed sum each month and most dealerships assume that at the end of the 24, 36, 48 months, the car will be PX'ed for a new one on a new but similar deal.

Perpetual rolling sales!!!

 

[Lance]

I can never get my head around the thought that if you owe £13,000 as a balloon payment, and you put the car in as a PX, surely you're gaining £13,000 if it's going to be knocked off the price of a new one?

 

[Hibbo]

Very well made point.

A lot of my mates have this type of deal on average (decent but not flash) cars they bought brand new. They think it's great, but all those 200pounds really rack up. When I take great pleasure in doing some sums for them and add in the deposit and what they need to clear the finance at the end of the deal, the real cost of that car can shock them to say the least!

 

[Shambolic]

I thought if the Balloon payment was 13k and the value of the car at trade-in was 16k you only get the 3k against the new car.
I did this a few years back with a Ford Puma as i had given up my company car and didnt have a deposit or ought.

The car ended up less than the final payment so I walked away with nothing after 3 years as i just handed the car back.
I suppose if you change every 3 years and are happy with a steady payment that you can afford, then it is like leasing a car as you never own it.

This also ensure the dealer has a steady supply of serviced 3 year old cars at his disposal!!

 

[Rory]

I'm confused by the terms used in this thread - I don't think balloon payment (used in lease purchase) is the same as Guaranteed Final Value (used in a personal contract purchase).
With the guaranteed final value then you can just hand the car back and walk away (with nothing). However with the balloon payment, you actually have to make up any shortfall. This can be done by moving the shortfall onto the finance deal for your next car, but it's got to catch up with itself at some point.

Lease Purchase is apparently less costly to get out of early than a PCP, but I don't really understand why.

 

[Shambolic]

I thought the Guaranteed final value was a rough estimate of what the car would be worth at the end of the agreement...If its more you would trade it in or sell it privately to finance your new car!!

 

[ShinyF1]

Did a PCP once on a Mk III Golf. Net result zero - sold it privately for £5500 and paid VW Finance just over £5k - trade would have left me down on the deal.

I went in blind - but I feel sorry for people who cannot fund the balloon to clear HPI etc if they have to sell privately.

 

[Rory]

Did a PCP once on a Mk III Golf. Net result zero - sold it privately for £5500 and paid VW Finance just over £5k - trade would have left me down on the deal.

I went in blind - but I feel sorry for people who cannot fund the balloon to clear HPI etc if they have to sell privately.

On a PCP the final value is guaranteed - they're supposed to be set so that you'll come out of it with a bit of money to fund the deposit on your next car.
However the (one) good thing about them is that if it turns out that the car is worth less, then you can just hand it back. You should never be down on the deal.

 

[Captain Flack]

With any of these deals, whether its over 24,36 or 48 months, the amount you pay usually corresponds to the depreciation over that term plus interest. You do only pay interest on the difference between the purchase price and the guaranteed sale price and not whole lot but on the down side, the car is not really yours unless you pay the balloon payment at the end.

There are good and bad sides to buying a car this way as long as it isn't a new Maybach!

 

[Rory]

There are good and bad sides to buying a car this way as long as it isn't a new Maybach!

It could be a great way (in fact maybe the only way) to buy a new Maybach - as long as they set the final value stupidly high then your monthly payments could be less than the likely depreciation.

It's always worth getting a PCP quote if you're buying a new car. Then, when the salesman tells you that your new CLS or ML (or whatever) will really hold its value well, you can ask him why the GFV is so low! The trouble is that the GFV could be so low it might put you off buying the car. Mercedes does sometimes subsidise these deals, as it allows them to effectively discount the car without dropping the list price. They can be worth looking at, but as noted earlier, you need to be pretty sure of your circumstances - PCP's can be horribly expensive to get out of early.