UK Market RS3 and PCP

[akeithj]

I have never used PCP for various reasons and knew very little about it until recently and following quite a bit of reading and an offline discussion with a knowledgeable forum member I now have a better understanding of the product and can't help thinking (based on my limited knowledge) that it may not be the best way to finance an RS3, other cars yes but not RS3.

Whether you choose PCP or not is probably determined by two main factors, namely availability of funds and access to other forms of credit. I have never owned an RS car before, but RS3's in particular seem to hold there values very well and owners tend to be very loyal to the brand, plus they appear to be produced in quite limited numbers, so you would expect residuals to be high.

Reasons for using PCP
1. Ease of approval
2. Low monthly deposit and payment options
3. Should the market crash you can simply give it back at the end of term

Reasons for not using PCP
1. Interest rate is high at 6%
2. You pay interest on the whole amount including the balloon/GFV
3. If you don't have the funds available at end of contract you will have to borrow more money effectively paying interest twice on the balloon
4. In the unlikely event that the market crashes I can't see most owners simply giving their cars back
at end of term and if you do intend to do this, effectively leasing the car it's a very expensive way to do it.

If you are fortunate enough to have cash there seems to be two schools of thought

1.Don't put your money into a depreciating asset as you could make it work harder elsewhere
or
2. Cash is king and for most none sophisticated investors your money will be lucky to earn more than 2% interest on your savings, so if you can pay cash you are saving 4%.

Very roughly on a car with an OTR price of around £50k with a £10k deposit over 4 years you will pay around £7200 in interest if using PCP

I am sure I must have missed something?

 

[AudiNutta]

Well you've done a good job of explaining it, nothing missed at far as I can see. HP finance is the preferred option, but monthly payments are almost 50% higher typically. PCP is ultimately there for affordability.

 

[akeithj]

Just read only 20% of people who use PCP actually pay the balloon, making it effectively a lease.

 

[Radman]

On a car

Just read only 20% of people who use PCP actually pay the balloon, making it effectively a lease.

like an RS3, I'll be paying the balloon as the final figure is lower than what the car will actually be worth imo.

 

[Leo-RS]

Just read only 20% of people who use PCP actually pay the balloon, making it effectively a lease.

Not quite No.

With a conventional lease, you would pay a monthly figure and hand the car back at the end of the term and walk away with nothing. The owner is the leasing company. With a PCP, there is a possibility that you can walk away at the end of the agreed term with positive equity. The car's owner and registered keeper is your own. This positive equity may run into the thousands and the idea is that this is to be used for a deposit on your next car.

A lot of people like shiny new things and 3-4yrs is the maximum time that they will ever keep the same car. Warranty and MOT reasons fall into that decision process too. These PCP deals are perfect for those that live month to month, a car finance payment is treated the same way as a recurring monthly cost the same way a mortgage, council tax, Gas/Elec direct debits are. At the end of the 3-4yr term, they get a shiny new car and the cycle starts again.

A cash buy is ultimately king and is the cheapest way to pay for a vehicle but its swings and roundabouts.

A cash buyer withdraws £50k from his own bank account and puts that into this heavily depreciating asset. At 3yrs the car is now worth £26k so the cost of ownership for those 3yrs is £24k plus loss of investment of that original £50k (Or parts thereof considering deposit requirements)

The big advantage of a PCP deal is PROTECTION. The PCP buyer is protected with a £26k 3yr valuation, a cash buyer is not. There's talk of the car finance bubble just waiting to burst in the press at the moment. If the car finance market does burst or Brexit fails miserably and there's a lot less cash going around there is a real possibility that the 3yr values will fall below that of the values Audi have set.

Consider the GFV's as they are now...

Base price of Saloon RS3 = £45,250
3yr residual value = £26,262 (58%)
4yr residual value = £23,260 (51.4%)

It is said a car is doing well if it holds 50% of its base value after 3yrs, the residuals above as they are now are extremely strong. As you can see, the car is keeping over 50% of its initial value after 4yrs, never mind 3yrs.

This will not last. Over the next 12 months I would expect a drop in both of these 3/4yr values by at least £2-3k. As discounts become more available and the new model A3 platform is released (Due 2019) the residual values offered by Audi will drop. Afterall, Audi are no mugs and don't want to get their fingers burnt by guaranteeing values that are too high. These residual values change all the time, they are strongest on first release and are weakest at the end of life cycle. The A3 (8V) platform is already 7yrs old, it's got another couple of years left and there will be a new platform. The RS badge will not save you from depreciation when there's a newly released model.

As said, swings and roundabouts, you would need to open up a spreadsheet and work out how much return £50k could generate you over the term. Factor that in against the finance costs etc.

Cash inevitably will work out cheaper though but comes with risk.

Millionaires will often lease their supercars rather than put their capital into them. It's often more manageable to know your recurring monthly costs rather than whacking a great amount of capital into what is essentially a quickly depreciating asset.

Not many people have £50k sitting lying around in a bank account either. If they do, the last thing they should be doing (IMO) is blowing the whole lot on a car. Get it into an investment and make that capital work for you. At my end of the country, you can still buy 1 bed ex council houses for £40-50k that generate £350-400pm rentals. The £50k capital is safe and the income from the rentals is then 'free money'

Lots of ways of looking at it.

 

[Terminator x]

The RS3 though @Leo-RS has historically been built in small numbers and rumour is that will continue. Also not generally discounted in the past although some PFL buyers seem to be getting some money off. Imho RS3 will retain strong residuals for those reasons. BTW you rarely see them, I can count how many I've spotted "in the wild" on one hand since I got mine almost 2 years ago.

TX.

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[dunes7]

Not many people have £50k sitting lying around in a bank account either. If they do, the last thing they should be doing (IMO) is blowing the whole lot on a car. Get it into an investment and make that capital work for you. At my end of the country, you can still buy 1 bed ex council houses for £40-50k that generate £350-400pm rentals. The £50k capital is safe and the income from the rentals is then 'free money'

Sure......... You ever seen the movie "Pacific Heights"!!!!!!!!! That'd be my luck

 

[-Ju-]

The RS3 though @Leo-RSI can count how many I've spotted "in the wild" on one hand since I got mine almost 2 years ago.

TX.

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If you lived around Bradford you'd see loads, I'm in the rarity around here with my S3 lol

 

[Leo-RS]

The RS3 though @Leo-RS has historically been built in small numbers and rumour is that will continue. Also not generally discounted in the past although some PFL buyers seem to be getting some money off. Imho RS3 will retain strong residuals for those reasons. BTW you rarely see them, I can count how many I've spotted "in the wild" on one hand since I got mine almost 2 years ago.

I'd agree.

With the RS3 in limited numbers, I'd expect them to book above their GFV's when the terms end.

We are not sure yet how limited these facelift RS3's will be but as long as Audi don't start offering silly discounts, residuals should remain good.

 

[akeithj]

Leo another well written and reasoned reply.
I fully accept what you say about making your money work for you particularly if you are fortunate enough to live in an area where it's possible to buy property for £40-50k and achieve a 10% + annual return, it's a no brainer, always assuming you manage to get good tenants.
I suppose my rather simplistic reasoning is best illustrated by the following example;

In a perfect world Audi are offering a PCP interest rate of 1.% APR and it's possible to achieve a return of 4 % by just leaving your cash in the bank, only a fool would choose to pay cash when effectively you are achieving a return 3% by opting for the PCP.

In reality Audi are now charging 6% APR and it's only possible to generate a return of around 1.5% by leaving your cash in the bank, so by using cash you are "saving" 4.5% in interest charges.

When you say "The big advantage of a PCP deal is PROTECTION. The PCP buyer is protected with a £26k 3yr valuation, a cash buyer is not". This is possibly where I am failing to understand the concept fully.

If the market has crashed and cars are failing to achieve GFV, you simply hand the car back and walk away, but would anyone really want to walk away from an RS3 that conservatively based on an OTR price of £50k you have paid just under £30k for the privilege of driving for three years. (Assumes £10k deposit)

I do think PCP is a good way to buy a car that maybe you would not normally be able to afford particularly if the car is prone to heavy depreciation as it does offer you a degree of protection as you can simply walk away but I would have thought with something such as RS3, which will hopefully continue to be produced in fairly limited numbers with historically strong residuals PCP is not necessarily the best option at an interest rate of 6%


As you say, there are lots of ways to look at it.

 

[Leo-RS]

Yes, they would happily walk away and let Audi deal with the tab.

If the RS3 is booking at £22k in 3yrs time and you are still owe £26k on it, you would be stupid to try and refinance the £26k in order to buy it after the 3yr period when you could just hand the keys back and let Audi deal with the £4k short fall.

As a cash buyer and if the car is worth £22k at 3yrs, you will have lost the £28k in depreciation (Presuming £50k purchase price) plus any missing income generated from the initial £50k. If paying by cash in full right now then the GFV is compeletely irrelevant to you.

In the PCP example above, you would have paid £24k + interest. In the cash example you would have paid £28k + investment losses.

RS3's have in the past held up well. That doesn't mean anything for the future though.

Unknowns at this stage are how many cars are to be produced and are they in limited numbers? RS3 Saloon for example is ticking a lot of boxes for a lot of people who are in the market for a small fast Saloon. What else is on the market in this area and at this price point? Can only think of the CLA 45AMG and that's a 2.0t screamer.

Some uncertainties...

Brexit.
Car Finance bubble.
Discount availability.
New A3 platform due 2019.

Cash should 'win' Keith, no doubts. However, PCP provides many other options. It's all down to personal circumstances at the end of the day.

 

[Rs1]

Who cares it's only money can't take it with you!!!!!!

 

[D0C]

Who cares it's only money can't take it with you!!!!!!

Hate that saying!

You can leave it to your kids. Or the cats home as some tools do.

 

[wab172uk]

Who cares it's only money can't take it with you!!!!!!

Yes, but when you're 75 and can't afford your heating bill ........

You can't take it with you, but it comes in handy if you don't want to live hand by mouth on state pension payments.

 

[akeithj]

Just wondering on a 3 or 4 year PCP deal how many would choose to pay the GFV if the valuation was at least GFV or within + £2k?

 

[DrEskimo]

Just wondering on a 3 or 4 year PCP deal how many would choose to pay the GFV if the valuation was at least GFV or within + £2k?

I imagine some do, but I don't get PCP as a way to own a car outright. Over a 3yr period you pay upwards of an additional £3k in interest.

Quickly writes off any potential investment you could have made, or shortfall in car values...

If your intention is to own outright, I would be looking to pay the finance ASAP...

 

[D44RN]

Hi
New on here.
Apart from all the other questions I would probably have in terms of ownership, I have joined this site for exactly this conundrum for want of a better description. I am still pondering and trying to a) justify signing up to an RS3 and b) deciding the best method to achieve this. Paying cash is not an option so PCP is what I am getting my head around. I have leased in the past and the 2 years were up in a flash leaving me feeling a little empty(in terms of the cash I had parted with as well as having nothing to show for it- apart from the obvious pleasure of driving a great shiny new car).
My question is, if there is a definite answer to, which I am guessing won't be as everyone's personal circumstances are different but having never considered committing to a £50K car before, is the most common method that owners acquire an RS3, PCP or is there a better or smarter alternative?(paying cash being out of the question).

Thanks.

 

[DrEskimo]

Hi
New on here.
Apart from all the other questions I would probably have in terms of ownership, I have joined this site for exactly this conundrum for want of a better description. I am still pondering and trying to a) justify signing up to an RS3 and b) deciding the best method to achieve this. Paying cash is not an option so PCP is what I am getting my head around. I have leased in the past and the 2 years were up in a flash leaving me feeling a little empty(in terms of the cash I had parted with as well as having nothing to show for it- apart from the obvious pleasure of driving a great shiny new car).
My question is, if there is a definite answer to, which I am guessing won't be as everyone's personal circumstances are different but having never considered committing to a £50K car before, is the most common method that owners acquire an RS3, PCP or is there a better or smarter alternative?(paying cash being out of the question).

Thanks.

Well if you assume that the car will be worth more than the final payment set by Audi on a PCP, then a way to reduce the interest you pay would be to go HP. This will likely still have a higher interest rate, so a personal loan from a bank would be even better.

Borrowing more than £25k is tricky though, so you are looking at a sizeable upfront payment and obviously the monthlies on the personal loan will be relatively high as well.

But even if you borrowed it on a 5yr term, the amount of interest is much smaller compared to PCP.

 

[BarryG79]

https://www.gateway2lease.com/cars/...ortback-rs3-2.5-tfsi-quattro-400-s-tronic.php

Lease deal that might help be of interest to someone. Can recommend G2L having used them in last few weeks for the wife's new car. Speak with Kelly Marshall, quotes we got and accepted for a Hyundai Tucson were cheaper than their advertised price online Worth an email anyway for those interested.



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[Leo-RS]

That's a great deal on the lease...

£456 x 35 = £15,960
£4104 deposit
£180 fee
£20,244 for 3yrs lease.

Same thing on a PCP...

£581 x 35 = £20,335
£4104 deposit
+£900 road tax in years 2 and 3
£25,339 for 3yrs PCP.

£5,095 (Or £141pm) cheaper leasing than using a PCP. (Presuming you getting no discount on the PCP)

I can't believe Audi are letting this happen already, will be bad news for residuals.

The only caveat being, I wonder how much those lease deals rocket too when options are added.

 

[BarryG79]

That's a great deal on the lease...

£456 x 35 = £15,960
£4104 deposit
£180 fee
£20,244 for 3yrs lease.

Same thing on a PCP...

£581 x 35 = £20,335
£4104 deposit
+£900 road tax in years 2 and 3
£25,339 for 3yrs PCP.

£5,095 (Or £141pm) cheaper leasing than using a PCP. (Presuming you getting no discount on the PCP)

I can't believe Audi are letting this happen already, will be bad news for residuals.

The only caveat being, I wonder how much those lease deals rocket too when options are added.

Options do make lease expensive, if you pick £4k of options it's just divided over term
e.g. 4000 / 36 = £111.11 pm extra


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[akeithj]

Having leased my cars for the last 10 years, that deal would be very appealing, however I cannot find it on the G2L website, maybe it's just been released? The price advertised is around £100 pm less than anyone else, which in my experience can happen, but usually only on one or two cars.
The decision by the supplying dealer to offer a car for lease in the current market also seems rather strange, in the area where I live all four Audi dealerships sold out there allocation at the start of last month and are now quoting July 2018 if ordering a car now.

 

[D0C]

Leo took the words right out of my mouth. Leasing is great. Provided you're not trigger happy with options. I've experience with leasing and the best way is to keep the car as standard as possible. That's difficult with the RS3. When leasing, you pay the full cost of the option over the term, for example, £5000 of options over a 24 month term would be an additional £208pm.

Personally, I'd be sticking with PCP on the RS3.

 

[akeithj]

You have to look at leasing with a different mindset, that the car is and probably never will be yours (depending on contract).I have had some great cars over the years this way, but largely because I have had an open mind about what car I was going to go for. Unless you are very lucky you will be unlikely to get the car you want, but there can be some great opportunities out there. In 2013 I had a BMW M3 E93 LE500 with a list price of £63k over 2 years and 16,000 miles I paid £13,400 including road tax, these type of deals only last for a week or so and a limited number of cars are available. I really do hope Audi do not start doing this with RS3 as its only going to hurt residuals.

 

[Terminator x]

@Leo-RS the lease cars will be bum basic no options and almost impossible to sell on after lease is finished. Imho a bog standard RS3 is not a place I'd like to spend a large part of my day either. Even then though £450 p/m is still a lot for your average Joe to be paying out?

TX.

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[akeithj]

You don't have to worry about selling it, as generally speaking it will never be yours, similar in my view to PCP if the car does not achieve GFV and you end up giving it back.

 

[Leo-RS]

Agreed Tx, the RS3 needs a good few £k worth of options and that in itself will push the monthlies up considerably. Yep, £450pm+ and a £4.5k deposit should still keep the Golf R brigade away from even the poverty spec RS3's

 

[Terminator x]

You don't have to worry about selling it, as generally speaking it will never be yours, similar in my view to PCP if the car does not achieve GFV and you end up giving it back.

I understand that, no idea how the owner of the car sells it on afterwards is all.

TX.

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[wab172uk]

I understand that, no idea how the owner of the car sells it on afterwards is all.

TX.

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Just priced to sell. People will always want an RS3, so the dealer will no doubt be selling the engine (performance) rather than if it comes with SS seats or wider front wheels.

Reduce sticker price to suit the potential customer. Customer gets £1500 off (or whatever) and thinks he's bagged a bargain.

 

[D44RN]

Well if you assume that the car will be worth more than the final payment set by Audi on a PCP, then a way to reduce the interest you pay would be to go HP. This will likely still have a higher interest rate, so a personal loan from a bank would be even better.

Borrowing more than £25k is tricky though, so you are looking at a sizeable upfront payment and obviously the monthlies on the personal loan will be relatively high as well.

But even if you borrowed it on a 5yr term, the amount of interest is much smaller compared to PCP.

Hi- thanks for the above. Yes agreed- I did consider Personal loans etc but like you said- a high loan amount physcologically is not for the faint hearted and I'm pretty certain you would need to put up your home as security so another serious consideration. Having done a quick search you would also be looking at 6.7% -6.9% for £30k plus so really not that attractive at all. I also agree that even though a lease example such as above looks good- once you tick options then forget it and I have already decided adding 5k of those- all in all it seems PCP is probably the default or favoured option for most if not all.

Thanks.

 

[Weeb]

Personally i'd never heard of these PCP options on new audis and i'm so pleased i hadn't 3 months ago when shopping for a used S3 I could of got myself in so much of a financial mess by opting for such schemes


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[DrEskimo]

Hi- thanks for the above. Yes agreed- I did consider Personal loans etc but like you said- a high loan amount physcologically is not for the faint hearted and I'm pretty certain you would need to put up your home as security so another serious consideration. Having done a quick search you would also be looking at 6.7% -6.9% for £30k plus so really not that attractive at all. I also agree that even though a lease example such as above looks good- once you tick options then forget it and I have already decided adding 5k of those- all in all it seems PCP is probably the default or favoured option for most if not all.

Thanks.

Worth remembering that even a higher rate on a personal loan will be considerably cheaper than a PCP on a lower rate. The GFV on a PCP means the amount doesn't reduce as much, and means you pay interest on a higher amount over the term.

But yea....still tricky to obtain! £25k is probably OK, but any higher will be tricky, particularly without good credit.

 

[D44RN]

Worth remembering that even a higher rate on a personal loan will be considerably cheaper than a PCP on a lower rate. The GFV on a PCP means the amount doesn't reduce as much, and means you pay interest on a higher amount over the term.

But yea....still tricky to obtain! £25k is probably OK, but any higher will be tricky, particularly without good credit.

Excuse my lack of full understanding but would you be kind enough to help clarify exactly the comparison between the interest on a PCP versus a personal loan just for example. I know the saying "if you have to ask the price...." but I think I get it but i'm missing the fine detail.
Thanks.

 

[D44RN]

Personally i'd never heard of these PCP options on new audis and i'm so pleased i hadn't 3 months ago when shopping for a used S3 I could of got myself in so much of a financial mess by opting for such schemes


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I'm guessing you paid cash/personal loan then. If you don't mind can I ask why you think PCP is not such a great idea or wasn't in your case.
Thanks.

 

[Weeb]

I'm guessing you paid cash/personal loan then. If you don't mind can I ask why you think PCP is not such a great idea or wasn't in your case.
Thanks.

I took out loan and stuck within a budget i knew i could comfortably afford, PCP seems so appealing i could've got in too deep although not against it at all actual seems a good way if you can afford the payments Horses for courses really for me it has to be family first atm But never say never


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[DrEskimo]

Excuse my lack of full understanding but would you be kind enough to help clarify exactly the comparison between the interest on a PCP versus a personal loan just for example. I know the saying "if you have to ask the price...." but I think I get it but i'm missing the fine detail.
Thanks.

Not at all.

So a 4yr PCP on a RS3 Saloon with no options is:

RRP: £45,250
GFV: £23,259
APR: 3.1%

With £20k down you would pay £163 per month, with a total cost if you paid the GFV at the end of £50,932, so £5,700 in interest.

A loan of £25k borrowed over a 4yr period will cost you £3,500 in interest, even though it's at 6.9%.

The reason the PCP is much higher is because it's effectively two loans. One is a interest only loan on the GFV (£23259) and the other is a capital and interest on the price minus the deposit minus the GFV. So while the monthlies are lower, it's largely just interest you are paying off and just a bit of capital.

Conversely the loan is larger monthly, but mostly capital. By the 48months in the loan, the car is paid for, but on the PCP you still owe more than half.

 

[D44RN]

Not at all.

So a 4yr PCP on a RS3 Saloon with no options is:

RRP: £45,250
GFV: £23,259
APR: 3.1%

With £20k down you would pay £163 per month, with a total cost if you paid the GFV at the end of £50,932, so £5,700 in interest.

A loan of £25k borrowed over a 4yr period will cost you £3,500 in interest, even though it's at 6.9%.

The reason the PCP is much higher is because it's effectively two loans. One is a interest only loan on the GFV (£23259) and the other is a capital and interest on the price minus the deposit minus the GFV. So while the monthlies are lower, it's largely just interest you are paying off and just a bit of capital.

Conversely the loan is larger monthly, but mostly capital. By the 48months in the loan, the car is paid for, but on the PCP you still owe more than half.

That's great- thanks. Ah- I think I get it now. The part I was probably confusing is the upfront payment or what you iniatially put down. But regardless, I imagine that it still doesn't make a massive difference how much you put down overall as you are still paying more interest with PCP v personal loan. So I guess the reason PCP maybe more attractive is due to the lower payments compared to a personal loan as long you have considerable spare cash to make a sizeable upfront contribution as then you will have more manageable monthly payments even though you will pay more overall. I think you've helped me make sense of it.

 

[DrEskimo]

That's great- thanks. Ah- I think I get it now. The part I was probably confusing is the upfront payment or what you iniatially put down. But regardless, I imagine that it still doesn't make a massive difference how much you put down overall as you are still paying more interest with PCP v personal loan. So I guess the reason PCP maybe more attractive is due to the lower payments compared to a personal loan as long you have considerable spare cash to make a sizeable upfront contribution as then you will have more manageable monthly payments even though you will pay more overall. I think you've helped me make sense of it.

Yes exactly.

It doesn't make a huge amount of difference how much deposit you put down on a PCP, but does increase the interest.

So you could put down just £5k, and have monthlies of £520, which is similar to the loan. The amount of interest you pay goes up further though (as you are borrowing £15k more) to about £7,500.

I just used a PCP with £20k deposit in my example to make it similar to the loan, where you used £20k of your own money and borrowed £25k.

 

[Colin A]

Quote Dreskimo A loan of £25k borrowed over a 4yr period will cost you £3,500 in interest, even though it's at 6.9%.


You can get £25,000 at 3.2 % which would work out at £1,642.88 interest . Even better

 

[DrEskimo]

Quote Dreskimo A loan of £25k borrowed over a 4yr period will cost you £3,500 in interest, even though it's at 6.9%.


You can get £25,000 at 3.2 % which would work out at £1,642.88 interest . Even better

Yup!

Although getting those headline rates are much harder than it should be....