How is it FREE .

[W200]

More and more I see and hear of things that are advertised as “Free “. For example the phone company 3 are running an add offering a “FREE smartphone if you take out a deal costing £45 per month. My question is that if the deal is costing 45 per month how is anything free? Other examples are car dealers offering “free fuel for twelve months, free road tax, free servicing “if you BUY a car for 30 40 or 50000 K of course. In my opinion something is only FREE if it cost you ZERO to obtain it

Recently a friend announced that he was buying a new fitted kitchen and had got a great deal with the kitchen costing 15000. He was delighted because the “man in the shop “had agreed to throw in the kitchen tiles “for free “. I managed to burst his bubble by suggesting that he had got nothing for free but that the price of the tiles were included in the 15000 . He argued that “ no the man in the shop said the tiles were free “ until I suggested that to prove the point he return to the shop , tell “ the man “ that he was cancelling the kitchen order BUT would like to have his “ free tiles please “ and see how that discussion progressed.

In my opinion to advertise something as “free “is false advertising , should be banned and is simply an attempt to entice the gullible.

Rant over.

 

[Firefly]

My favourite one doing the rounds at the moment relates to the PCP packages for new cars. They mention the optional final payment. I wonder will anybody chance their arms and say, "I thought about making the optional final payment, and as it's optional, I've decided against it" and hold on to the car?

 

[Leo]

My favourite one doing the rounds at the moment relates to the PCP packages for new cars. They mention the optional final payment. I wonder will anybody chance their arms and say, "I thought about making the optional final payment, and as it's optional, I've decided against it" and hold on to the car?

But those are optional, you generally have 3 choices. Obviously one of those choices isn't keep the car and make no further payments, but it's still optional all the same.

 

[Firefly]

But those are optional, you generally have 3 choices. Obviously one of those choices isn't keep the car and make no further payments, but it's still optional all the same.

Should have put a smilie after my post - I was joking. Still, would be funny though to see their reaction.

 

[Leo]

Should have put a smilie after my post - I was joking. Still, would be funny though to see their reaction.

 

[Firefly]

I think PCP is a scam in any case. Grand for the first car where you have something to trade as a deposit. Fast Forward then to 3 years where you have a balloon payment. The guaranteed future value will probably cover that, but guess what, you now have no deposit for the next car. That would mean that the monthly repayments for the 2nd and subsequent cars will be a lot higher or else you'll have to come up with a decent sized deposit every time!

My own car turned 10 last month and my wife's turned 15. Hopefully they will last another 2 or 3 years as there will be a GLUT of ex-PCP cars knocking around.....

supply > demand = low prices

 

[Gerry Canning]

Firefly .

PCP is a bit like the Tesco advertisement
{the more you spend the more you save}...

ps, hope the oul cars hold out.

 

[Firefly]

Firefly .

PCP is a bit like the Tesco advertisement
{the more you spend the more you save}...

ps, hope the oul cars hold out.

They're running like clockwork!

 

[Leo]

From a dealer perspective, they're looking to get you used to paying a monthly amount. And, they'll hope that the option of a shiny new car in 3 years time will tempt you to keep rolling over for the rest of your life. That way they maximise the revenue from each customer, and keep .

They can make sense in some cases though, but generally only if you intend holding on to the car beyond the 3 year term. Some brands are offering very low rates, and they give flexibility in terms of the amount being financed. So if you just take the option of paying off the final payment in 3 years time or financing that over another 2 or 3 years.

I worked out the numbers for a few of the deals out there, and in some cases the final payment payable after 3 years is only about 60% of the price 3 year old models are currently selling for, and that can work out at about 20% of the original purchase price. Rolling over to a new car, you lose that 20%. Second hand prices are a little high at the moment though (varies by model/spec) as a result of the drop in sales over the last few years. With the significant jump in sales this year, that should start trickling down the chain in a few years.

 

[Firefly]

From a dealer perspective, they're looking to get you used to paying a monthly amount. And, they'll hope that the option of a shiny new car in 3 years time will tempt you to keep rolling over for the rest of your life. That way they maximise the revenue from each customer, and keep .

Reminds me of Microsoft True Up licensing!

 

[ajapale]

My favourite one doing the rounds at the moment relates to the PCP packages for new cars

Out of interest what's PCP?

I object to cornflakes, ketchup and even tinned salmon marked by the manufacturer 50% or 33% free!

This is often compounded by the incorrect calculation of the unit price.

 

[Firefly]

Out of interest what's PCP?

Essentially you use your existing car as a deposit for a new one. You then make low repayments, say 249 euro per month, for 3 years. At the end of the 3 years then you have an outstanding amount owing, say 10k. The garage guarantees that the car you bought will be worth 10k, so you have 3 options: (1) hand the car back and walk away (in which case you now have nothing), (2) pay the garage 10k to keep the car or (3) keep the payments going whereby the car you bought becomes the deposit for the next car. The problem I see is that if you owe 10k and the car is only worth 10k, then when buying the next car (option 3) you are now doing so with no deposit. This would indicate to me that you would need to make much higher payments or else you would have a much larger balloon payment on the second and subsequent cars. All the while getting into more and more obligations just to change the car!

It sounds too good to be true to me anyway. I'd rather stick with the car I have and build up the bobs until I actually need to replace the car.

 

[W200]

WHAAAT ??. Actually save up for something BEFORE you buy it. What a novel idea, it might actually catch on. Oh come to think of it that’s what we used to do before the Celtic tiger arrived bringing with him the “because I’m worth it “generation.

 

[Leo]

The problem I see is that if you owe 10k and the car is only worth 10k, then when buying the next car (option 3) you are now doing so with no deposit. This would indicate to me that you would need to make much higher payments or else you would have a much larger balloon payment on the second and subsequent cars. All the while getting into more and more obligations just to change the car!

It sounds too good to be true to me anyway. I'd rather stick with the car I have and build up the bobs until I actually need to replace the car.

Essentially that's it. I think in 2/3 years time when a lot of these initial finance periods expire, one of two things will happen. Either people will figure out that the final value doesn't come close to the real value of the car, and either pay off or finance the outstanding balance, or dealers will offer an extra few grand off the list price of a new car to incentivise them to roll-over to a new deal.

Just an example of the numbers, for a car costing €30k, the minimum deposit is €3k. Financing the €27k works out about €500-540 a month depending on the interest rate you get. Some will give rates as low as 0% (VW are keen to brush off the impact of the emissions scandal). The cost of credit over the 3 years will be €0 to ~€5k depending on the rate.

The minimum value after 3 years will be ~€13k, or 43% of the original value. This is roughly in line with what the likes of the AA will tell you is typical for depreciation over that time. However, depreciation varies greatly depending on make, model, and spec. Residuals in small-mid size SUVs/crossovers in particular at the moment are considerably higher.


Alternatively, if you intend keeping the car after 3 years, and want the added flexibility of being able to pay off or finance the final value portion when the time comes, then pay the max deposit of ~30%, €9k for the above example. There are some scrappage deals going if you currently have a low value car. Finance the remaining €21k for less than €350 a month.


All in all though, it's very hard to argue for any new car deal over a 3 year old-second hand model that'll last years trouble free for 40-50% of the original purchase price.

 

[Firefly]

Good Post Leo - that last sentence is it in a nutshell. I think people get carried away with being able to get a new car for say, 249 per month, and don't factor in what happens after the initial payment term has passed.

 

[Leo]

The seemingly affordable €250 a month is all some people want to see, and the marketing people know it!

 

[RMCF]

But the success of these deals is the fact that people can keep on paying €250 per month continuously and always have a relatively new car. Most people don't care that they never really own the car and are just technically leasing it.

When the 3 years is up, they get a brand new car for roughly the same money, and on and on.....buyers happy and dealer happy, as they keep getting rid of new cars.

 

[Firefly]

But the success of these deals is the fact that people can keep on paying €250 per month continuously and always have a relatively new car. Most people don't care that they never really own the car and are just technically leasing it.

When the 3 years is up, they get a brand new car for roughly the same money, and on and on.....buyers happy and dealer happy, as they keep getting rid of new cars.

I don't think it will work out like that for the 2nd and subsequent car though. Take the current example for the VW Passat Highline that I heard on the radio just a few mins ago - details are roughly

RRP 33,500
Deposit 10k
36 payments of 259e
Baloon Payment 13,500

VW will guarantee that your car will be worth 13,500 after 3 years. So then, assuming you want to keep going and get another Passat, you will now be getting your next car with NO DEPOSIT as the value of your car will cover the balloon payment. So, to pay for the next car then you would need to come up with another 10k deposit to have the same 259e pw payments. Otherwise, if you only pay 259e (with no new deposit) you would then have a balloon payment 24,176 on the second car (RRP 33,500 - (259*36)).

This will end in tears for a lot of people......others will have their choice of heavily discounted 2nd hand cars.....

 

[Leo]

So, to pay for the next car then you would need to come up with another 10k deposit to have the same 259e pw payments. Otherwise, if you only pay 259e (with no new deposit) you would then have a balloon payment 24,176 on the second car (RRP 33,500 - (259*36)).

That's exactly it. I got a quote from a dealer recently and proposed paying the 30% deposit, he advised against it so I wouldn't have to come up with the deposit the next time around. Essentially, they want to stretch you to the maximum monthly payments you can afford, and keep the money train rolling on forever.

The VW example above is on 0% finance, you can be sure if they survive the emissions fallout, in 3 years time they'll be charging 7-8% on the money required to keep the deal rolling.

 

[Firefly]

That's exactly it. I got a quote from a dealer recently and proposed paying the 30% deposit, he advised against it so I wouldn't have to come up with the deposit the next time around. Essentially, they want to stretch you to the maximum monthly payments you can afford, and keep the money train rolling on forever.

The VW example above is on 0% finance, you can be sure if they survive the emissions fallout, in 3 years time they'll be charging 7-8% on the money required to keep the deal rolling.

An idea would be to walk in to the dealer and tell them that you have no deposit (in the boat you would be in in 3 years time) but would like a PCP plan and see how far you get!