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Low Payment Plan
How does it work?
You
decide the amount of deposit you wish to pay which may include value
from your part-exchange. You then choose your annual mileage.
From this a forecast is made of the value of the vehicle at the end of
the contract which is the Guaranteed Minimum Future Value (GMFV).
What
happens at the end of the agreement?
1. You may either change for a new car.
2.
Return the car subject to mileage and condition. 3. Own the car by paying the GMFV.
What
are the advantages?
The guarantee that the vehicle will be
bought back protects the owner against excessive depreciation. The
lower monthly repayments make for more affordable motoring.
If the
vehicle is worth more than the GMFV at the end of the contract then sell
it back to the dealer and use the revenue towards your next new car.
Are there any
disadvantages?
Interest rates are likely to be slightly higher as the
lender has an increased risk that the car will depreciate. If
you don't set a realistic mileage figure at the start then the value
remaining in the car may diminish thus reducing the
deposit available for your next car.
Example
With this £4995 car the
monthly repayment is £87.89 under the low payment plan (Blue Arrow), but
to get to a similar monthly repayment with a standard Hire Purchase
agreement you would need to extend the term by almost another two years
(Red Arrow).
Of course you would own the car outright at the end of the 59 month HP
agreement. However the average period of ownership is 3 years so
many find the PCP scheme fits with their normal change cycle.
Besides, if you wanted to keep the car you could pay for the GMFV on
another finance agreement which if set up over a further 2 years would
cost about £89 per month.
We therefore recommend the Low Payment Plan for
its flexibility, low payments and protection from excessive
depreciation.
