Car loan madness

pheonixrising21

Pinkus wrote: »

Admittedly, I've no idea how PCP works but I'll have a look.

The thing that puts me off buying a new car is the depreciation over the first 3 years.

Mondeo sized isn't essential, but I'm 6'2" and after a long day of work I'd like to get into a comfortable car as motorway driving is extremely dull -- I don't think it should be uncomfortable in addition. My Mrs has a 5 year old Yaris and after I've driven on long journeys I feel half dead.

I'll look into the PCP, although the infectious resistance to debt this forum provides has rather swayed me to saving up. Also, I've realised that I only *really* use my car for commuting, with the occasional lengthy trip to my homelands. If i lost my job, I wouldn't need the car. As such, do I really want to be bound into a repayment agreement for a car I don't need without the cash to pay (if I lost my job)?

PCP stands for Personal Contract Plan or Personal Contract Purchase. Its a type of Hire Purchase agreement, but with a slight difference. With normal HP, you pay the same payments for so many months (e.g. 60) and then the car is yours.

With PCP, you put in a deposit and then based on the number of miles you do per year and how long you want the finance over, the dealer calculates how much the car will be worth at the end of the agreement. This is the Guaranteed Future Value (GFV). You don't finance this element of the loan.

At the end of the agreement you have three options:

1) Pay the GFV and the car is yours. You can also re-finance at this point to cover the GFV if you don't have the cash to do this and that essentailly becomes a normal HP agreement.
2) Trade in for a new car. This can be at any dealership for any brand. You are not tied in to the manufacturer or dealer. The dealer will value the car in the usual way. If its worth more than the GFV then that will be a deposit/part deposit for the new car.
3) Hand the keys over and walk away. This is what you do if the car is valued less than the GFV. This is also the point where the annual mileage comes in. If you said you would do 10k per year for 3 years and brought the car back after 3 yrs with 50k on the clock it will be worth less. If you hand it back at this point they will charge you for the excess miles and this can be up to 19p per mile (usually 4-7p). Therefore it is important to be honest in the number of miles you do, just in case you want to hand the car back at the end of the agreement.

The benefits of PCP are that the monthly payments are lower than HP. If you have a PCP over three years the monthly payments will be roughly the same as a five year HP. This is because you don't actually finance the GFV, thus lowering the total financed meaning lower payments or shorter terms.

The down side is that if you don't pay the GFV at the end, you never actually own the car.

If you like having a car that's less than 3 years old all the time, then its great.

Also, dealers are pushing PCP a lot at the moment and have some good discounts over cash/HP.

As for the Yaris, I mentioned that because they have 0% deals on some Yaris models at the mo, but also on Auris (same engine, slightly bigger car). The new Yaris is also a bit bigger than the last one, which your mrs will have if its 5 yrs old.

With regards to depreciation, all cars depreciate as soon as they leave the dealership. Usually they depreciate by the dealers profit margin! The aim is to negotiate that margin down as far as possible. On the up side, the new car will have full manufacturer's warranty (5 yrs for Toyota/Hyundai, 7 yrs for Kia, 4 yrs for Renault, lifetime/100k miles for Vauxhall for the first owner). Some dealers also throw in free/discounted servicing packs which are worth a few hundred £. Renault do 4 yrs servicing for free, which is over £900 worth (£230 a go for my Megane diesel!).

If you can save £700 a month, you should be able to cover the GFV at the end anyway.