Understanding PCP

anotheruser

thescouselander wrote: »

It's nothing to do with vanity - some people just don't want the liability of owning a vehicle and prefer to have known outgoings.

Yet many would happily have the liability of owning a house...

Yes, cars depreciate in value but it's still something that's yours.

A lot of PCP cars have limited mileage.
They cost, what, £189 a month on average? That's £2268 a year, or £6804 for the three years. I bet you could get a loan and buy a car for the same amount. Then if you sold the car for £1000, the amount of money "wasted" would be even less!

The only reason I can understand why people go for PCP is that they think a new car won't break down as much or they can't afford to buy a used £4000/£5000 car in one go.

Strider590

motorguy wrote: »

Agreed.

Though it doesnt have be someone on lower income for it to work - why tie up large sums of money in a car you dont intend to keep for more than three years anyway?

Why only keep a car for 3 years?

Also, your putting down large sums of money into something you won't actually own after 3 years, your unlikely to have the savings to pay the balloon payment at the end, so your then left with a choice of forking out a lump sum on 2nd hand car (which you also won't be able to afford) OR taking out another deal on another car and continue paying ££££ every month.
Once your on these "deals" your basically stuck.

anotheruser

I'm sort of surprised car companies don't do 0% loans on the cars.
Maybe they do and I just haven't noticed, but like sofa companies that charge 0% for X number of years... I would have thought car companies want as many of their cars on the road as possible to show they're popular.

boliston

Zola. wrote: »

I hate the whole concept of PCP. You are just renting a car effectively. Penalties if you want to drive it a bit more than you agree. Then if you want to buy it there's a massive payment at the end, right where you have become accustomed to it and the novelty has worn off.

I would much rather save and buy a good second hand car on autotrader despite the risk.

A standard handback without voluntary termination would entail a potential mileage surcharge - opting for the statutory voluntary termination would only require the vehicle to be returned "in good condition" which would be achieved even if far over the agreed contractual mileage as statue always overrides contract in law.

motorguy

Mr_Singleton wrote: »

Looking into this and found a Corsa for £99/month for 4 years plus an initial rental of £3900 and then limited to 8k miles/yr = total cost of £8700.... you'd need to have very UN-sporadic and expensive bills to make it a worthwhile proposition on a £1000 car.

Even some cheaper £99/mth cars are coming in at over £5000 over the contracts lifetime.

And then you hand it back!

Thats a willfully bad example to have chosen, which sounds like it doesnt include any discount.

Heres the first deal i looked at - brand new Skoda Citigo for £2K down, 9k PA, £95 a month over 42 months.

http://www.skoda.co.uk/finance/finance-offers/citigo/default/

Broadspeed deals suggest theres maybe £800 of discount to be found, which would take the total cost to £5190 over 42 months so thats £123 a month overall.

Thats not bad for a brand new car, 3 years warranty, no repair bills to worry about, etc, etc.

motorguy

anotheruser wrote: »

Yet many would happily have the liability of owning a house...

Yes, cars depreciate in value but it's still something that's yours.

A lot of PCP cars have limited mileage.
They cost, what, £189 a month on average? That's £2268 a year, or £6804 for the three years. I bet you could get a loan and buy a car for the same amount. Then if you sold the car for £1000, the amount of money "wasted" would be even less!

The only reason I can understand why people go for PCP is that they think a new car won't break down as much or they can't afford to buy a used £4000/£5000 car in one go.

A bit of a contradiction there - on one hand you're saying people could buy a car on a loan for similar, on the other hand you're saying people PCP because they cant afford a £5K car?

Its a brand new car. You know what you're getting, its effectively maintenance free, everything including depreciation is wrapped up in a monthly payment. That suits a lot of people.

Buy a £5K used car and its probably going to be 3 years old, starting to need maintenance, MOT, timing belt changes, wont be as efficient as the new variant, etc, etc. Plus a £5K car on a dealer forecourt is going to be worth £2K ish 3 years down the line, so theres heading towards £100 a month in depreciation anyway....

motorguy

Strider590 wrote: »

Why only keep a car for 3 years?

Also, your putting down large sums of money into something you won't actually own after 3 years, your unlikely to have the savings to pay the balloon payment at the end, so your then left with a choice of forking out a lump sum on 2nd hand car (which you also won't be able to afford) OR taking out another deal on another car and continue paying ££££ every month.
Once your on these "deals" your basically stuck.

If your particular cycle involves keeping a car for longer, then fine. A lot of people it isnt. Chances are requirements change, they want to stay "up the years", etc, etc.

You're putting money in to a car you wont own after 3 years, but if you bought new and sold it after 3 years you wouldnt own it anyway, but will still have paid the depreciation?

And no, you're not stuck - at the end of term you either rinse and repeat with another PCP / lease deal, take out a loan for your next car or buy another car with cash. Up to the individual and their circumstances at the time.

Almost all cars depreciate. Its almost as certain as death and taxes. Its not like buying used avoids that.

All car purchases are a compromise - buy new and you may well pay more, buy used and it may cost less, but you're introducing risk of adhoc bills and maintenance.

motorguy

anotheruser wrote: »

I'm sort of surprised car companies don't do 0% loans on the cars.
Maybe they do and I just haven't noticed, but like sofa companies that charge 0% for X number of years... I would have thought car companies want as many of their cars on the road as possible to show they're popular.

Many do do 0% loans - however its not a popular model as a £20K car purchase would have a monthly repayment of £555 a month over 3 years, which is unpalatable.

0% PCP deals are appearing, and manufacturer incentivised PCP offers are common.

I think ultimately new cars will move to a leasing model here whereby you lease a car for three years and just get another one. Then finance rate / depreciation / discount are taken out of the negotiations entirely and it because a flat repayment.

boliston

I would say about 12 months is probably a good compromise as the car will have lost the huge typical 1st year depreciation (often up to 40%) yet still have 2 years of warranty and will probably still be under 10k on mileage.

motorguy

boliston wrote: »

I would say about 12 months is probably a good compromise as the car will have lost the huge typical 1st year depreciation (often up to 40%) yet still have 2 years of warranty and will probably still be under 10k on mileage.

But who pays list in the first place?

25% discounts are not uncommon these days. 15% is typical.

Then factor in

• The loss of manufacturers incentives on the finance of a new car - can be worth £,£££s
• Manufacturers incentives on the model - sometimes complimentary spec upgrades for example
• You lose any ability to get an incentivised service pack offering
• A year old car could be a previous spec model
• A year old car could be a previous model entirely
• It could be an ex hire car
• It could be an ex demo driven with no care
• You've lost 1/3 of the warranty
• The car is already a year old, so you havent "saved" anything, you've bought a used car
• It'll be worth less come trade in time
• You dont get the spec and colour combo you necessarily want
• A PCP deal on a 1 year old car, returning a 4 year old car may not differ that much from the deal on a new car, returning it at 3 years old.
• Franchises these days are split into new car sales and used car sales - it is not at all in the used car salesmans interest to point you towards a new car.

Sometimes it works out significantly cheaper, but its better not to assume by default it WILL.

There is no "one size fits all" answer.

You need to look at all the options and see what works out best for you as an individual at that time - and what works out best for you probably wont be best for everyone else but that doesnt make them wrong.