PCP car deal or straight finance

JPR7

I need to buy a new car and was planning on straight finance. However, the repayment costs mean I have to accept buying a smaller car than ideally required. The dealers have talked to me about buying on PCP plan which does mean I can afford the car of choice with lower payments. I hopefully will be gainfully employed for the foreseeable future which means that renewing the car under the PCP plan would not be a problem and it is appealing to think I could have a new car every 2 years, whereas if buying a car I wouldn´t be able to do this and there is also the depreciation to be taken into consideration and later reliability issues. The PCP plan seems very attractive to me but I am worried that I am missing something key here. Advice please.

verityboo

Manufacturers give lots of incentives to buy cars on PCP (extra deposit contribution, free servicing etc) that are not available with straight finance (and these are often in addition to the normal car discounts available)

The most important thing is to make sure you understand how PCP finance works as we seem to get plenty of posts on here from people who clearly don't. The most important thing is to assume at the end of the deal it is unlikely there will be much equity, if any, in the car to use a deposit for the next one

Is also normally much cheaper to go for a 3 year deal. In the position you describe it would seem silly to go for a more expensive 2 year deal just to have a shinny new car a year earlier. Go for the cheaper option and save the difference each month over the 3 years to build up funds for the next deposit

MataNui

PCP works for some as long as you are aware of the pitfalls.
PCP structure is deposit / monthly / balloon. They are structured pretty well so that the balloon payment will reflect the value of the car at hand in (give or take). This means that normally at the end of the deal you wont have anything to trade against your next deposit. So, if your deposit needs to be 3k then in 2 years time you will need to find another 3k to get another PCP deal.

Another issue is that the VT point (point where you can just hand the car back and walk away will be near the end of the payments. So if its a 24 month deal then expect the VT point to be around month 20ish.

With PCP be wary of dealers calling you near the end of the deal offering to roll any outstanding balance into a new deal for a new car early. They love doing this. Dont fall for it. Its a shortcut to misery.

IamNotAllowedToUseMyName

Firstly, the opening line is what you are missing - you don't need to buy a new car, that is the first con.

The dealers are talking down second hand as unreliable risks to buy. Why not talk to the same dealer who has been offering a PCP and ask to buy one of their two year old cars at a significant discount as he'd told you what a risk they are to buy? See where that conversation goes. That should be worth at least a free extended warranty and maintenance plan in negotiations.

PCP is about trapping you into continuous replacement with the same brand, so the numbers look attractive. The biggest trick is a high "trade-in" value at the end. The bigger that is, the better deal it sounds because you apparently get more off your next car - no you don't. It means you have contributed less to your current car, and the dealer has less value to give you on the return of the car - they are effectively paying you more for your car so you then will not be offered as an attractive deal on the next car. Yes you can walk away but you walk away with nothing. The best position to be in is with the same monthly payments but a low final buyout payment, because you can then genuinely decide whether to buy or return.

Finance should be investigated away from the dealer. Manufacturers do offer low interest when they are pushing their products, but you may not be buying at the right time, so don't assume the dealer offer will be better, and dealer incentives may be there from the manufacturer independently of their finance deals.

I think the other trick is feeling that you are missing out on the latest features, but over the last few years the cars being produced have not fundamentally changed, and the gizmos that are attractive in marketing are pretty much expensive options that you'd not consider. I think you have to get on a 5 year plus cycle of purchasing to see step changes in the value of design improvements. A 2 year PCP deal sees you buying a new car that actually is a very similar experience to the one before, which after a few months you'll be wondering why you bothered changing.

If you are considering PCP, check out online deals, even if you don't trust them, some will give you an emailed quote which you can go back to the dealer with. You can then get a price out of the dealer, and with that price you can also check out bank finance deals. Don't assume a dealer bargain finance route is the best.

Ultimately, if you are happy being locked into a brand and see yourself changing every 2 years, then PCP works, but do not consider it flexible, it really only works if you are committed to permanently leasing a car of the same brand. Any apparent high return value evaporates if you want to go anywhere else but the dealer.

Frozen_up_north

I’ve had a PCP deal in the past, as had work colleagues. We all came to the same conclusion... they are great initially, when it comes to the time to make that balloon payment or walk away with nothing, you realise they aren’t such a good deal.

Car sales people push the idea of PCP as they make money out of them.

MataNui

Frozen_up_north wrote: »

when it comes to the time to make that balloon payment or walk away with nothing, you realise they aren’t such a good deal.

Car sales people push the idea of PCP as they make money out of them.

Thats pretty much spot on.
Despite all the crap you may be told about having some equity or a GFV to put towards your next deal there wont be any. The deals are structured far too well for that. After the deal you will walk away with no car and needing several grand to get into another deal. That is the experience of most of the people who are posting on here about PCP deals. Particularly those who PX their existing car or blow their savings to make that first deposit.

Conversely try to get a PCP deal with a high deposit (to reduce the payments and balloon) and they wont go for it. Financially it wouldnt work for them. What does work for them is trying to pull you into another PCP early and rolling in some negative equity. The only way PCP can work for you is if its on a new car and carries significant incentives. Even then its only any good if you have the cash to settle as soon as the first payment is due.

System

JPR7 wrote: »

it is appealing to think I could have a new car every 2 years, whereas if buying a car I wouldn´t be able to do this and there is also the depreciation to be taken into consideration and later reliability issues.

You apparently don't seem to be taking depreciation into account at all if you think that paying the largest chunk of depreciation a car has every 2 years is "appealing". My Mondeo lost 2/3 of its new price in its first two years, most cars lose at least a third to a half and you are paying that every time you get another car on PCP because you can be as sure as hell the finance company won't be. Who did you think was paying for the depreciation in the first two years on your PCP deal?

As for later reliability issues there shouldn't be any on a car that is well maintained. Every car on the market is capable of doing 100,000 miles without major repairs.

Apodemus

JPR7 wrote: »

I need to buy a new car...

No. You WANT to buy a new car...

zooks

MataNui wrote: »

The only way PCP can work for you is if its on a new car and carries significant incentives. Even then its only any good if you have the cash to settle as soon as the first payment is due.

/\ This.
If you WANT a brand new car you can use online discounters to push the price down a far as you can to limit the initial depreciation. Take advantage of any manufacturers or dealer incentives which will probably be via a PCP deal and then pay it off the lot as soon as you possibly can.
If you can't do that then you probably have to have a hard look at whether you can actually afford the car their trying to flog you.

Thatsthespirit

Can somebody help me. If I put £2000 down payment on a car and pay £x amount per month for 3 years and then a final payment of £3500 (and I actually pay it) is this finance or PCP?

IamNotAllowedToUseMyName

zooks wrote: »

/\ This.
If you WANT a brand new car you can use online discounters to push the price down a far as you can to limit the initial depreciation. Take advantage of any manufacturers or dealer incentives which will probably be via a PCP deal and then pay it off the lot as soon as you possibly can.
If you can't do that then you probably have to have a hard look at whether you can actually afford the car their trying to flog you.

As a negotiating technique, getting a good PCP deal and then buying outright worked for us - they are committed to the price they offer or they'll be in trouble for lying about the true APR. However, wifey was determined that she wanted a new car and she had a very good company scheme where there were limits on the sort of car that could be bought (lots of sales people so duty of car on quality and condition of car in the company which ended up affecting everyone on the car scheme).

Myself, if I was at all worried about finance, I would be asking why I wasn't buying a one year old ex-management car or similar - I think mine was about 40% off list. Can't buy it outright, then that 40% means that a car loan from a bank has got to be comparable to the cost of a new PCP, considering deposit and further payments. Chances are the car would still be under warranty for the lifetime of the loan and there may be some negotiation to be done over a maintenance contract if concerned about budgeting for that.

The smoke and mirrors of car purchasing can make that new car experience very attractive, but I bought my 1 year old car 4 years ago and it has been fault free, just new tyres and routine maintenance items and I don't rate the experience in it any worse than in wifey's new car of comparable quality (which is now 18 months old anyway).