We’d like to remind Forumites to please avoid political debate on the Forum.
This is to keep it a safe and useful space for MoneySaving discussions. Threads that are – or become – political in nature may be removed in line with the Forum’s rules. Thank you for your understanding.
📨 Have you signed up to the Forum's new Email Digest yet? Get a selection of trending threads sent straight to your inbox daily, weekly or monthly!
Understanding PCP?
Comments
-
If I've got the money in the bank I'd take out a PCP deal as the salesman will be very keen for you to do so because of his commission and typically offer you an inducement to do so and I would settle it within 14 days after purchase to take advantage of whatever the inducement is. This route was worth an additional £800 when my better half recently bought a car.0
-
My sister loves PCP and has used it for years. But her cars have an easy life and her annual mileage is very low. Personally, I am not a fan. I think many people like it because PCP will put your backside into the driving seat of a car that would otherwise be unaffordable.
You have payments each month but at the end of the day own nothing. The amount of equity left in the car at the point of handing it back can be a lottery. If the vehicle is returned in anything other than pristine condition you will get a bill for the repairs. Exceeding any pre-set milage limits can also be costly.
PCP on used vehicles that fall out of warranty can be a particular risk. If, for example you have a major failure that costs more than the value of the car to repair you cannot just scrap it and walk away.
I prefer to own my vehicles.0 -
I think many people like it because PCP will put your backside into the driving seat of a car that would otherwise be unaffordable.
I think most people do it because for a monthly payment they get (usually) a new car, 3 years manufacturers warranty, breakdown cover and often a service plan too. It takes away what for many people could be the hassle and unpredictability of running perhaps an older car, and the significant outlay then required to update it down the line.
When i first started selling cars back around 1988 (i've longsince stopped), people paid a monthly payment for a used car, or for a new car if they'd a decent deposit, ran it for three years and repeated. It would have been incredibly rare even then for someone to buy a new car, and run it in to the ground as it were.
So its not a new thing.
Also, whilst threads like this tend to bring out a seemingly disproportionate amount of "i always buy my cars for cash" types, the reality is a car purchase is generally funded in some way, either HP, a bank loan, or an offset mortgage.
You have payments each month but at the end of the day own nothing.
If you buy any car, run it a set period of time and sell it again, you've nothing?
And lets not forget, cars depreciate, so say a £20K cash purchase is probably going to be worth £10,000 in 3 years time, which is £277 a month in depreciation anyway.
The amount of equity left in the car at the point of handing it back can be a lottery.
Its not a lottery at all. You know exactly to the penny the worst case scenario - which is the residual value. Buying a car with cash is the lottery as you've no idea what you might get returned in three years. There may be some equity in the PCP deal down the line, but people shouldnt rely on the fact there will be.
If the vehicle is returned in anything other than pristine condition you will get a bill for the repairs. Exceeding any pre-set milage limits can also be costly.
Very few ever get returned to the finance company, the vast bulk get traded in, some get sold without being traded in and a minority get bought outright by the customer.
I've never had a particular issue when i've done it as i maintain my cars to a high standard irrespective. We returned one a long time ago when the residual was £18,000 and the value was £14,000 and had no issues and another we were for returning (a couple of nasty stonechips noted and a couple of kerbed alloys) however the dealer we were buying our next car off bought it as it sat meaning we'd no need to return it or pay for the damage.
PCP on used vehicles that fall out of warranty can be a particular risk.
I totally agree with this - the other big issue with used car PCP deals is the interest rates - i've seen some as high as 12.9% APR. :eek:
For those reasons i couldnt recommend used car PCP deals.
If, for example you have a major failure that costs more than the value of the car to repair you cannot just scrap it and walk away.
Hmmm. A bit of a moot point that. If a car is worth say, £10,000 is it ever likely to be beyond repair? Is ANYONE (even a cash buyer) going to want to simply scrap it and walk away.
BUT more interestingly - its the finance companys car - so for a major fault you have extra clout in getting a problem resolved. The finance company will step in and put pressure on a dealer to resolve the issue - with the dealer often complying so as not to lose the trading ability with the finance company.
I prefer to own my vehicles.
As is your prerogative. Sometimes i do sometimes i'm happy with a PCP deal.
Everyones circumstances are different and vary depending on the requirement, and often the particular timing.
Over the last 30 years i've used (in order of prevalence) cash, cheap personal loans, PCP and HP. I work out what works best for me for the particular car and for the particular timeframe i want to own it, relative to the cost of selecting a particular option.
A 0% APR PCP deal on a new car i want might make perfect sense if i plan on keeping a car for a set time such as 3 years. Particularly if i want something reliable and hassle free.
Conversely, on a weekend car / garage queen i'm probably happy spending the cash or maybe a cheap personal loan (or combination.
My next car will be a cash purchase - but thats going to be an airport runner for over the winter to leave at the airport during the week - so not a particularly fancy or expensive car required to perform that function.
I'm not at all saying PCP deals are the "one size fits all" answer for everyone. They're not. They suit a lot of people, but individuals should look at what best suits them and look at ALL funding options.0 -
As with any finance product, it comes to how expensive it is. If the PCP finance has interest payable, it is the most expensive form of finance compared to the equivalent HP. This is because you are charged interest on the GFV, but it never decreases over the term.
Unless the PCP deal is 0%, I wouldn't even consider it.If the !!!! falls out of the market and the car is worth a fraction of the GFV, you've saved yourself a clunk of depreciation that you would have suffered if you bought the car outright or on HP, you just hand it back and walk away and they have to suffer the extra depreciation.
Assuming of course there is no interest to pay. When you factor in the cost of the interest which you have to pay to benefit from the 'protection' of the GFV, the savings are probably negligible, if any at all...
I think the idea that PCP is an effective form of insurance of asset value protection is fundamentally flawed when there is interest paid on top. Not to mention that the GFV is generally very pessimistic, is based on trade-in valuations that can be mitigated by selling the car in other ways, and is extremely restrictive, where you can only use it on one single day, that is the very last day at the end of the agreement.0 -
Who or what decides the value of the PCP car after 4 years?
I have an 11 reg car that I paid £9000 cash for in 2011, I was offered £1000 trade in for it so it cost me £1000 a year.
I won't be trading it is as my daughter wants it. That will net me £0.000 -
I have a few friends who are on PCP, you don't get the freedom to drive the car as you would your own car.
The GFV is nonsense. The car will almost never deprecate less than they forecast. Over 4 years of ownership they will have scuffs and dents on the car, I live in London and I have scrapes all over my 17 year old banger caused by other people. Binman take heavy bins out of flats and bashing onto my car, people parking too close to my car in supermarket and scraping the corners.
Can honestly say I have never caused a single on of those dents or scrapes on the car. You will always end up paying some money on damage to the car. The tyres have a minimum thread on them and you have to put on stuff they specify. You have to service the car to a standard they determine. Might mean you take it back to dealers to do the servicing, or an independent specialist to your make who will do it properly (stamp the books, log the data in the electronic service record, check with maker for recalls etc)
Going back to the point about not driving the car like you own it. We did a family trip from my London to Lake district, we stayed in hotels 40 miles away from the lakes (couldn't find decent accom near by). That's 280 miles to the lakes from London each way, plus 100 miles of driving a day to and from the hotel. One of the party on PCP decided to hire a car to do the trap with full damage waiver because they thought the car could get damaged parking up on country roads.
You can buy a decent car for £5000 that you can drive for 7/8 years, as I have with my 17 year old banger. it will save you a lot of money and if it's a desirable car and has been looked after you could sell it in 7/8 years for £1000-£2000, costing you very little in the long term.
Don't be suckered into getting a PCP.
Also the "deposit", isn't actually a deposit in the true sense of the word. You wont see you deposit back. Unless in an extremely unusual scenario where the car deprecates less than the GFV, it's gone forever. The whole instrument is designed to trick people into taking out PCP and to downplay the monthly cost of the car. People just think it's only £250 a month, they forget the VAT, they forget the deposit, they forget that they'd probable owe a grand or two in light damages on return. If you factor that all in, it's probably more like £400 a month.
Was watching a used car sales documentry, buyer didn't want to pay some £250 a month for it, and wanted the price reduced. The salesman just reworded the deal for them, "it's only £57 a week" [same amount as 250 a month], suddenly the deal sounded so much better and the buyers signed up.
It's just moving things around getting buyers to look at the numbers differently and make it seem cheaper than it is.0 -
If I've got the money in the bank I'd take out a PCP deal as the salesman will be very keen for you to do so because of his commission and typically offer you an inducement to do so and I would settle it within 14 days after purchase to take advantage of whatever the inducement is. This route was worth an additional £800 when my better half recently bought a car.
You can do even better if you try a bit.
I been out to buy a car outright, but found I qualified for a big deposit contribution and an interest rate which was less than the money I was going to use was making.
As Motorguy states, PCP isn't for everyone, but they are not some trick to con you either.
Yes you can buy cheaper cars and you can buy cars cheaper, but those avenues aren't open or suitable to everyone, but they don't need to be as there are other ways, like PCP.
What is very apparent from threads like this is people do enter into these contracts not fully understanding how they work and other don't because they don't fully understand and they have a certain opinion.
Unsurprisingly, those that fully understand them and have taken them out have a different opinion.0 -
As with any finance product, it comes to how expensive it is. If the PCP finance has interest payable, it is the most expensive form of finance compared to the equivalent HP. This is because you are charged interest on the GFV, but it never decreases over the term.
Unless the PCP deal is 0%, I wouldn't even consider it.
It depends on the specific PCP deal. If you are simply considering running the car for a set period then the monthly payments + deposit could be equal to or less than the depreciation you were going to incur anyway.
Even if it is more, it may still be a reasonable enough deal to make it worth not looking at other funding options.
I think the idea that PCP is an effective form of insurance of asset value protection is fundamentally flawed when there is interest paid on top.
I wouldnt recommend it purely as an effective form of insurance of asset value protection, its merely a side effect. I've had it strongly work once in my favour when the car was worth approx £4,000 less than the GFV.
Not to mention that the GFV is generally very pessimistic, is based on trade-in valuations that can be mitigated by selling the car in other ways, and is extremely restrictive, where you can only use it on one single day, that is the very last day at the end of the agreement.
That seems at odds with what other people are saying that residuals now are set in a way that meant there was unlikely to be any equity left?
Like any regulated HP product, you can VT once you have made 50% of the total payments due under the agreement, so you can effectively return the car between that point and the end point with nothing further to pay (subject to fair wear and tear), so quite a bit of flexibility (often spanning months).0 -
Who or what decides the value of the PCP car after 4 years?
I have an 11 reg car that I paid £9000 cash for in 2011, I was offered £1000 trade in for it so it cost me £1000 a year.
I won't be trading it is as my daughter wants it. That will net me £0.00
As has been said, its the finance company who pre-set it.
Not sure on the relevance of that to your car.
Seems a fairly crap trade bid for *any* 2011 car unless theres something major wrong with it0
This discussion has been closed.
Confirm your email address to Create Threads and Reply
Categories
- All Categories
- 352.1K Banking & Borrowing
- 253.5K Reduce Debt & Boost Income
- 454.2K Spending & Discounts
- 245.1K Work, Benefits & Business
- 600.7K Mortgages, Homes & Bills
- 177.4K Life & Family
- 258.9K Travel & Transport
- 1.5M Hobbies & Leisure
- 16.2K Discuss & Feedback
- 37.6K Read-Only Boards