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Understanding PCP?
Comments
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It's usually at this point that someone suggests it's better to keep the cash rather than putting it into a heavily depreciating asset. Well if someone can tell me where I can stick tens of thousands of pounds and get a guaranteed return of around 5% with zero risk, I am all ears. Otherwise I don't think many accountants would suggest high risk investment strategies over typically short investment windows, leveraged using money borrowed against a new car that's costing you thousands in interest!
Whoa steady on there, with crazy thinking like that you'll trigger severe cash buyer derangement syndrome. I certainly never found a car salesman who could give an example of such an investment!Funnily, i've been pondering a small Caddy sized van to facilitate a side project i'm going to work on. I havent seen much movement yet, but in theory markets like pickups and vans are likely to be hit by the upcoming downturn.Would be interesting to hear if anyone has direct experience?Why? So you can argue with them?0 -
Whoa steady on there, with crazy thinking like that you'll trigger severe cash buyer derangement syndrome. I certainly never found a car salesman who could give an example of such an investment!
Personally, i dont go to a car salesman for financial planning advice, nor do i go to my financial planner for car advice.0 -
But you are taking a PCP deal.
If it wasn't for these PCP deals and deposit contributions you could not buy it that way and make the savings.
Just because you don't count it as taking it on PCP, you've still bought it cheaper because it exists, you know you can use it to buy the car cheaper and have done.
We've looked at three ways to buy a certain car.
The two cheapest involve PCP and without it you're left with only one and that, even with 0% interest works out more expensive.
It's just getting into pedantry now....I don't object to the mere existence of PCP...! Again, I just would not generally recommend it as a way to buy a car, as in paying the monthly amount over the entire term.
Clearly my reasons for not recommending PCP are due to the interest costs involved..if you settle straight away, then you do not pay any interest costs, so there are no objections!
This also negates any dealer discounts that may be on offer. When I looked at my current car new on CarWow to get a sense of new prices, the cash price was cheaper than the PCP price when you factored in dealer discounts. Cash currently offers 28% discount, whereas PCP, including the deposit contribution, only offers 25.6% discount.
It's possible this is the same for the Fiat 500 Pop, in which case you need not bother taking out the PCP at all.0 -
It's possible this is the same for the Fiat 500 Pop, in which case you need not bother taking out the PCP at all.
It might well be, but if you don't check, you'll never know.
Which is the point some are making, not everyone is the same and everyone's circumstances are different, which is why it's important to consider all the options open to you carefully and choose the best way that suits you.
In the case of the Fiat example, a quick glance and someone heart might race at the 0% HP and off they go, when it's clearly not the cheapest way to buy it.
No way is perfect, you could end up buying a car cash that's then discounted the following week or some journo's slate it in the press and !!!!!! up it's residuals.
Just think of the untold misery of all those that bought an Allegro in the 70's with cash or straight HP.
If they had PCP back then, they'd have been out of them after a couple of years without losing their shirt, a reasonable GFV would have made them lot very happy!0 -
Genuinely - talk to your financial adviser.
Hope you'll forgive me, but I'm going to have to assume that your claim is not true. If there is a savings account that offers more than 1.5% on a sum larger than £5k it would just be a simple case of providing a link....Overall in your scenario, you effectively didnt pay any interest, so that was a win.
Except in the real scenario, I didn't trade it in for £24k. I got £27.5k for it. So on the PCP I paid £14k (£500 back in positive equity) and if I was a cash buyer I would have only paid £11.5k. So far from paying no interest, I paid £3,500 in interest.
Precisely why I keep saying the 'protection' argument if flawed. More times than not, you pay over the odds for it than you save from having it.
But I'll stop banging this drum :P
Anyway, this approach isn't really getting us anywhere, and I suspect we are probably in agreement in that we both concede that the majority of the time, PCP isn't the best way to buy a car!
You seem to think there are many low risks ways of investing money for higher than the cost of the finance, whereas I don't agree. Perhaps you are right, but I regularly frequent the savings and investment board and I have yet to find anything!
You also seem to downplay the financial risks more than I. Perhaps I am being over zealous too, which reflects my more risk averse personality. Genuinely though, it comes down to one simply fact. I do not see the value in paying more for something for not tangible gain. It's precisely why I do not buy used cars, but that's another debate!
So I'll leave it there....until next time :beer:0 -
It might well be, but if you don't check, you'll never know.
Which is the point some are making, not everyone is the same and everyone's circumstances are different, which is why it's important to consider all the options open to you carefully and choose the best way that suits you.
I do....very often. I have yet to come across a scenario where a PCP would be my advised route...hence my point, PCP rarely is the best method for running a car.
All very well saying that people could have saved money with hindsight, but there is no way of knowing before hand. So how do you decide which cars to take on PCP and which not? How many times have you decided to take it on PCP in anticipation that it would drop severely in value, and it didn't?
With respect to your Allegro example, interest rates in the 70s were over 10%. So the amount you would have paid in interest would probably negate any savings in unexpected depreciation....apparently I am the only one that keeps banging on about this, yet it keeps being put forward as a argument in favour of PCP time and time again!0 -
Hope you'll forgive me, but I'm going to have to assume that your claim is not true. If there is a savings account that offers more than 1.5% on a sum larger than £5k it would just be a simple case of providing a link....
There are no savings plans, however there are low risk investments that can be made that will yield more than that.
If you are totally risk averse then 1.5% is probably quite typical for zero risk savings plan, however i would note that you are quoting a relatively high new car APR against a basic savings plan, which just coincidentally
, helps the point you are trying to prove. There are many many other options to yield more than that for those not totally risk averse.
Except in the real scenario, I didn't trade it in for £24k. I got £27.5k for it. So on the PCP I paid £14k (£500 back in positive equity) and if I was a cash buyer I would have only paid £11.5k. So far from paying no interest, I paid £3,500 in interest.
Precisely why I keep saying the 'protection' argument if flawed. More times than not, you pay over the odds for it than you save from having it.
But I'll stop banging this drum :P
Yup, however as i said its not the reason to take out a PCP, its a mere side effect that there *may* be a benefit.
The reality is, the GFV gives you a fixed reference point which then becomes your worst case scenario and allows you to budget accordingly via fixed monthly payments.
Anyway, this approach isn't really getting us anywhere, and I suspect we are probably in agreement in that we both concede that the majority of the time, PCP isn't the best way to buy a car!
Agreed.
Your dislike of PCP revolves around "if someone has the cash to buy the car outright instead". As i've said, the target market for new car PCP deals is not cash buyers is it?
You seem to think there are many low risks ways of investing money for higher than the cost of the finance, whereas I don't agree. Perhaps you are right, but I regularly frequent the savings and investment board and I have yet to find anything!
We'll have to agree to disagree then.
You also seem to downplay the financial risks more than I. Perhaps I am being over zealous too, which reflects my more risk averse personality. Genuinely though, it comes down to one simply fact. I do not see the value in paying more for something for not tangible gain. It's precisely why I do not buy used cars, but that's another debate!
So I'll leave it there....until next time :beer:
Yup, and again, you're speaking from a viewpoint of cash buyer of a new car versus PCP buyer of a new car. A cash buyer is not the target market. There is a more compelling case if someone is otherwise looking at an older car, for similar monthly payments.
Yes, its been good to debate and get different viewpoints, whilst keeping it amicable and not resorting to insults. A rarity these days on some threads. :beer:0 -
I am sure we all understand PCP may not suit you, no one is saying otherwise.How many times have you decided to take it on PCP in anticipation that it would drop severely in value, and it didn't?
That's a good point and I try to do the opposite.
A car with less depreciation will generally work out cheaper as the GFV will be higher.
There is plenty of data around showing such figures and why I know some Citroens and Peugeots took a hammering at auction recently, a glut of them all appeared in a short space of time and they failed to make their GFV's.
I consider colours, trim and options as well.
If I think I will try and trade in up at the end of the contract, it's fairly obvious it will be worth less to a dealer in pink and green paint and cars with build in Nav are snapped up faster than those without on forecourts.
I've had other cars via specialist suppliers like Motorsource, these don't generally except trade ins, so my through process about buying changes as my options at the end might be different, I aim for bigger discounts and move them on myself at the end of contract.
I steer clear of the usual hire type cars like Corsas, Astras and Fiestas as they end up being dumped on the market in large numbers and damage residuals.
I tend to look for niche cars that have a following or a purpose, some of my best deals came about on Panda 4x4's, Vitara's and MX5's as the deals ended when the market for them shot up.
Other times, I've bought outright, I'm not totally against that way when it suits.
I bought my latest with cash as I couldn't find a deal that fitted my requirements in the time.0
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