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Understanding PCP?
Comments
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I am sure we all understand PCP may not suit you, no one is saying otherwise.
Not just me, I'm struggling to think of a person/car/deal with PCP that may suit anyone...have an example?And if you haven't the money sitting uselessly in the bank, then what?
Ah that ones easy....
A) you don't buy a brand new Fiat 500 and find a cheaper car, or go used.
You keep saving until you do have it. 0 -
Not just me, I'm struggling to think of a person/car/deal with PCP that may suit anyone...have an example?
Perhaps I do.
At times there's me, my other half, someone's sister earlier in the thread seemed to suit them also.
I believe Motorguy may have admitted it suited him at times as well.
Though these are only others opinions, there is another that springs to mind.
Didn't someone write it was the cheapest to buy on PCP and settle early, though their opinion was it wasn't a PCP deal to do this, even though they are buying it via PCP.0 -
Not just me, I'm struggling to think of a person/car/deal with PCP that may suit anyone...have an example?
The target market - people who would otherwise have bought a 3-5 year old car, kept it 3 years and then repeated. In that time they may have experienced :-- An adhoc large bill
- Significant maintenance costs
- Unreliability
- MOT bills
- Time that the car was off the road
For a similar monthly payment, a PCP deal on a new car can remove most if not all of that. Or at least, make it someone elses problem as the car is under warranty.
Could those people manage / make do / get by with an older car? Probably. In fact most likely. Are they prepared to pay a bit extra for all of the above. Yes. Is it worth it to them. Most often, yes.
The nay sayers like to portray PCPers as people driving new Audis / BMWs / Mercs they cant really afford and eking out they pay cheque on a month by month basis. The reality is, most PCP deals are on white goods stuff like Fiestas, Astras, Focus. People just wanting reliable transport to get to work in and drive their families about in.0 -
Who or what decides the value of the PCP car after 4 years?
The dealer/finance company, at the START of the deal. There's a Guaranteed Final Value, guaranteed to you, at thier risk, which is the price you pay for the car if you want to keep it, and also, exactly the amount of money still owed on the car.I'm comparing it to buying the brand new car with PCP and settling the next day. Same car, same warranty, same servicing package. It's just cheaper, as you have no interest to pay. You are saving thousands of pounds don't forget. The interest costs are generally not small!
Here's another top tip - buy your house for cash. No mortgage to worry about and all that pesky interest. Cars are the same as this, but on a smaller scale. If you can afford to take the PCP then settle, to take advantage of offers, that's great, you've cheated the system, and that's kindof the spirit of MSE, but not everyone can afford to do that. Whether they should be buying an older car and never ever borrow money, is their own decision to research.0 -
Perhaps I do.
At times there's me, my other half, someone's sister earlier in the thread seemed to suit them also.
I believe Motorguy may have admitted it suited him at times as well.
Though these are only others opinions, there is another that springs to mind.
Didn't someone write it was the cheapest to buy on PCP and settle early, though their opinion was it wasn't a PCP deal to do this, even though they are buying it via PCP.
Yup. I've used PCP deals in the past and they suited my specific needs at the time. I've also used cash and cheap loans, depending on my needs at the time.
Noone is saying PCP has to suit all people all of the time. On the contrary, i would say in terms of the inclusive car market of new, nearly new, used and old, the relative amount of PCP deals is very much in the minority.0 -
Perhaps I do.
At times there's me, my other half, someone's sister earlier in the thread seemed to suit them also.
I believe Motorguy may have admitted it suited him at times as well.
Though these are only others opinions, there is another that springs to mind.
Didn't someone write it was the cheapest to buy on PCP and settle early, though their opinion was it wasn't a PCP deal to do this, even though they are buying it via PCP.
Again, my issue isn't with 'PCP' it's with the cost of the PCP finance it self. As pointed out, it's about the total cost involved. My very first post is:As with any finance product, it comes to how expensive it is.The target market - people who would otherwise have bought a 3-5 year old car, kept it 3 years and then repeated. In that time they may have experienced :-- An adhoc large bill
- Significant maintenance costs
- Unreliability
- MOT bills
- Time that the car was off the road
For a similar monthly payment, a PCP deal on a new car can remove most if not all of that. Or at least, make it someone elses problem as the car is under warranty.
Could those people manage / make do / get by with an older car? Probably. In fact most likely. Are they prepared to pay a bit extra for all of the above. Yes. Is it worth it to them. Most often, yes.
Straying more into the 'new vs used' debate here, but I will maintain (rather ironically...!) that you are severely over-estimating the cost of a used car and the risk of large repair bills. I don't think a new car is 'a bit extra'... If you work out all the costs, and subtract the resale price, and divide it by the number of months, the monthly cost relative to a new car on PCP is often more than double.
The used car will depreciate at more than half the rate of the new car, so in both relative and absolute terms, the savings will be substantial and more than cover any potential additional costs in repair/servicing (that rarely occur anyway....).
The logic is something along the lines of "I don't want to potentially face the small risk of having a £3k repair bill, so I'll buy a new car, where I am guaranteed to pay £3k extra in the form of depreciation and interest.".
I don't quite understand it, particularly, as with my GFV argument, more often than not you will not have a £3k bill, so in the long run you will be saving £3k each time.Here's another top tip - buy your house for cash. No mortgage to worry about and all that pesky interest.
Wish I could...unfortunately it's basically impossible, and given that houses generally appreciate, it makes little financial sense to either rent or keep saving, as I would never keep up.
It's not. Cars will 99% of the time depreciate. It's perfectly feasible to save up a buy a cheaper car due to this fact.Cars are the same as this, but on a smaller scale.If you can afford to take the PCP then settle, to take advantage of offers, that's great, you've cheated the system, and that's kindof the spirit of MSE, but not everyone can afford to do that. Whether they should be buying an older car and never ever borrow money, is their own decision to research.
Nothing against people borrowing money. I just generally don't think PCP is a good financial product to do it. Get a personal loan. It's far cheaper and substantially reduces your financial risk, as you are paying more than the car is depreciating. It also has no mileage limits, and it's not secured on the car, so you are free to sell it however you like, whenever you like.
Sometimes maybe a PCP makes sense, as I said, when the cost is low!0 -
Nothing against people borrowing money. I just generally don't think PCP is a good financial product to do it
This is where we disagree. It lets you only pay off ~half a car, and drive around in it. People will say you should only drive what you can afford for cash, don't borrow on a depreciating asset, and all the arguments against PCPs and loans that are all through this thread, and they do have a point, and people will say you're living beyond your means taking a PCP - yes you are, literally, driving around in a car that you can't afford to buy for cash. But if you can afford the monthlies....Sometimes maybe a PCP makes sense, as I said, when the cost is low!
I paid £4,000 to drive a new Renault Zoe for 2 years, via PCP. Great deal. There was interest in there somewhere. I certainly didn't have the cash to pay for it outright (£18k odd?).
I'm currently leasing a Kia Soul EV (and it costs more). There is no interest, but you pay for it every month, hand it back and have nothing to show for it. Similar. Looking at the TOTAL cost, money in, money out, interest doesn't really matter so much. But it's far easier for many people, me included, to pay monthly for a car, than stump up thousands every few years to buy a car. I've done both!0 -
Not just me, I'm struggling to think of a person/car/deal with PCP that may suit anyone...have an example?...
Here is an example I posted in a previous thread:
https://forums.moneysavingexpert.com/discussion/comment/75475602#Comment_75475602
That shows PCP is cheaper than a loan. As mentioned later in that thread, if you have the cash available you could also settle the PCP early for less in total than the cash price.0 -
Here is an example I posted in a previous thread:
https://forums.moneysavingexpert.com/discussion/comment/75475602#Comment_75475602
That shows PCP is cheaper than a loan. As mentioned later in that thread, if you have the cash available you could also settle the PCP early for less in total than the cash price.
Ah cheers!
As also pointed out, there is no real reason you can't take it on PCP, and settle with a cheaper loan too, not just cash. Although I appreciate the logistics of this may be tricky....!
I would personally advise that someone do that, then settle with a loan of around £17.7k, which over 4yrs @ 3.9% APR would also equate to £399 per month. This would obviously require building up a higher deposit of around £13k, vs £3k, but the interest costs would be more than halved and the financial risk all but alleviated as you would never owe more than the car was worth.
If we assume the car is worth the GFV of £13,500, then the PCP who only used £3k of the £13k money would finish the PCP contract with nothing left to pay, and therefore just the £10k they saved initially, plus any interest they earned over the last 4yrs on it (which at 1.5% would be £613).
In contrast the loan buyer trades the car in and gets the £13,500 in their account. Or keeps it...or sells it privately more easily and gets a better price than £13,500....
Well....actually I personally would just say borrow £7k and use the £13k to buy a £20k used version of the same car, that will probably come with more equipment....but there we are :P0
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