Can someone explain these PCP figures to newb?

MinuteNoodles

MayhemMoney said:

Hi all,

I've never PCP or financed a car before so can someone explain these figures to me as I don't seem to understand them.

Yep, here it is in simple to understand terms...

MayhemMoney

Petriix said:

The significant point which gets glossed over when comparing PCP to outright purchase is the difficulty in obtaining the extra funds upfront. Most people don't have £25k just sitting in the bank so they will have to borrow the money from somewhere.

The cheapest way to borrow £25k is (usuall) on a mortgage; as long as you overpay to pay it off over a similar term to that of a typical car finance agreement. However, it can add up to significantly more if spread out over decades, and it is a considerable risk to lump the cost of a depreciating asset onto a loan secured against your home.

Next, people suggest an unsecured personal loan. The interest paid over the term is (usually) significantly lower than a PCP agreement. However, the monthly payments are typically much more, which makes it unaffordable to many people.

Not all PCP deals are created equal. They are often loaded with incentives which make them more attractive, although these are often not straightforward. 0% PCP usually attracts a higher purchase price which has to be accounted for. The GFV figure is another confusing issue. Ironically, a lower GFV is often better for the buyer because they pay more of the capital off each month (soppay less interest overall) and potentially build more equity if the car turns out to be worth more than the balloon payment at the end of the term.

Lease is almost always cheaper than PCP. The only real advantage of PCP is the option to buy. There's nothing stopping you from leasing a car for 2 years then buying a similar 2 year old model for roughly the GFV of the equivalent PCP deal. This usually works out cheaper and you are protected from the risk of the depreciation being higher than predicted.

In any case, right now I wouldn't be gambling that any ICE car would retain much value over the next 3 years as so many EVs are hitting the market. I'd be doing some serious sums looking at the total cost of ownership including VED and fuel before buying anything.

Sorry what's an ICE car? edit:combustion engine i googled it 

P.S. I've just looked at what current car is now worth about £11,500 from £15,000 in 15 months! £233.00/month and having the capital tied up I can see why people lease

MayhemMoney

I'm just as stuck as to what to do as I was at the beginning lol 
owning my car cost me £233.00/month depreciation and have to pay it up front. 

AdrianC

Owning a brand-new car is going to cost a lot in depreciation, however you fund it.
If you don't want to splooge thousands in depreciation, then don't get a brand-new car. Get a used one.

If you buy outright, you tie your capital up, and risk losing return on it.
If you finance, you're paying interest on somebody else's capital.

MayhemMoney

AdrianC said:

Owning a brand-new car is going to cost a lot in depreciation, however you fund it.
If you don't want to splooge thousands in depreciation, then don't get a brand-new car. Get a used one.

If you buy outright, you tie your capital up, and risk losing return on it.
If you finance, you're paying interest on somebody else's capital.

it's a used 2014 car btw not brand new- that's why i was shocked by so much depreciation 

but thank you that sums up the choices simply.
I think I'll continue to buy used cars outright and hopefully my new choice won't depreciate so quick