PCP/used car advice

HouseTargaryen

I have always bought used cars, paying £1-3k and keeping them for a few years. Sick and tired of the big expenses with repairs. Just had to pay £700 on repairs and that's a few months after the MOT repairs. I plan my finances down to a T but I can't plan when my car expenditure fluxuates so much, it's a nightmere. And I live rurally so I need a car.
The question is this - I want a more reliable and predictable car expenses, without the unexpected £700 repair or £2,000 for a another car looming over me. It's a horrible feeling. Now I'm earning more (and my industry and job won't be affected by the corona virus) I can afford this predictability with a PCP deal. But I also know it's not very moneysavingexpert.

I could "buy" a brand new Dacia Sandero for £125 a month for 4 years. Or I could "buy" Sandero with 7k miles and 2 years old for £110 a month for 4 years. My thinking was that it would be much less repair costs and I can easily afford £125 or £110 a month and can plan around that. I know NOTHING about cars and cars to me get me from A to B and that's all so does this plan sound OK from a moneysaving standpoint or am I missing something?
Thanks!

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Consider taking out a bank loan, and purchasing outright.

Dacia are offering 6.9% APR on their PCP, with £250 off the car, headline bank loans are under 3%, but you pay full price for the car.

I'd go for the poverty spec. sandero, at £7995, it has air-con you don't really need any of the higher spec. features.

Advantages of PCP-

if you pay back 50% of the value of the car + interest, you can hand it back (this won't happen until close to the end of the term though, because the final value of the car is close to half the original value anyway- the agreement is only to pay back half the value of the car in the first place)

you pay out less per month, because you are only paying the depreciation (plus enough to keep the finance company in champagne and Rolls Royces)

Disadavantages of PCP

It isn't your car, if you scratch it or do too many miles you have to pay

You either hand it back, or find getting on for half the original price of the car at the end of the agreement to keep it.

Advantages of a bank loan-

The car is yours from day 1.

After about the first year of repayments, the car is probably worth the same, or more than the amount of the loan outstanding.

It costs you less in real terms, you pay out more per month, but you get more.

Never have a PCP on a second hand car, the rates are usually much higher, there is no "incentive" (= discount), plus if you buy new, at least you start with brand new tyres, clutch & brakepads rather than the virtually worn out ones you will get on a second hand car.

DrEskimo

You need to separate out the car from the way you purchase it.

The way to get around having to pay for costly repair bills is to get a newer car with a warranty. There is potentially (although not guaranteed) less of a risk that things will go wrong, and things covered under warranty will be covered cost wise. Of course a newer car with warranty will come at a higher purchase price, and also in terms of ownership will maybe just replace your current repair costs with depreciation costs. That's the trade-off. It's perfectly reasonable that you could find something around 3-years old that is still under manufacturer warranty though. That's what some refer to as the 'sweet spot'.

Next, the question is how do you finance it. Treat PCP as you would ANY other finance agreement. It's just a way to borrow money to pay for a good you don't have the cash for. The only thing you are looking at is the additional cost in terms of interest. That's it. Monthly amount is largely irrelevant.

If you have the cash, it's typically better to just use that and incur no additional interest costs (although there may be instances where the dealer is offering additional perks or discount through their finance, so you can take this, then settle the finance the following day. This is both on new and used cars).

So divide up the costs. Look at the purchase cost and the predicted selling cost to determine likely depreciation. Then look at interest costs on top if you need to borrow money (compare actual cost of interest between say PCP and personal loan, not just APR or monthly cost).