Car PCP help!!

hg1234

Hi, 
I am looking to purchase a new car I just don't really understand PCP and how much money I would lose. 
I currently own my car outright and I would be looking to part ex this (around £7000) in order to get monthly payments down. 
The purchase price of the new vehicle would be £18,250 and 8.9% APR. 
Payment at the end of around £10,500 

Am I likely to lose all of my downpayment?
The way that I am viewing it is that my vehicle that I own now is only going to devalue but it would still be worth something and I just don't want to blow all of that money in the 3 year PCP term...

Thanks in advance for any help!

DrEskimo

It depends if the car will be worth more or less than the predicted £10,500 valuation at the end of the 3-yr agreement, but yes, the £7,000 and the next 3yrs worth of payments are going towards paying the depreciation and interest costs of the car, so your downpayment is just part of that cost.

If the £10,500 predicted trade in value is correct, then the car will cost you a total of £7,000 + 35 payments of £102 (is that right?), which is £10,570 over the next 3yrs. This can be broken down into depreciation and interest costs.

The car is expected to depreciate from £18,250 to £10,500 in the next 3yrs. It may be worth more or less depending on the market. So that is £7,750 in depreciation costs.

PCP is just a loan, so it is costing you money to borrow the money to buy this car. £7,000 upfront + (35*£102 monthly payments) + £10,500 final payment means the £18,250 car will end up costing you £21,070 all in to own. So we know the interest you are being charged to borrow this money is £2,820.

For the record, a lower cost personal loan of 3% APR to borrow £11,250 (the same amount being finance here) would cost you just £527 in interest, so you are paying 5x the amount of interest you could by choosing this PCP style loan. Of course the monthly cost is higher (£327/month), but the interest charged is substantially lower.

I would think long and hard about whether you are in a position to buy a £18,000 car. It's costing you a lot to borrow this money, and there is the obvious question of what will you do at the end of the agreement? Will you be saving £10,500 to buy the car at the end, will you be wanting to get another car? Can you afford to spend over £10,500 on the depreciation and interest costs alone for a car over the next 3yrs (not to mention fuel, VED, insurance, maintenance and servicing...). What else could you do with £10k over the next few years if you just kept your current car?

These are the questions I would be asking. 

[Deleted User]

How do you define lose? If you pay off the PCP at the end and have a car that you know is well maintained and can run for 10 or more years then the car has served the purpose you got it for. If you are a plate snob and want another new one in 3 years then you've lost whatever the difference is between the car cost and what it is now worth and will do so every time you get a new PCP deal.

MalMonroe

I have a car on PCP but it is for two years and will be finished next August when I can either pay the balance off or swap for something else or just take it back and leave it. It was a 0% deal which has, so far, been very satisfactory for me.  It came with a full year MOT, full service, 18 month warranty and free full AA breakdown cover. Plus there's no road tax to pay. And with it being a newish car, I feel more confident that it's not going to let me down. It may do but if it does I'll just take it back to the showroom. 

However, I did was sell my old car beforehand because the part exchange I was offered was dismal. I did get more for it with a private transaction, do you think that might be the case with you?  That way you can use the money you get from the sale towards the downpayment. I could have paid a larger deposit and the repayments would have been lower for the two year period.

All the figures were given to me upfront and everything explained in great detail, as I'd never done PCP before. I wouldn't have done it at all if the terms hadn't been 0% for the two year period.  Cars do depreciate anyway and it's always a gamble whether you buy or lease a car. Even when they're fresh out of the showroom they can have defects. 

MEM62

hg1234 said:

I currently own my car outright and I would be looking to part ex this (around £7000) in order to get monthly payments down. 

Think about wat you are proposing.  You are going to dispose of an asset that you own to sink £7,000 into something that you are effectively renting.  Convince me that is sound economical thinking. 
If you are intending to keep the car at the end of the agreement then perhaps HP would be the better vehicle.  Either way, using any kind of finance and paying 8.9% interest in order to obtain an asset with a value that falls like a stone in nuts in my view.         

molerat

You are going to pay an advanced rental of £7k with your own money plus 35 monthly rental payments of £106 - effectively £306 per month for 3 years.  If you want to own the car you will have to pay them the second hand value of the 3 yr old car, £10500, at the end of the 3 yr rental.

hg1234

Thank you all for your help, I think you’ve all help talk me out of it. It’s not really a need as there’s nothing wrong with my car I’m just a bit bored of it and stuck in a ‘treat yourself’ mentality but I don’t really earn enough to pour 10k away in 3 years for the sake of it. I’d much rather some boujee holidays (when allowed) 😬

DrEskimo

hg1234 said:

Thank you all for your help, I think you’ve all help talk me out of it. It’s not really a need as there’s nothing wrong with my car I’m just a bit bored of it and stuck in a ‘treat yourself’ mentality but I don’t really earn enough to pour 10k away in 3 years for the sake of it. I’d much rather some boujee holidays (when allowed) 😬

Well your current car is probably worth about £9k if you sold private, so if you have a bit of savings just but it towards a car for like £13-15k? Could even get a low rate personal loan if you are happy to take the financial risk, as it will only cost a few hundred in interest.

That or just save now in a separate pot for a couple of years time. I can't imagine your current car will depreciate that much in that time.

Definite

molerat said:

You are going to pay an advanced rental of £7k with your own money plus 35 monthly rental payments of £106 - effectively £306 per month for 3 years.  If you want to own the car you will have to pay them the second hand value of the 3 yr old car, £10500, at the end of the 3 yr rental.

How is he renting on PCP? He owns the car at the end 

TadleyBaggie

Definite said:

How is he renting on PCP? He owns the car at the end 

Only if the balloon payment is made.

molerat

Definite said:

molerat said:

You are going to pay an advanced rental of £7k with your own money plus 35 monthly rental payments of £106 - effectively £306 per month for 3 years.  If you want to own the car you will have to pay them the second hand value of the 3 yr old car, £10500, at the end of the 3 yr rental.

How is he renting on PCP? He owns the car at the end 

As my post clearly states, to make the car their own they will have to pay the second hand value of it at the end of the contract period.  Exactly the same as going to a dealer and buying a 3 year old car for £10500.