Getting into the PCP Game

anotheruser

We have a car, probably worth about £2500.

Was thinking about getting into the PCP game of essentially renting a new car. We wouldn't be able to afford the balloon payment so would either trade it in for another new car or trade it in and that's that.

I'm a bit worried it's not really worth it though. While it means we don't have to stump up another £4000 - £6000 for a used but good car (could pay less but this tends to be a good spot for us), it does mean we'll be paying a good £200-£300 a month anyway.

Anyone made this switch and have any advice? 

BOWFER

I've been PCP for many years now and will continue to do so as long as I can.
Actually 3 x PCP cars in our house.
Others will come up with arguments for buying, but I don't care.
I'm happy to spend £200-£300 a month and just 'upgrade' my car every few years.

Grumpy_chap

There are some who think PCP is the best thing since sliced bread (see above) and some who think PCP is the work of the devil.

I am not keen on PCP, but there have been some recent threads about finance deals that even tempted me and close to "no-brainer" even compared to my bangernomics Focus.  Certainly, there are circumstances where PCP can be suitable and PCP can offer good flexibility.

It is important to remember that PCP is a finance product and can entice the purchaser into a product that they cannot really afford.  In the OP's case, there is less flexibility at the end of the term because the OP is clear they do not expect to be able to afford the balloon payment.  That can result in a never-ending PCP cycle of swapping up to the next new car at £300 per month, essentially for ever. As a comparison, a £60k repayment mortgage at 3.5% over 25 years would also cost £300 per month, again essentially for ever but there'd be an asset at the end which is not the case with repeated PCP cars.

Why is the OP looking to change cars now?  Does the change need to be now, or can it be delayed for a bit?  If the OP can afford the £300 per month and saves that for a year, then in a year's time, the OP will have £2.5k from current car plus £3.5k from savings so a total of £6k which achieves a number of options:

1. Comfort that they can take on the PCP and meet the payments without detriment in other aspects of the lifestyle
2. £6k option to buy an older car cash, should they choose.
3. £6k available deposit which may secure a better incentive / interest rate on PCP

If the current car won't last 12 months then it is likely not worth £2.5k

PCP is available on used cars and on new cars.  Generally, the PCP deals on brand new cars are more attractive in terms of incentives and interest rates than on used cars.  So, going the PCP route, a brand new car can often make more sense that used / nearly new.  Whatever car you then choose, check the deals with online brokers to obtain good price before accepting whatever deal is first offered by the local dealer.

Hope you find a nice car and that my comments are balanced points of consideration.

BOWFER

Grumpy_chap said:

It is important to remember that PCP is a finance product and can entice the purchaser into a product that they cannot really afford. 

I don't get this line of thinking.
"cannot really afford" in what sense?
As in couldn't afford to buy it?
So what?
That's like saying renting a villa is 'enticing people into a holiday home they cannot really afford'
Irrelevant, all you need is to be able to afford for the period you want it.
If you can afford the monthly payments, what's the relevance of the fact you couldn't afford to buy it outright?
I'll give you a clue, it's somehere between zero and nil.

jimjames

anotheruser said:

Anyone made this switch and have any advice? 

Not made the switch but can suggest some advice from reading threads on here. As above some people are very happy with it but they're probably not doing it from a lower cost viewpoint. If you buy a car you can sell it to get the cash if needed. If you PCP then you don't own the car and are committed to paying those monthly payments for the duration of your agreement or until the point where you can cancel which is quite late on in the agreement normally.

If your finances are liable to change or are potentially variable then PCP may not be the best option as you have that commitment that may then be a struggle. I've seen people who get a new car for a new job, lose or change jobs and still need to make the payments for the next 3 years. If you're only doing PCP as it's the only way you can afford a brand new car then it may be worth being cautious before making that decision.

Grumpy_chap

jimjames said:

If you buy a car you can sell it to get the cash if needed. If you PCP then you don't own the car and are committed to paying those monthly payments for the duration of your agreement or until the point where you can cancel which is quite late on in the agreement normally.

If you buy a car you can sell it at any time.
If you acquire a car on PCP, you can sell it at any time and settle the finance. 

Obviously, if you acquire the brand new car on PCP and then need to sell in the very early period it is likely that the sell price will not clear the remaining finance balance as the initial drive-out-the-showroom depreciation is very high.  That is the same whether you buy a brand new car or acquire on PCP.

I do agree with this, though:

jimjames said:

If you're only doing PCP as it's the only way you can afford a brand new car then it may be worth being cautious before making that decision.

AdrianC

anotheruser said:

I'm a bit worried it's not really worth it though. While it means we don't have to stump up another £4000 - £6000 for a used but good car (could pay less but this tends to be a good spot for us), it does mean we'll be paying a good £200-£300 a month anyway.

Any new car depreciates heavily.
What you're paying monthly on a PCP is the depreciation plus interest on the entire purchase price less your up-front payment.

Over three years, it will inevitably work out considerably more expensive than running cheap cars. In your example, three years of £300/mo is nearly £11k. And, of course, you then need to find the up-front for the next PCP...

BOWFER

jimjames said:

anotheruser said:

Anyone made this switch and have any advice? 

If you PCP then you don't own the car and are committed to paying those monthly payments for the duration of your agreement or until the point where you can cancel which is quite late on in the agreement normally.

With PCP you're free to sell the car at any point, as long as you settle the finance.
I did it myself only last week.
The PCP settlement figure from VWFS was £19800, the garage offered me £20300.
The garage settled VWFS and paid me the balance.
Hey presto, I'm out of a 4 year PCP deal after only 9 months and free to start again.

BOWFER

AdrianC said:

 And, of course, you then need to find the up-front for the next PCP...

Not if there's equity in the GFV and, unless the car is a honker or an unappealing model, the garages will usually offer more than GFV.
This equity between the GFV and what they're giving you becomes the deposit for your next one.
It's not in the garages best business interests to only offer you the GFV and ask you to stump up a deposit again.

NSG666

BOWFER said:

AdrianC said:

 And, of course, you then need to find the up-front for the next PCP...

Not if there's equity in the GFV and, unless the car is a honker or an unappealing model, the garages will usually offer more than GFV.
This equity between the GFV and what they're giving you becomes the deposit for your next one.
It's not in the garages best business interests to only offer you the GFV and ask you to stump up a deposit again.

You do need to be careful not to assume the vehicle will be worth more than the GFV - the idea and hope, even from the manufacturers, is that they will be but occasionally  a model is facelifted or goes out of fashion and is worth significantly less. Of course that then illustrates anther benefit of PCP over outright purchase in that you just hand the car back and the PCP provider takes the loss. I'm not anti-PCP by the way.

Freecall

BOWFER said:

That's like saying renting a villa is 'enticing people into a holiday home they cannot really afford'
Irrelevant, all you need is to be able to afford for the period you want it.

But surely that is the whole point, renting a villa for a holiday is a very specific point-purchase.  A fortnight later you move on and at some future date make your plans for your next holiday.

By contrast, a car is an on-going requirement, borrowing significant sums of money via PCP to finance it means that you have commitments.  Commitments which can be difficult to get out of should your circumstances change.