For saving money, is PCP ever a good idea?

fred990

There's far too much financial sense in the last two posts, someone will be along soon to tell us why they were wrong. 
Opportunity costs and house analogies are popular.

DrEskimo

Lizmoretti said:

Ectophile said:

Something that hasn't been mentioned yet is that people buying on a PCP are likely to get a better deal from the car dealer than someone paying cash.

If you buy a car with cash, then the dealer has sold a car.  If you buy a car on PCP, then the dealer has sold a car and a credit agreement.  That's a nice fat commission for them.

It's totally legal to take out a PCP and pay it off early, having taken advantage of any special deals.

A good diversified portfolio of investments may well equal the rate of interest you end up paying.  But there's a limit to how much you can pay into an ISA every year, and those returns are only an average.  Investments can go down as well as up, etc.

There was no PCP incentive in my case.  I did ask that.

The PCP deal was 8.9% and overall added £9k to the purchase price.

So I’m not missing anything.  When I bought my current car a couple of years ago, a work colleague assumed it was PCP.  When I said it was cash they were shocked and said it was a bad move and you should never buy a car cash, always on finance.  Never worked out why he thought that.

I shall pay cash and be content I’ve done the right thing.

The usual reason is around the fact that PCP gives you a guaranteed value at the end of term, so in some respects it's protected against large drops in the market value of the car.

What's forgotten is that it costs you £££ in interest to get this. So any drop needs to factor in this cost. Pretty pointless saving £5k in additional depreciation, to have to spend £9k in interest. I've heard of a couple of examples of this working in the PCP favour, but 9/10 people don't hand the car back, they trade it in. The exact same way you would have you owned it.

Which brings me to the second reason I see often, which is 'I don't want to keep the car more than 3-yrs', as though PCP somehow gives you this unique ability to trade in a buy another car that you can't do with a car you own. It's a complete misnomer. Trading the car into a garage and placing an order for a new one is the exact same process whether you own it or have it on PCP.

In short, in very much depends on the interest rate of the deal (as with any finance product), and given you would be paying nearly £9k in this case, your friend is misinformed. Of course convincing someone they may have made a bad financial decision that has cost them money and that maybe they shouldn't have a shiny exciting new car is not an easy task....

Harvez63

I've PCP'd my last 2 supercars. Theres absolutely no sense in tying up your money into a car, that is fairly easy to hop out of with a PCP deal. You'll notice a lot of footballers also dont buy their cars out right even on their wages. 

Finance amongst the older generation is seen as a negative I believe. Oh if you finance it you cant afford it, therefor you shouldn't have it. I think times have moved on and the stigma around it has changed. Generations are different so thats by no means a pop at anyone. 

Also, the last 2 cars, I sold one for what I paid for it a year later, and I sold the last one back to the main dealer for an £8k profit, with a £2k repair bill for a part that had broke. 

I also typically move on every year or so, so if going by the car market at the moment, typically if I'm paying £200 a month interest, looking at £2.4k for basically owning say a Ferrari for a year. I dont think thats bad. 

Obviously somewhat car dependent, but car values are very strong now, and have been for a while now with no signs of letting up. Giving not many people can produce new cars at the moment. 

DrEskimo

Harvez63 said:

I've PCP'd my last 2 supercars. Theres absolutely no sense in tying up your money into a car, that is fairly easy to hop out of with a PCP deal. You'll notice a lot of footballers also dont buy their cars out right even on their wages. 

Finance amongst the older generation is seen as a negative I believe. Oh if you finance it you cant afford it, therefor you shouldn't have it. I think times have moved on and the stigma around it has changed. Generations are different so thats by no means a pop at anyone. 

Also, the last 2 cars, I sold one for what I paid for it a year later, and I sold the last one back to the main dealer for an £8k profit, with a £2k repair bill for a part that had broke. 

I also typically move on every year or so, so if going by the car market at the moment, typically if I'm paying £200 a month interest, looking at £2.4k for basically owning say a Ferrari for a year. I dont think thats bad. 

Obviously somewhat car dependent, but car values are very strong now, and have been for a while now with no signs of letting up. Giving not many people can produce new cars at the moment. 

Every single example above would be exactly the same if you had bought it outright, except you wouldn't have paid interest....You can just as easily 'hop out' of a car you own. Trading in cars to dealers is nothing unique for cars on PCP.

You made £8k profit on your last one, also donated a bunch of your money to multi billion pound finance companies in interest payments. Had you bought outright, you would have made £8k profit and paid no interest.

It's finance...finance costs more money...it's not very complicated.  I'm only 34 so hardly a generation thing. It's simple maths.

Car_54

Lizmoretti said:

Ectophile said:

Something that hasn't been mentioned yet is that people buying on a PCP are likely to get a better deal from the car dealer than someone paying cash.

If you buy a car with cash, then the dealer has sold a car.  If you buy a car on PCP, then the dealer has sold a car and a credit agreement.  That's a nice fat commission for them.

It's totally legal to take out a PCP and pay it off early, having taken advantage of any special deals.

A good diversified portfolio of investments may well equal the rate of interest you end up paying.  But there's a limit to how much you can pay into an ISA every year, and those returns are only an average.  Investments can go down as well as up, etc.

.
 When I bought my current car a couple of years ago, a work colleague assumed it was PCP.  When I said it was cash they were shocked and said it was a bad move and you should never buy a car cash, always on finance.  

Was this colleague the finance director, or the guy who cleaned the toilets?

Lizmoretti

Harvez63 said:

I've PCP'd my last 2 supercars. Theres absolutely no sense in tying up your money into a car, that is fairly easy to hop out of with a PCP deal. You'll notice a lot of footballers also dont buy their cars out right even on their wages. 

Finance amongst the older generation is seen as a negative I believe. Oh if you finance it you cant afford it, therefor you shouldn't have it. I think times have moved on and the stigma around it has changed. Generations are different so thats by no means a pop at anyone. 

Also, the last 2 cars, I sold one for what I paid for it a year later, and I sold the last one back to the main dealer for an £8k profit, with a £2k repair bill for a part that had broke. 

I also typically move on every year or so, so if going by the car market at the moment, typically if I'm paying £200 a month interest, looking at £2.4k for basically owning say a Ferrari for a year. I dont think thats bad. 

Obviously somewhat car dependent, but car values are very strong now, and have been for a while now with no signs of letting up. Giving not many people can produce new cars at the moment. 

So if you didn’t tie your money up in a car, what did you do with it that meant it was worth paying £200 per month in interest?

Lizmoretti

Car_54 said:

Lizmoretti said:

Ectophile said:

Something that hasn't been mentioned yet is that people buying on a PCP are likely to get a better deal from the car dealer than someone paying cash.

If you buy a car with cash, then the dealer has sold a car.  If you buy a car on PCP, then the dealer has sold a car and a credit agreement.  That's a nice fat commission for them.

It's totally legal to take out a PCP and pay it off early, having taken advantage of any special deals.

A good diversified portfolio of investments may well equal the rate of interest you end up paying.  But there's a limit to how much you can pay into an ISA every year, and those returns are only an average.  Investments can go down as well as up, etc.

.
 When I bought my current car a couple of years ago, a work colleague assumed it was PCP.  When I said it was cash they were shocked and said it was a bad move and you should never buy a car cash, always on finance.  

Was this colleague the finance director, or the guy who cleaned the toilets?

Closer to the latter.

Ibrahim5

I'd much rather have a Skoda Kodiaq than an Audi Q8. Better image and cheaper too.

MalMonroe

I took out a PCP because the interest rate was 0% and I couldn't afford to buy a decent car outright. It's not even a new car at that.

However, whatever it's called, it's still a loan. And it's marked down on my credit reports as such. So even though my credit history and reports are good and my credit cards are paid off in full every month, I've still got a loan on there. It's being managed well but it's an indication to any lenders that I can't afford to buy a car outright.

Which means that even if you save money by having a PCP and can get one with 0% interest, etc., your credit report will always have an outstanding loan on it until it's either paid off or you surrender the vehicle. 

If I had the money to buy a car outright, I'd do that rather than take out any type of loan. If you don't mind having a loan on your credit reports and are happy to have a PCP then there isn't a problem.

But for me, the car isn't mine and I still have that 'loan' word jumping out at me whenever I check my credit reports. It's only in the short term and I've never missed a payment but I don't like it. That's just me, of course. But I feel tied. I am tied.

MalMonroe

MEM62 said:

You pay cash and you only suffer depreciation.  Finance the car and you suffer depreciation and interest.  It makes any period of ownership that much more expensive and gives you less to spend on the next one.  With cash you also do not have to worry about payments and potentially loosing the car if your financial circumstances take a downturn. Cash is a no-brainer.     

PCP is a great product for putting your backside into a vehicle that you otherwise could not afford.  It is not particularly cheap and at the end of the agreement and all those payments you own nothing.  Personally, never seen the point in that.     

It's not so bad if you have 0% interest PCP deal and you sell the car before the term is up so you can pay the finance off and then buy another car with the profit you make. That's what I'll be doing shortly with my PCP. The car I buy with the profit may not be as good as the one I have now but then again, it may be. And the dealer I have the agreement with has confirmed that I'm able to do that, as long as they get the money they're owed they're happy. So I will own something at the end of it all, and I've had the pleasure of using a decent car, albeit used.

And so do the people who pay the balloon payments, especially if they have a deal like mine at 0%. 

I just don't like having a 'loan' recorded on my credit reports. That's the main downside for me. 

But if you shop around and take your time, you can sometimes get a good PCP deal - with a great car at the end. PCP deals are not all the same.