For saving money, is PCP ever a good idea?

motorguy

ididgetwhereiamtoday said:

They could get a loan to pay the ballon payment which would be cheaper than a new pcp. But most people are probably bored of the car they have by then. 

With new car prices and availability an issue now, many people are buying their car at the end of the term, either via cash or a cheap loan, particularly given the residual price is quite low compared to current values.  For many its a no brainer.

If someone has some white goods euro hatch then if theres no palatable cheap monthly deal then they may as well stick with the car they have.

motorguy

zagfles said:

Herzlos said:

Lizmoretti said:

Judging by the last several comments, it looks like PCP is mainly designed to confuse people!

It's designed to do 2 things:

1. Create a low monthly payment in an environment where the monthly payment is the most important - the first thing dealers seem to ask these days is your monthly budget

2. Trap buyers into the PCP cycle because people are bad at budgeting and generally don't have the money to clear the balloon payment, so are likely to trade the car back in and start over. 

Indeed - the relatively low deposit and high balloon payment are clearly designed for people (probably the majority) who don't manage their finances properly so at the end of the term they can't afford to keep the car, and it appears "cheaper" to them to take out a new PCP for a new car!

The balloon payments are relatively low for most who are coming to the end of their term, given the high prices of cars now, so many people are literally ££££s in equity.

The balloon payment has historically been set at around projected trade price for the car - on the basis that if the finance co has to take the car back they can recover the value of it.

Having a monthly payment suits a lot of people - they can budget for it and it rolls up their depreciation, warranty and sometimes servicing in to one monthly payment.  It also removes the risk of big ad hoc bills, mot hassles, etc.

For the most of the cars we all drive, there is depreciation on it and at some point it will need to be replaced.  So if someone has a £15K car its likely worth £7.5K in three years time, and they'll need to set aside around £250 a month just to replace it with the same anyway.  

When i was selling cars for a franchised dealer many moons ago, people would HP their cars or use a bank loan, they'd typically be back in after 3 years wanting to change as "i'm used to the payments and i dont want to end up with a big bill to change the car later".

That was well over 30 years ago now, so budgetting monthly for a car with a monthly payment is not a new thing.

Grumpy_chap

motorguy said:

zagfles said:

Indeed - the relatively low deposit and high balloon payment are clearly designed for people (probably the majority) who don't manage their finances properly so at the end of the term they can't afford to keep the car, and it appears "cheaper" to them to take out a new PCP for a new car!

The balloon payments are relatively low for most who are coming to the end of their term, given the high prices of cars now, so many people are literally ££££s in equity.

I think, perhaps, @zagfles was meaning "high balloon payment" in the sense that it is a sum that individuals don't have available to pay if they chose to.

You are probably correct that balloon payments now are lower than the actual trade in value so there is a "win" to be had.

Just looked at one PCP online for a £26k car. 
It is £5k deposit, which many people ignore - perhaps because the old car covers this cost and a "non-cash" spend is not so obvious.
Then the monthly £280.
Then the final payment £13k

For many, whether the £13k is above or below the value of the car at the time the agreement ends is irrelevant as there was never any plan to be able to pay the £13k and keep the car if that was the decision that suited at the end of the term.

Herzlos

Grumpy_chap said:

For many, whether the £13k is above or below the value of the car at the time the agreement ends is irrelevant as there was never any plan to be able to pay the £13k and keep the car if that was the decision that suited at the end of the term.

It's certainly unlikely that many people would be prepared with £13k in savings to clear it, but those that aren't planning on trading the car in for another deal are likely planning to pay the balloon via some alternative funding like a personal loan.

[Deleted User]

In general, it comes down to what you plan on doing with the car. I got my car cash 9 years and plan to drive it into the ground. I've paid the equivalent of £88 a month for it where a PCP deal would have easily been double and no asset.