Hire purchase or PCP? 30 December 2022 at 12:26PM in Motoring 19 replies 702 views

casperchameleon

Hi guys, looking for some advice. I’m a young professional (24) and I’ve always had my 2010 Renault Clio. It’s recently gone to the mechanics and they’ve said it’s more expensive to fix than to buy a new one and it’s worth about £1000 at the moment. The car probably costs me £1500 in repairs a year at the moment. 

I’m looking into getting a new car but they’re very expensive currently. I’ve never needed something fancy but I do want a car that is likely to last, therefore less miles. 

I don’t like the idea of paying monthly for years to then not own the car. Currently I’m looking at a 2016 Vauxhall corsa with 30,000 on hire purchase for £150 a month for 4 years. The price is £7500 asking. Is this a better idea than PCP? It’s all so confusing! 

Any advice greatly appreciated. 

DrEskimo

It’s quite simple when you view them simply as finance products. As with any finance product, you want to minimise the cost of interest. 

So compare the absolute cost in interest between the two. 

I would suggest that keeping and repairing your current car is going to much cheaper when you factor in the finance cost, depreciation cost and potentially any unknown repair bills on the replacement car….

casperchameleon

DrEskimo said:

It’s quite simple when you view them simply as finance products. As with any finance product, you want to minimise the cost of interest. 

So compare the absolute cost in interest between the two. 

I would suggest that keeping and repairing your current car is going to much cheaper when you factor in the finance cost, depreciation cost and potentially any unknown repair bills on the replacement car….

Thank you. The repairs would be about £2000 and unfortunately it’s something that keeps reoccurring, broken suspension and springs etc. I’ve spent a lot of money on repairing electrics that keep on breaking too. 

It’s difficult as the interest on both are very high (9.7%) due to my age and it being the first time I’ve taken out credit. Which would mean id be paying nearing £9000 in total for a 2016 VC.
PCP puts me off as I feel like for paying the same amount as HP each money, surely you’d want to own it right? However then I guess you have more flexibility to give the car back. 

I thought buying cars is meant to be fun!

Alanp

Could you get a personal loan from your bank?

daveyjp

Long term loans on old cars need to be considered carefully.

Its an almost 7 year old car, which by the time you have finished paying for it will be 11 years old.  You are paying top whack because its from a dealer.

At some point during the loan period there is a good chance it will need money spending on it so you will be in a worse position than now.  A low value car needing repairs and a loan to pay.

If cash is tight I'd be looking for that well looked after vehicle being sold privately for £3-4k and taking out a bank loan paid off over 12-18 months.

DrEskimo

casperchameleon said:

DrEskimo said:

It’s quite simple when you view them simply as finance products. As with any finance product, you want to minimise the cost of interest. 

So compare the absolute cost in interest between the two. 

I would suggest that keeping and repairing your current car is going to much cheaper when you factor in the finance cost, depreciation cost and potentially any unknown repair bills on the replacement car….

Thank you. The repairs would be about £2000 and unfortunately it’s something that keeps reoccurring, broken suspension and springs etc. I’ve spent a lot of money on repairing electrics that keep on breaking too. 

It’s difficult as the interest on both are very high (9.7%) due to my age and it being the first time I’ve taken out credit. Which would mean id be paying nearing £9000 in total for a 2016 VC.
PCP puts me off as I feel like for paying the same amount as HP each money, surely you’d want to own it right? However then I guess you have more flexibility to give the car back. 

I thought buying cars is meant to be fun!

Age will be factor but generally the days of cheap money are over with raising interest rates. With those interest charges I would forget those finance offers. 

How much do you have in savings? I would personally pay for the repairs then look at putting whatever the monthly cost of the loan was going to be into a savings account. When the car comes to need repairs again you can use the savings and whatever you get for the car to buy a car outright without finance. 

Don’t be bamboozled into thinking PCP is somehow some magic way of getting newer cars each month for cheap. You have the same flexibility of trading a car in whether it’s on HP or PCP. PCP tends to work out more expensive due to the fact that the interest charges are much higher (owing to the final payment that accrues interest but does not decrease over the term). 

Buying cars is incredibly fun when you do it in a financially responsible way. All too often people use finance to get cars that are far too expensive for their financial situation. If you look at the debt free wannabe forum a common reason people don’t have much surplus income for savings or investments is that they are spending inordinate amounts on car payments…I personally use these rules of thumbs

- buy used,
- never spend more than 50% of my total annual income,
- don’t spend any money towards interest. 

Grumpy_chap

casperchameleon said:

2010 Renault Clio. 

What can you get for that from WBAC?
My Nephew had a 2011 Clio needing a new gear box which he considered was not worth spending the money on.  He took it to WBAC who gave him £660 for it.
That was recently - first week November 2022.

CoastingHatbox

Think carefully about taking out a loan to buy a car.

The one benefit of buying a car with a finance agreement is the extra protection section 75 of the Consumer Credit Act gives you in the event you experience problems with the vehicle you purchase.

It seems odd that you are in a situation where the car is costing a lot of money each year to maintain, repeatedly fixing the same issues - are the symptoms of the issues being treated and not the root causes? Unless the car is going rusty, structurally unsound, or being driven on rough terrain or challenging conditions, I would not expect electrical and suspension faults to re-occur if they are properly fixed in the first place.

It might be worth sharing some more information about the work you have had done to the vehicle and the work it now needs. If it's had new springs and dampers at the front last year, then at this year at the read, I'd understand.

If the car is structurally sound, personally, I'd continue to maintain it. The value of the car is not in it's resale value, but how long it will continue doing car things before experiencing catastrophic failure - and by that I mean becoming structurally unsound due to rust or accident damage.

casperchameleon

CoastingHatbox said:

Think carefully about taking out a loan to buy a car.

The one benefit of buying a car with a finance agreement is the extra protection section 75 of the Consumer Credit Act gives you in the event you experience problems with the vehicle you purchase.

It seems odd that you are in a situation where the car is costing a lot of money each year to maintain, repeatedly fixing the same issues - are the symptoms of the issues being treated and not the root causes? Unless the car is going rusty, structurally unsound, or being driven on rough terrain or challenging conditions, I would not expect electrical and suspension faults to re-occur if they are properly fixed in the first place.

It might be worth sharing some more information about the work you have had done to the vehicle and the work it now needs. If it's had new springs and dampers at the front last year, then at this year at the read, I'd understand.

If the car is structurally sound, personally, I'd continue to maintain it. The value of the car is not in it's resale value, but how long it will continue doing car things before experiencing catastrophic failure - and by that I mean becoming structurally unsound due to rust or accident damage.

Thank you for the advice, much appreciated. The following is wrong with my car:
- suspension has broken completely (somehow I didn’t realise - but this happened a year ago too and I got it fixed then)
- spring on front left side has broken (also fixed about 3 months ago and then 6 months before that at different mechanics)
- 3 tyres need completely replacing 
- the water pump needs replacing 
- brake fluid contaminated 
- rear exhaust broken and unsafe 
in addition the aux has broken and so has the A/C. But on the bright side it’s never broken down  

it’s probably cost me about £1000 this year already just in repairs and these repairs would cost me quite a lot more so it’s difficult. It also has a lot of problems with its electrics which seem to reoccur constantly!

Ive now found a deal for a 2015 corsa for £7000 with 41,000 miles. Unfortunately I think it would be irresponsible to use my savings as I would have little leftover for emergency payments. The car is 1/4 of my annual income. 

casperchameleon

Grumpy_chap said:

casperchameleon said:

2010 Renault Clio. 

What can you get for that from WBAC?
My Nephew had a 2011 Clio needing a new gear box which he considered was not worth spending the money on.  He took it to WBAC who gave him £660 for it.
That was recently - first week November 2022.

Hi, I’ve looked and they’d pay £450. Some dealerships have offered me £600, others £800 and I would think that if I sold it privately I could get even more with the price of cars at the moment!

ididgetwhereiamtoday

Use your savings and pay no interest. Put £150 (more if you can) a month away into a savings account straight away and you’ll soon have a decent pot of savings. 

Don’t forget if you have an ‘emergency’ soon after purchase you will have at least the asset in the car. 

It would be irresponsible to pay interest on a loan when you have money in the bank. 

Isn’t this classed as ‘an emergency’?