Thoughts on PCP?

Grumpy_chap

PunkRoquefort said:

The monthly interest payments, for the PCP term, for example, 3 or 4 years, not paying the balloon payment/buying the car, will be far cheaper than buying a car outright, but will be a cheaper way of driving a brand new motor every few years, compared to writing a cheque, owning the car and then facing depreciation. 

I will also get to keep my investments growing/working for me, rather than paying a lump sum.

Does it make sense?

No, not to me anyway.

If you buy the car outright and then sell after 3 or 4 years, you suffer the depreciation.

If you have the same car for the same time on PCP, you also suffer the interest on top of the depreciation.

Ibrahim5

The important question is why do you think you need a new car? A car will last at least 15 years. Why do you need a new one every 5 years. Do you replace all your other belongings every few years? A new car could be a load of trouble. Off the road for months. Clueless dealer unable to fix. If you have a good 8 year old car why not just keep it? It should be fine for another 8 years.

Herzlos

PunkRoquefort said:

Maybe it was my fault in the way I worded my original post, but what I meant was I have tended to buy brand new cars, from dealerships, then when they hit about 5 years old, trade them in for a totally brand new car.

I did not mean buying a car that someone else has previously owned for 5 years.

The monthly interest payments, for the PCP term, for example, 3 or 4 years, not paying the balloon payment/buying the car, will be far cheaper than buying a car outright, but will be a cheaper way of driving a brand new motor every few years, compared to writing a cheque, owning the car and then facing depreciation. 

I will also get to keep my investments growing/working for me, rather than paying a lump sum.

Does it make sense?

You'd be paying the same amount for the car up front (though likely with a better discount or "dealer contribution" for taking out the PCP). The difference being that with the PCP you've got a set final value so it can never depreciate more than that; if the car is worth less than the final value you hand it back and the finance company takes the hit, and if the car is worth more you buy it or trade it in and take that equity with you. So there's a bit of bet hedging there.

Then there's the finance; with a PCP you're paying the balance down from new price to final value, whilst paying interest on all of it. So the payments will be lower than a HP where you're paying the balance down from new to £0 and own it outright at the end.

If you can get a finance rate lower than you're making from investments, or are worried about the opportunity cost, then the PCP could work out cheaper than buying the car outright and having £10k's tied up in it.

If you're not too bothered about the exact car, then you can buy based on the deals; brokers often have bulk deals with manufacturers so you may get a good price but it may not be for the exact make/model/spec/colour you want.

Goudy

As already stated, PCP is just finance.

As you write you could stump up the cash or cash in an investment, you need to workout if the return on your cash/investment is more or less than the interest on the new car.

If you have cash in the bank making 4% and the interest on a new car is 7%, using your cash would be cheaper.
If you are making 4% on your cash and the interest on a new car on 0%, then take the finance.


In regards to PCP as a form of finance, some like it, so don't.
It can get you into a new car with quite low monthly payments compared to other forms of finance.
Some might point out that it lets them buy cars they can't afford, but that is the same with any form of finance, even a mortgage.

Others worry about the GFV and negative equity.
You will suffer this if you trade the car in before the term finishes, like half way through the contract as deprication isn't linear but your payments are, but this can be the same as straight HP.
If you set the contract up on the correct mileage and looked after the car well enough, at or close to the end of the contract your are free to haggle it's trade in value with any dealer.
They will usually work out what you still owe and to get your business often offer enough equity in your trade in to interest you in a new deal, if not just hand it back to the fiance company.

You need to keep an eye on the interest rate, they can be slightly higher with PCP, but you often get a deposit contribution which can even the interest out.

Some contributions actually make it worthwhile to buy the car on a PCP deal and settle or cancel the finance straight away.
This way you pay cash, but have benefited from the contribution.

I've done this myself a few times. My current car was invoiced at £23,500, but got a Bluelight card contribution of nearly £4,500.
I paid off the PCP the day I picked it up from the showroom and paid only 56 days interest and as savings rates were so bad back then it was a no brainer to pay it off and own the car.
It's actually still worth around the price I paid, nearly 30 months later!


It has already been written but you're best to find a car you like and work out what the cost is to buy it in the different ways available, then see which suits you.

PunkRoquefort

I do have a Blue Light Card and looked at the deals.

I once had a mortgage, on which the % rate of interest was higher than a lump sum was earning in income, which I could have used to clear the mortgage.

However, thee lump sum vastly outgrew the money I borrowed to buy the house, plus I still have the investment and the mortgage finished years ago. 

The mortgage was for a set period, whereas the investment is much longer term.

I must admit, owning a car outright, as I have always done before means I own the car on my own terms, even if I do take a hit on depreciation.

diystarter7

Hi

Slightly OT but related and important, IMHO, these leases/pcp, never really understood them. I recall a lady on a radio call-in, hubby took out a svral year lease on a never car and died a few months later and she was aying, cna't recall 100%, they had to honour all/some of the lease/pc whatever it was. How would that work do the company leasing/pcp the car as standard practice offer insurance if you lose your job, sick or worse? It is something to seriously consider IMO but I've never seen any chatter about it on this site, sure its happened but rarely I guess.

Thnaks

Herzlos

diystarter7 said:

Hi

Slightly OT but related and important, IMHO, these leases/pcp, never really understood them. I recall a lady on a radio call-in, hubby took out a svral year lease on a never car and died a few months later and she was aying, cna't recall 100%, they had to honour all/some of the lease/pc whatever it was. How would that work do the company leasing/pcp the car as standard practice offer insurance if you lose your job, sick or worse? It is something to seriously consider IMO but I've never seen any chatter about it on this site, sure its happened but rarely I guess.

Thnaks

Exactly the same as any other credit contract or large purchase.

With a lease you've essentially committed to renting the car for the full period and like a phone contract the settlement figure is the outstanding contract. It can get you a good deal, but at some risk should you be unable to afford it later.

With a PCP/HP, you can settle at any point and you'll get some reductions for the outstanding interest and existing equity.

Even if you buy new in cash, lose your job and then have to sell the car you're going to be out of pocket by however much it has depreciated, and likely how much you'd lose anyway selling it back to the trade.

So you really need to be confident about being able to afford the car in 3/4/whatever years time however you buy it.

diystarter7

Herzlos said:

diystarter7 said:

Hi

Slightly OT but related and important, IMHO, these leases/pcp, never really understood them. I recall a lady on a radio call-in, hubby took out a svral year lease on a never car and died a few months later and she was aying, cna't recall 100%, they had to honour all/some of the lease/pc whatever it was. How would that work do the company leasing/pcp the car as standard practice offer insurance if you lose your job, sick or worse? It is something to seriously consider IMO but I've never seen any chatter about it on this site, sure its happened but rarely I guess.

Thnaks

Exactly the same as any other credit contract or large purchase.

With a lease you've essentially committed to renting the car for the full period and like a phone contract the settlement figure is the outstanding contract. It can get you a good deal, but at some risk should you be unable to afford it later.

With a PCP/HP, you can settle at any point and you'll get some reductions for the outstanding interest and existing equity.

Even if you buy new in cash, lose your job and then have to sell the car you're going to be out of pocket by however much it has depreciated, and likely how much you'd lose anyway selling it back to the trade.

So you really need to be confident about being able to afford the car in 3/4/whatever years time however you buy it.

Hi

Thnak you

When buying at least you have paid your debts. Therefore, lets assume someone takes out a lease on a new car for 3 years etc - dies on the third month and 1k payments a month are still outstanding and if they leave a OH bending, 33k is a lot of money for a car they possibly have no use for.  It was something like that hapend to the caller on the radio

I'm surprised there is no warning, heads up to those signing those contracts and or insurance offers.

Thankfully we have never dode hp/lease etc

I appreciate your help

Herzlos

diystarter7 said:

When buying at least you have paid your debts. Therefore, lets assume someone takes out a lease on a new car for 3 years etc - dies on the third month and 1k payments a month are still outstanding and if they leave a OH bending, 33k is a lot of money for a car they possibly have no use for.  It was something like that hapend to the caller on the radio

I'm surprised there is no warning, heads up to those signing those contracts and or insurance offers.

Certainly if you get a new car and die/become unemployed/divorced/whatever shortly after, then leasing is probably the worst way to do it as you're going to be paying 2/3/4 years worth of capital and interest.
Even if you buy a new car in cash, a car with a £1k/month lease is going to be something like a BMW 8 series for £80k, so it's entirely possible you'd only get £60k for it to sell to a car buyer at 3 months old.

So you're still going to be ~£15k better off having paid cash, but you had to find £80k up front instead of just £1k/month.

I think the PPI scandal of a few years ago prevented anyone offering payment insurance by default even if it would be useful. It's still available to purchase but you need to seek it out. It's definitely worth considering if you think there's a risk you'll struggle with payments. I haven't bothered because my car is worth more to trade in than the outstanding finance so I know I can sell it to webuyanycar and walk away with some cash.