First Time Buying a Vehicle Via PCP

adamapple

I'm on the verge of buying a used car on PCP. Having never entered a PCP deal before I'm looking for any feedback from people with experience, anything to watch out for and how rock solid is the Guaranteed Final Value they quote?

WellKnownSid

It’s rock solid as it is a contractual agreement. What the car is actually worth at that point is anybody’s guess, which can work in your favour.

Consider just how expensive the deal is against other finance options given that there is a chunk of money you may never pay off which you will be paying interest on.

As you mention used, ensure that the warranty lasts at least as long as your final payment because a faulty car in huge negative equity is a common complaint on here. PCP is rarely a good deal for used cars.

Goudy

The GFV or balloon payment is based on the expected value of the car at the point when it's due.

So if your contact is based on high mileage, that will effect it's value at that point and the GFV will be lower. (and monthlies higher)

If it's based on lower mileage, the GFV will be higher. (and monthlies lower)

It's all pre set in the contract though, so work out your mileage carefully.

If it's based low and you go over those contracted miles you will pay for the excess mileage if you hand the car back at that point.
Trade it in at this point and you may owe more than it's value as what you owe (the GFV) is more than it's value.
Pay the GFV and keep it and it makes no difference really.

Also, if you hand it back when the GFV is due you will pay for any damage that is not fair wear and tear.
(The standards they use for this are the BVRLA's fair wear and tear guidance).

You will want to study this guide before you sign up as you don't want to pay for any damage or excess wear the car already has later.


PCP on used vehicles is not usually good value.
Interest rates are generally a lot higher than PCP on most new vehicles and with most new cars, you often get a deposit contribution from the manufacturer or finance company.

You might want to test the above and get a few quotes on new vehicles.

Obviously a PCP is a fairly large financial commitment and an older car will either be out of warranty or offered with a shorter warranty. You will be expected to maintain the car, so any major issues outside of warranty will be yours to pay for along with the finance payments. 
Quite a few people end up on the forum with major issues with a car on finance that is out of warranty and they can be painful to read.

If it comes with an extended manufacturers warranty, double check it still qualifies.
If it comes with a third party warranty, well good luck with that.

adamapple

Goudy said:

The GFV or balloon payment is based on the expected value of the car at the point when it's due.

So if your contact is based on high mileage, that will effect it's value at that point and the GFV will be lower. (and monthlies higher)

If it's based on lower mileage, the GFV will be higher. (and monthlies lower)

It's all pre set in the contract though, so work out your mileage carefully.

If it's based low and you go over those contracted miles you will pay for the excess mileage if you hand the car back at that point.
Trade it in at this point and you may owe more than it's value as what you owe (the GFV) is more than it's value.
Pay the GFV and keep it and it makes no difference really.

Also, if you hand it back when the GFV is due you will pay for any damage that is not fair wear and tear.
(The standards they use for this are the BVRLA's fair wear and tear guidance).

You will want to study this guide before you sign up as you don't want to pay for any damage or excess wear the car already has later.


PCP on used vehicles is not usually good value.
Interest rates are generally a lot higher than PCP on most new vehicles and with most new cars, you often get a deposit contribution from the manufacturer or finance company.

You might want to test the above and get a few quotes on new vehicles.

Obviously a PCP is a fairly large financial commitment and an older car will either be out of warranty or offered with a shorter warranty. You will be expected to maintain the car, so any major issues outside of warranty will be yours to pay for along with the finance payments. 
Quite a few people end up on the forum with major issues with a car on finance that is out of warranty and they can be painful to read.

If it comes with an extended manufacturers warranty, double check it still qualifies.
If it comes with a third party warranty, well good luck with that.

Thanks for the advice. Although the car is three years old and no longer under its standard warranty, the dealer is including a two-year manufacturer warranty (as well as a £750 contribution). My PCP agreement runs for three years, so while I’ve been told I can purchase extended cover after the two years, I’ll likely have one year without warranty protection. 

My intention is to return the car after 3 years, but you've got me thinking whether this is such a good deal, as the interest is also a bit on the high side. And I'm also paying slightly more for this car to benefit from the included warranty period.

born_again

adamapple said:

Thanks for the advice. Although the car is three years old and no longer under its standard warranty, the dealer is including a two-year manufacturer warranty (as well as a £750 contribution). My PCP agreement runs for three years, so while I’ve been told I can purchase extended cover after the two years, I’ll likely have one year without warranty protection. 

My intention is to return the car after 3 years, but you've got me thinking whether this is such a good deal, as the interest is also a bit on the high side. And I'm also paying slightly more for this car to benefit from the included warranty period.

Take a long hard think before buying.

What car is this?

There are many posts on here, where people bought a 2nd hand car on PCP & it went wrong.
In that case you have no choice to buy the car @ the end of the PCP, as you need to return a working car.

Warranty does not cover everything...

Goudy

born_again said:

adamapple said:

Thanks for the advice. Although the car is three years old and no longer under its standard warranty, the dealer is including a two-year manufacturer warranty (as well as a £750 contribution). My PCP agreement runs for three years, so while I’ve been told I can purchase extended cover after the two years, I’ll likely have one year without warranty protection. 

My intention is to return the car after 3 years, but you've got me thinking whether this is such a good deal, as the interest is also a bit on the high side. And I'm also paying slightly more for this car to benefit from the included warranty period.

Take a long hard think before buying.

What car is this?

There are many posts on here, where people bought a 2nd hand car on PCP & it went wrong.
In that case you have no choice to buy the car @ the end of the PCP, as you need to return a working car.

Warranty does not cover everything...

This issue isn't just associated with PCP though.
A used car on any type of finance could suffer the same issue, ie it goes bang and your still owe thousands without any warranty.

We can't tell you if it's a good deal as we don't know the details.
And of course what is a good deal to you or me, isn't to someone else.

If you aren't total set on make and model but perhaps it's a style or type of car, I would run some figures on new models.
Do you or your family qualify for any discounts?
Teachers, NHS staff, military, union memberships etc can sometimes get you bigger deposit contributions on new cars. 
I got £4500 off my last car as I work for the NHS via the Blue Light Card/Renault scheme.

If you don't, no trouble. You can use sites like Carwow to quote on car deals.
Generally it's cars in stock, so you might not always get a choice of colour and other options. (BTW, you will never get value back on optional extras, just pick the right model with what you need).

Once you have some idea what is available and at what cost new, then you can see if the used deal looks worthwhile.

Frozen_up_north

New cars often come with a large contribution towards finance from the manufacturer, and may include a full warranty that extends to the end of the PCP agreement. That contribution is sometimes available as a discount on a "cash" purchase too, ie you can get that discount with a loan from elsewhere, which may have a lower interest rate than the dealer offers. I had a £4000 discount on the outright purchase of a £32,000 car.

The potential downside to PCP is the condition and mileage of the car at the end of the term. This is less of an issue if you buy a new car over 3 years which includes a 3 year manufacturer warranty.

You really need to do a few calculations... For example a £22,000 brand new VW Polo with £1 deposit on VW finance at 7.9%, works out to £410 per month over 3 years with a final payment (or hand the keys back) of £9,600. A loan for £22,000 from the Nationwide Bank at 5.8% costs £420 per month over 5 years, and the car is yours without a final payment.

adamapple

Frozen_up_north said:

New cars often come with a large contribution towards finance from the manufacturer, and may include a full warranty that extends to the end of the PCP agreement. That contribution is sometimes available as a discount on a "cash" purchase too, ie you can get that discount with a loan from elsewhere, which may have a lower interest rate than the dealer offers. I had a £4000 discount on the outright purchase of a £32,000 car.

The potential downside to PCP is the condition and mileage of the car at the end of the term. This is less of an issue if you buy a new car over 3 years which includes a 3 year manufacturer warranty.

You really need to do a few calculations... For example a £22,000 brand new VW Polo with £1 deposit on VW finance at 7.9%, works out to £410 per month over 3 years with a final payment (or hand the keys back) of £9,600. A loan for £22,000 from the Nationwide Bank at 5.8% costs £420 per month over 5 years, and the car is yours without a final payment.

In the deal I've been offered the included £750 contribution, 2 years manufacturer warranty and 2 years servicing, are only provided on taking out their PCP deal which is at 10.9%.

MyRealNameToo

adamapple said:

I'm on the verge of buying a used car on PCP. Having never entered a PCP deal before I'm looking for any feedback from people with experience, anything to watch out for and how rock solid is the Guaranteed Final Value they quote?

What do you mean by the second question?

The GFV is the balloon you will have to pay if you want to retain the vehicle at the end of the contract. No one has a crystal ball to say with certainty on what the car will be worth but finance companies do intentionally either low ball it or high ball it. If they set it low then your payments will be higher but you will be likely to either keep the car or trade it in in the end as the car is worth more than the GFV. In other cases your payment will be a little lower but the GFV will be much more than the car is worth so you will most likely surrender the vehicle. 

No matter which it is, it is what it is and sometimes they get it wrong anyway. With ours the balloon was more than £5k over the sticker price for the vehicle and clearly as a private seller/trade in they are going to pay a lot less than sticker price. But it's fine, give it back and walk away. 

born_again

adamapple said:

Frozen_up_north said:

New cars often come with a large contribution towards finance from the manufacturer, and may include a full warranty that extends to the end of the PCP agreement. That contribution is sometimes available as a discount on a "cash" purchase too, ie you can get that discount with a loan from elsewhere, which may have a lower interest rate than the dealer offers. I had a £4000 discount on the outright purchase of a £32,000 car.

The potential downside to PCP is the condition and mileage of the car at the end of the term. This is less of an issue if you buy a new car over 3 years which includes a 3 year manufacturer warranty.

You really need to do a few calculations... For example a £22,000 brand new VW Polo with £1 deposit on VW finance at 7.9%, works out to £410 per month over 3 years with a final payment (or hand the keys back) of £9,600. A loan for £22,000 from the Nationwide Bank at 5.8% costs £420 per month over 5 years, and the car is yours without a final payment.

In the deal I've been offered the included £750 contribution, 2 years manufacturer warranty and 2 years servicing, are only provided on taking out their PCP deal which is at 10.9%.

10.9% is expensive.

Might find a new one for far less.

Who is this from & what car?

daveyjp

I’ll provide a more succinct response. 

PCP on a three year old vehicle. Don’t do it.