Can Someone Explain PCP?

Goudy

There are a couple of salient points there.

In regards to used cars on PCP, yes out of warranty problems with outstanding finance have cropped up on the forum a few times, but it's not isolated to PCP. Any car with a considerable amount on finance that's out of warranty with an expensive issue tends to cause owners lots of heartache and expense.

Those we've seen on the forum tend to be those cars with inherent problems, like wet belt issues and as they have got older and slipped down the chain, they have become millstones around the latest owners necks.

It also tends to be true that used cars attract higher rates of interest on both PCP and HP finance deals than most deals on new vehicles. If it's used, I'd perhaps check out other forms of finance, like a bank loan. If it's a late used, I'd check the figures on a new one. You might get a surprise.

I understand the initial deposit comment but unlike leasing, this initial deposit goes towards paying for the car. The bigger the initial deposit, the smaller the difference is between what's borrowed and the GFV (and total interest payable) meaning the monthlies are slightly lower.

You also generally get an inducement to take the PCP in the form of a deposit contribution, so the finance company give you money off the capital borrowed.

If you do fancy trying to trade within a few months of when the GFV is due, the dealer will know what's still owed on the vehicle and will certainly know you can walk away from it by handing it back to the finance company. This means it's usually not too difficult to negotiate a reasonable trade in value that includes some positive equity to bring forward. In the past I've just asked. Make the trade in worth it for this deal otherwise I'll just hand it back and look elsewhere for my next car.

That and any deposit contribution usually takes care of the deposit on the next car.

I admit, PCP (or even HP) isn't for everyone, but with open eyes and a little knowledge you can make it work for you. I wouldn't add options if I could except perhaps paint. Buy the model with the things you need as you rarely see the cost of those options back. Buying the model with the things you want/need is often the best way rather than a lesser spec model with thousands of pounds worth of options.

facade

The risk might be the same, but the financial effect is different.

If a PCP car out of warranty explodes 1 month before end of term, then it either has to be expensively fixed in order to hand it back, or the whole GFV has to be paid to buy what is now a useless car (they might take it back broken, but they'll simply charge for the expensive fix)

If a HP out of warranty car explodes 1 month before end of term then there is only 1 payment (+ option to buy) to make to clear the finance and own the car, and either save up for repairs or scrap the car off.

Putting money into repairing a car you actually own feels an awful lot better than mending someone else's!

Frozen_up_north

I once had a PCP, as did a work colleague. The issue we both experienced was that at the end of a 3 year deal on a new car, the cars were not worth more than the estimated final value… in order to continue with a new PCP package there was no residual value for a fresh deposit, another lump of money had to be paid up front to start another PCP.

A PCP is a means of paying less for a shiny new car, but the reality is that you are only financing half a car and the day of reckoning comes at the end of the term.

MyRealNameToo

https://forums.moneysavingexpert.com/discussion/comment/82153616#Comment_82153616

So it worked as it should…balloon was set at the right level so you could buy it at cost, refinance or buy something else.

Ours didnt, the balloon was vastly larger than the value of the vehicle so the only realistic option was to hand the car back.

XRS200

https://forums.moneysavingexpert.com/discussion/comment/82153616#Comment_82153616

I've had PCP and I've never paid a lump of money up front

paul_c123

https://forums.moneysavingexpert.com/discussion/comment/82154284#Comment_82154284

Which provider? That is a very unusual arrangement.

PCP is best thought of as the financial scheme which has the absolute lowest-possible monthly payment, by making the rest of the money "a future problem".

Car_54

https://forums.moneysavingexpert.com/discussion/comment/82154807#Comment_82154807

Probably used a trade-in as deposit. Lump of metal rather than lump of money.

paul_c123

https://forums.moneysavingexpert.com/discussion/comment/82155523#Comment_82155523

…….which can't be the case if the previous car was also on PCP, because the handback is in lieu of paying the balloon payment (unless there was a particularly large equity in it, due to the valuation being much higher than the GFV of the previous PCP).

Ayr_Rage

My one and only PCP with Toyota Finance in 2021 was no trade in, no deposit, a dealer discount and finance company contribution with an APR of 0%.

There were good deals available in the Covid era.

XRS200

https://forums.moneysavingexpert.com/discussion/comment/82154807#Comment_82154807

Several. I couldve paid a deposit if i wanted to. With a low or 0% rate, no benefit to paying a deposit. No trade in. Only time I did trade in, I had equity which was paid to me.