PCP question

Ybe
Ybe Posts: 274 Forumite
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in Loans
Looking at the number of PCP questions here, I can see there are a lot of issues with them so I am very wary of them. But just out of interest, why is it that PCPs are typically only offered on cars less than 2 years old. And what I really can’t understand is how it is that the figures seem to be identical between the same car that’s new and the same car that’s 2 years old, which again just makes me suspicious of PCPs. The only thing I can think of is the lender is putting ridiculous APRs on there or they are significantly undervaluing the final balloon payment. Or have I missed more tricks?
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  • Penelopa.Pitstop
    Penelopa.Pitstop Posts: 1,145 Forumite
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    New cars often have manufacturer or dealer contribution and low or 0% APR. You can also negotiate discount, so price you pay, or amount you finance, is lower than RRP price of the car.

    Used cars have no contributions and higher APR, usually starting from 4.9% but often from 8.9%.

    There's a lot of questions about PCP because people don't make effort to learn how product works, read their documentation, etc. You will see posts from people who just went to dealer and believed every word that was said, without reading any documents they signed.
  • AnotherJoe
    AnotherJoe Posts: 19,622 Forumite
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    One thing with PCPs is, why are you considering one? Is it to buy the car, or it is it to"rent" it for the period of the PC?
    . If the latter look at PCH. If the former all you can do is do your sums and see how it works out. IME you can get some good deals on PCP if you can either get a low or zero rate interest plus manufacturers "contribution" (they don't like to say "discount") and in the latter case even if the APRis high you can settle the loan after a few days and still benefitted from the contribution.
  • Ybe
    Ybe Posts: 274 Forumite
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    What would be considered a low APR?
  • AnotherJoe
    AnotherJoe Posts: 19,622 Forumite
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    Anything less than the rate you could get if you just got a loan from a bank or other lender.
    Which in practice is anything under about 4% currently. I've had zero % PCPs before.
  • AnotherJoe
    AnotherJoe Posts: 19,622 Forumite
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    Funnily enough after writing that I had a letter from Barclays this morning, would i like to borrow £15k at 3.9%.
  • Ybe
    Ybe Posts: 274 Forumite
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    So any PCP with APR above bank loan is pointless? Although isn’t it that with a bank loan, there’s more risk of you losing a lot from depreciation?
  • AnotherJoe
    AnotherJoe Posts: 19,622 Forumite
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    I didn't say pointless. There are pros and cons to PCPs, as i said earlier it depend what its for and there may be better options.
    Reasonable point that you could lose a lot from depreciation if you buy, if something unexpected happens. Until recently s/h prices for electric cars were very poor (they are now rising substantially) and of course if you bought a new diesel say 3 years ago before all the issues came out in the open, yep you've probably taken a hit. But how often does something like that happen?

    Not losing even more than what you'd normally lose on a new car assumes you service it according to manufacturer of course, there was some twit here recently trying to return a PCP'd car he serviced himself same woudl apply if you bought it.

    FWIW my current car is PCH and for comparison, the PCP was £250, PCH £200/month.Same conditions mileage etc on both.The main difference is, PCH there is no option to buy end of the term.
  • Ybe
    Ybe Posts: 274 Forumite
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    So am I right in assuming that if going for a PCP, you would be best putting down a large a deposit as you can and going for the shortest possible repayment term to minimise the interest. Then buy it outright at the end by paying the balloon. And then selling the car?
  • Ybe
    Ybe Posts: 274 Forumite
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    Or making the repayment term as short as possible then selling whenever you want.
  • AnotherJoe
    AnotherJoe Posts: 19,622 Forumite
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    It depends what your goals are. If you just want a new car every 3 years,say, then look at PCH.
    Then you aren't gambling on being able to sell for more than the GFV.
    I'd guess that there's little difference in total cost buying with PCP then selling and taking in the extra above GFV, compared to PCH.
    But if I wanted a car for say 5 years I might well buy on PCP for 3 then buy the car for GFV and run it 2 years more. I did that a couple of times.
    But now I've switched to EVs and the technology is changing rapidly so I don't want to deal with ownership hence PCH for me, unless I happened to find a PCP that was as an good a deal. But that would be with teh intent to sell or trade in as soon as the term ended.
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