Correct and Ceist Beag's workings in #206 above using my numbers from Joe Duffy and PTSB also shows the PCP method to be more expensive.
The cons to a PCP deal are not in the cost of financing. Your comparison is not comparing two comparable scenarios. Ceist Beag has described why that isn't the case above.
There are a few cons to PCPs, which are mostly based around people either not fully understanding their commitments to the deal or simply overstretching themselves financially, but seeing as this is a finance website, from a pure mathematical analysis point of view, the low credit rate or 0% credit some dealers offer, PCP's will always work out cheaper than an alternative means of financing with a higher interest rate. You can't argue with the maths.
You are assuming the same person would be able to afford the €909 per month repayments on the straight loan. So let's go with this assumption. That would mean that if they opt for the PCP deal they should have a surplus of 315 each month which would build up to a savings of 11340 at the end of the 3 years. So the balance is only approximately €6500 to meet the GMFV (am allowing for a small amount of interest accrued on the savings). A loan for this amount, repayable over a further 3 years would be approx €215 per month so total cost of this loan would be around €1200. That's a total amount repaid of €14040 plus €11686 (in savings plus interest) plus €7700 for the loan for the balance - €33426 in other words.
This still works out more expensive than the straight loan
are you assuming that because it suits your narrative or is it based on any factual premise?
You're changing the argument now Firefly. I was responding to your example where you were comparing one where the buyer could only afford 594 per month repayment with another where the buyer could afford 909 per month repayment and you were then expressing shock that the latter resulted in a lower overall cost. That's not a like for like comparison so should not be a surprise - so I was pointing out the flaw in your argument.
It's a totally different argument to say that 90% of PCP buyers are those who cannot afford the lump sum at the end of 3 years.
I put that number at 90%. How about you, what percentage of people do you think will have the funds saved if you were to guess?
its impossible to opine on so i wouldnt, i can only work with the information that i have to hand i.e. my own circumstances
I beg to differ. Towards the end of the Celtic Tiger it was apparent to all what was going on even though the information was not yet officially public. Can you offer an explanation why the sales of new cars increased by 50% in 2 years from 2014 to 2016? Do you think that level of growth came from savings?
i think peoples circumstances and / or consumer sentiment has changed, remember a lot of people held off on changing their car for years due to financial uncertaintly. Both my father and father in law held onto cars they had purchased new in 2005 & 6 respectively until last year, then they both bought new with cash.
I agree with the first bit - a lot of people did hold off replacing their cars, but I think most of the new car purchases are on PCP and the majority of those are taken out without the balloon payment in funds. IE, most people are buying on the never-never.
perhaps, but its speculation at best, to suit a narrative
From Joe Duffy website.
PCP on Volvo XC 60 D3ES
On the road price €40245
Deposit €12073
Finance amount €28171
36 payments of €390
PAR 4.9%
GMFV €18186
To own the above car through PCP requires 36 x 390 = €14040
But we have established below this person has the ability to save/spend €909 towards cars. Excess of €519 per month for 36 months = €18684
No need for a further loan as the person has saved in excess of the GMFV, leaving them with an excess of €498.
Total amount repayed for the financing of the car with PCP is € 32226
A straight loan from PTSB for the full finance amount of €28171 over 36 months @APR 10.5% would cost €909 per month so total repayed would be €32724.
Interesting that the difference is negligible despite the substantial difference in APRs. The selling point of the PCP are the low repayments. My suspicion, and it's only that, is that the balloon payment at the end of the PCP, where someone wants to buy out the car, would be the subject of another finance deal over 3 ,4 or 5 years. The only way I can see a PCP being more attractive than a straight loan is where a buyer has the funds to put aside to fund the balloon payment at the end of the 36 months.
To me it's more than a coincidence that car sales jumped 50% in 2 years at the same PCPs were introduced all whilst nothing materially improved in the general economy.
Interesting that the difference is negligible despite the substantial difference in APRs. The selling point of the PCP are the low repayments. My suspicion, and it's only that, is that the balloon payment at the end of the PCP, where someone wants to buy out the car, would be the subject of another finance deal over 3 ,4 or 5 years. The only way I can see a PCP being more attractive than a straight loan is where a buyer has the funds to put aside to fund the balloon payment at the end of the 36 months.
which is what you implied with your initial comparison where you had a 3 year loan costing over 900 a month,
im not sure what point you are trying to make any more
PCPs are expensive if you have to borrow for the balloon payment, and of course you might not get the finance!
Just to clarify, PCP + 3 years further financing (eg. 3 year credit union / bank loan), is still cheaper than 6 years of standard financing (eg. 6 year credit union / bank loan).I'm trying to figure out the answer to the original question! I think we're getting there. PCPs are expensive if you have to borrow for the balloon payment, and of course you might not get the finance! If you miss a payment during the first 36 months, or otherwise mess up your ICB record, will you pass underwriting criteria to get further finance to pay the balloon payment?
expensive compared to what? they work out cheaper than a loan (even when 0% PCP isnt available) as shown above.
Just to clarify, PCP + 3 years further financing (eg. 3 year credit union / bank loan), is still cheaper than 6 years of standard financing (eg. 6 year credit union / bank loan).