Is PCP a good way to finance a car?

[Bronte]

Firefly I presume this new idea is American in origin. Nowadays it's all about keeping people constantly in credit.

Until my current car I always bought second hand. It's a tiny car, (known to you as an Suzuki Wagonlit) I mentioned it years ago on here, but it made sense to me to purchase outright. Cars are much cheaper here and I paid a deposit and borrowed the rest from the garage at zero interest over about 3 years. Now 11 years old and going strong with only 65K on it. I only borrowed because of the zero interest, that's a no brainer. Best financial advice I can give to people on here is that this PCP is to be avoided unless someone supplies figures, guaranteed ones, not future this or that. And then we can do the sums. Also people currently paying off their cars, and of course most people have to borrow, is that they put some money aside for the future car purchase.

Does your wife have a company car, is that what you mean?

 

[Firefly]

You're comparing the new price here with a 2 year old car in the UK? This has already been discussed on another thread and I think there is broad agreement that you can save, on average, between 20-30% on the price of a second hand car if importing from the UK but it is not without risk so I think it's best to compare like with like when showing these examples.

Yeah, that's a fair point. I suppose I am trying to argue that it would be a lot cheaper to finance a car via the CU or a bank (albeit at a higher interest rate) and buy a nearly new car in the UK and own it outright than to be lured into the PCP plans with their low interest rates. Reminds me of people who paid over the odds for houses on tracker rates during the boom. The low interest rate isn't much of a comfort if you paid too much for something.

 

[Firefly]

Firefly I presume this new idea is American in origin. Nowadays it's all about keeping people constantly in credit.

Until my current car I always bought second hand. It's a tiny car, (known to you as an Suzuki Wagonlit) I mentioned it years ago on here, but it made sense to me to purchase outright. Cars are much cheaper here and I paid a deposit and borrowed the rest from the garage at zero interest over about 3 years. Now 11 years old and going strong with only 65K on it. I only borrowed because of the zero interest, that's a no brainer. Best financial advice I can give to people on here is that this PCP is to be avoided unless someone supplies figures, guaranteed ones, not future this or that. And then we can do the sums. Also people currently paying off their cars, and of course most people have to borrow, is that they put some money aside for the future car purchase.

Does your wife have a company car, is that what you mean?

My wife owns her own car. It's 16 years old, and like my own, it's running like a clock.

I worked with someone a few years ago who loves Apple products. When that Apple Watch came out I asked her if she was going to buy one and she said "Of course". I asked why and she said "Because it's shiny and it's new". Pretty much sums up the PCP craze for me (along with the neighbours all "buying" new cars).

 

[Bronte]

Exactly. The salesman in his shiny suit will have many shopping trips to New York in the meantime.

When the biggest selling car in the country is a 30k+ Hyundai Tucson you know there's something wrong. It should probably be a Ford Focus / Opel Astra...

Is that one of those large gaz guzzlers.

I can see that Ireland is getting back on it's feet. But one of the signs of the Celtic tiger I noticed was when all of a sudden young people were all in brand new cars. So I expect the sight of the Tucson is evidence for me and for you, of some of that madness coming back.

We can but try and warn people on here and if they don't listen what can we do. And you will notice, no figures. Yet !

 

[demoivre]

Several posts later and I'm still not much the wiser about GMFV. As I see this the dealer has covered himself by giving this minimum value once the car is returned but it it could be significantly less than the Open Market Selling Price as determined by Revenue. If you only get the GMFV then there is no surplus equity to use against another new car. You are completely at the mercy of one garage as to what they give you when you bring back the car.

also the dealers will want to get people onto more PCPs so notwithstanding the fact that a similar car can be imported from the UK more cheaply, it will be in their interest to prop up the residual value.
i am half way through a second one, the equity left after the first one (one an audi, circa 45k) meant i didnt have to present any additional deposit on the second one and got a new better specced car at around the same monthly cost.

So the garage gave you more than the GMFV? How much more and how did what they offer you compare to the Open Market Selling Price as determined by Revenue?

 

[Blackrock1]

Am I misunderstanding your point. You think throwing away 4K or more likely 8K, is nothing?

And you did not give us any example, you singularly omitted actual numbers.

So here goes:

Car 1: Cash price (as versus)
PSP Price
Deposit
Trade in value

Car 2 - ditto

And what have you got now and how much did it cost you.

i didn't realise i needed to explain everything to you in minute detail,

i dont have the exact figures to hand but a summary that isnt a millions miles off is as follows:

Car 1 - bought new, retail price 47.5k, sales price to me 45k. Deposit 10k monthly payments including servicing plan was 460 something like that. GMFV something like 20k at the end of 36 months .

At the end of month 36 i could hand the car back, buy it for 20k or trade it against a new PCP deal.

In actual fact i traded after 20 months or so to a new car, retail 50k, sale price to me maybe 45k. Extra deposit 0, monthly payments including the service plan around 490 GMFV a little higher maybes 21.5k

The newer car had a lot of extras the original one didnt.

the figures are off the top of my head but they arent too far off.

This is our only family car and purchased as i wanted something hassle free.

To be clear every car i had prior to that was at least 5 years old (tending to be s/h high performance BMWs mainly) but running something like that as an only family car didnt make sense, as well as that there was nearly 2k tax a year to pay for, expensive tyres, expensive repairs if anything goes wrong.

i never said throwing away 4-8k was inconsequential, rather it isnt the armageddon that you seem to imply. The

 

[Thirsty]

Instead of buying the car outright when the three years are up, most people buy another car

I think this is the key to these deals.

I bought my car on a PCP as it suited me best at the time, for various other reasons I won't go into. My previous car I bought new and drove for 10+ years. For this car, I will have my lump sum payment when my three years are up, I'll buy the car outright & drive it happily for another 10 years.

 

[Firefly]

PCP plans are a twist on leasing (from what I see you have the option of actually buying the car at the end of the deal). Here's what says regarding costs:

Is leasing cheaper than buying?
In a purely investment sense, it's the worst option, as you've nothing to show for it at the end of the deal. But, monthly payments tend to be low, and leasing can allow you to get behind the wheel of a car you'd never be able to afford to buy.

I think that nails it. Too many people are driving cars they could otherwise not afford. There must be a catch and to me it's a long period of debt servicing.

 

[Blackrock1]

Several posts later and I'm still not much the wiser about GMFV. As I see this the dealer has covered himself by giving this minimum value once the car is returned but it it could be significantly less than the Open Market Selling Price as determined by Revenue. If you only get the GMFV then there is no surplus equity to use against another new car. You are completely at the mercy of one garage as to what they give you when you bring back the car.



So the garage gave you more than the GMFV? How much more and how did what they offer you compare to the Open Market Selling Price as determined by Revenue?

It is what you can buy the car for at the end of the agreement thats it, not complicated.

if you believe the car to be worth more you are free to purchase at that price and sell it on. If you believe it to be worth less you hand back and forego your original deposit. Generally they try and structure it that so some of your equity remains and you roll that into another PCP with them, or another marque if you want to do that.

 

[Blackrock1]

What does half way through mean?
What equity

You remind me of a poster a long time ago on here. His wife I think it was came on here. He was on about car 5 in as many years and now owed 70K. I don't have the full gist of it, but something along those lines. For him it was all about the latest model the latest spec etc.

and this proves you don't understand the concept which reminds me of many things but ill do you the courtesy of remaining civil

 

[Blackrock1]

Westin is right. So we'll have people rolling over the PCP's a couple of times and then they will realise that they can't continue and that they've overpaid. Massively.

so how does that happen? unless you cant afford the monthly payments that you signed up to, which will be an issue regardless of how you finance.

 

[Firefly]

if you believe the car to be worth more you are free to purchase at that price and sell it on.

Lets say for argument the garage offer you 15k but you think you could get 18k. You buy the car from the garage and all going well you now have 3k in your pocket. Would you mind explaining your options then? I see 2 options (1) buy something crappy for 3k (2) come up with another 7-10 grand for a deposit for your next PCP car and the cycle starts again.

Edit: Option (3) you (presumably) borrow 15k to buy the car outright. It would be pretty demoralising to go to the CU and borrow 15k to buy something you have been paying for for the last 3 years and also handed over a nice deposit for..

 

[Blackrock1]

Lets say for argument the garage offer you 15k but you think you could get 18k. You buy the car from the garage and all going well you now have 3k in your pocket. Would you mind explaining your options then? I see 2 options (1) buy something crappy for 3k (2) come up with another 7-10 grand for a deposit for your next PCP car and the cycle starts again.

i think you have covered the options there

the key is to minimise the depost, then you minimise any potential loss and you can effectively cap your monthly motoring costs such that you are comfortable having a monthly cost, as the cars generally come with service packs and a warranty that covers the period.

 

[PGF2016]

This is our only family car and purchased as i wanted something hassle free.

Genuine question. Not having a go. What do you mean hassle free?


A colleague was advising me to buy an new Audi estate because new cars are hassle free and if it was to break down Audi would come and collect it and provide a replacement car on the spot.
I bought a 3 year old car. It's now 9 years old and has never failed to start or broke down. Even if it had broken down 2-3 times it would still not be worth while to pay the premium for a new car. My opinion of course.

 

[Firefly]

... the cars generally come with service packs and a warranty that covers the period.

That's an awfully expensive way to drive something "hassle free". Fair enough if it's a Maserati or something, but the biggest selling car is a Hyundai Tuscon. It's got a 7 year warranty. I'm at a loss to understand what's wrong with buying a 3 year old one for half the cost with another 4 years warranty to go..

 

[Firefly]

I bought a 3 year old car. It's now 9 years old and has never failed to start or broke down. Even if it had broken down 2-3 times it would still not be worth while to pay the premium for a new car. My opinion of course.

Ditto here. Bought mine when it was 4 years old and running like a clock since. Would get nothing for it now so happier to save away and buy a car when I need to (remember that concept?!!)

 

[Firefly]

the key is to minimise the depost

If you don't mind me saying it, that sounds like hassle to me. Each to their own but the last thing I want to be thinking about is not going over a pre-agreed mileage limit or something.

 

[Learner2015]

I am in the middle of doing a PCP dea, I'm only looking at ones with 0% rates. I went to three dealers and told each of them I was paying cash, got the best price and then I said actually I want to PCP the car can I still have the same purchase price - yes I can. Now I know I am not paying anything extra for the pleasure of using the finance deal.

Pitfalls have been discussed - mileage clause, condition of car and getting it serviced. My mileage clause I am being allowed is plenty (double my annual mileage), if I damaged my car whether it was on a PCP or not I would be getting it fixed and with regards to servicing I'll be doing that too anyway. You don't have to go to main dealer you can go independent as long as they can show evidence the used OEM parts and have the right equipment.

Re the GFV typically this is set at around 40% of the cars purchase price. So say used prices bomb all you get is this minimum value? - hand the car back and walk away casue it is worth loads less and you paid no interest charge over the 3 years so your doing ok, You could walk in to the dealer the next day and buy your car back for thousands less at the new market value or a similar car from another dealer. If you had bought the car for cash or traditional HP you car would still have lost the same value. Or if for some reason you ended up doing double the allowed mileage - buy the car outright for the minumum value and hold onto it.

Re the equity I personally think if someone is banking on that for their next purchase they cannot afford to buy the car in the first place. I am pretty sure the car I am buying will be worth more then the minimum value in 3 years, probably by at leaset 6k but if its not so be it. You can't win on everything.

Re being tied to the dealer you are not, you can go to any dealer / brand you like at the end of the term just like you would with a car with HP outstanding on it and trade it in.

For me it makes sense - 0% loan, hassel free motoring for three years and I'll have the purchase price in cash in the bank to buy the car outright at then end anyway so can decide what do do then. If there is equity I might go again if not I might buy it myself and run it into the ground who knows!

There is positive and negatives with everything, whether you buy new / used / borrow / cash etc.

 

[Bronte]

i didn't realise i needed to explain everything to you in minute detail,

i dont have the exact figures to hand but a summary that isnt a millions miles off is as follows:

Car 1 - bought new, retail price 47.5k, sales price to me 45k. Deposit 10k monthly payments including servicing plan was 460 something like that. GMFV something like 20k at the end of 36 months .

At the end of month 36 i could hand the car back, buy it for 20k or trade it against a new PCP deal.

In actual fact i traded after 20 months or so to a new car, retail 50k, sale price to me maybe 45k. Extra deposit 0, monthly payments including the service plan around 490 GMFV a little higher maybes 21.5k

The newer car had a lot of extras the original one didnt.

the figures are off the top of my head but they arent too far off.

This is our only family car and purchased as i wanted something hassle free.

To be clear every car i had prior to that was at least 5 years old (tending to be s/h high performance BMWs mainly) but running something like that as an only family car didnt make sense, as well as that there was nearly 2k tax a year to pay for, expensive tyres, expensive repairs if anything goes wrong.

i never said throwing away 4-8k was inconsequential, rather it isnt the armageddon that you seem to imply. The

Can I have the brand name of the first car. And the year of purchase.

And of course I want minute detail. That's what this website is about. I want to figure it out.

 

[Bronte]

Summary of situation now moved to 19th Jan, in light of new information.