Is PCP a good way to finance a car?

Brendan Burgess

Founder
Messages
44,205
I haven't looked into this, but I would naturally steer clear of these sort of agreements. I don't know how 0% works. I am told that at the end of the period, the car dealer will find all sorts of excuses to make it more expensive for you.

I saw this interesting comparison from a Credit Union.

http://stpaulscu.ie/car-loan-v-pcp/
 

Gordon Gekko

Registered User
Messages
5,369
My view is that it's a good way to buy a car if you have plenty of cash but would prefer to do something more profitable with it, or if you know that you will have plenty of cash in the medium term (e.g. through share based remuneration). But otherwise, I believe that borrowing to buy a depreciating asset is generally bonkers.
 

cremeegg

Registered User
Messages
3,533
The reason that car makers offer these deals is to make it as easy as possible to buy a new car. As the St Pauls website says, "The Personal Contract Plan is designed to help car makers sell you a car now, and another one three years from now."

To tempt people away from a 3 year old to a new model.

The catch is not the cost, which really is 0% on a full price new model, it is the ease of spending more than you otherwise might.
 

Brendan Burgess

Founder
Messages
44,205
I believe that borrowing to buy a depreciating asset is generally bonkers.

Hi Gordon

Very good point!

Can you get PCP on second hand cars?

I suppose this thread is about how to finance a car, so I have edited the title to reflect that.

I would agree that borrowing to buy a new car is bonkers, but borrowing to buy a car when you need it is not bonkers.

Brendan
 

twofor1

Registered User
Messages
1,485
I will never buy a new car...far better to let someone else take the biggest hit.

Many a bar stool debate on this issue and unlikely to ever be resolved.

I am the opposite, I would always buy new but would keep for several years.

I traded in my 15 year old car earlier this year, I was allowed $3K off the $24K on the road price of the new car.

The invoice stated $250 trade in, which is what several had told me they would get for my car passing it on to a small dealer, and $2,750 discount.

I would not have got this discount off a second hand car, the admittedly asking price for similar one year old models was more than I paid for new.

Seems to me that list prices of new cars are deliberately inflated to justify the high price of second hand models.
 

rev87

Registered User
Messages
53
I haven't looked into this, but I would naturally steer clear of these sort of agreements. I don't know how 0% works. I am told that at the end of the period, the car dealer will find all sorts of excuses to make it more expensive for you.

I saw this interesting comparison from a Credit Union.

http://stpaulscu.ie/car-loan-v-pcp/

Does that article not support PCP in a strange way?

Ballon payment is €9,768 but a 3 year old model is selling for between €17,750-€21,750, so someone who is now coming to the end of their 36 month agreement they will have approx €9k "change" after paying the balloon - the hope is that you can use this as the deposit for another new model & the cycle continues. So give us a deposit at the beginning, keep paying your monthly payments & dealer will give you a new car every 3 years!

We bought our car on PCP this year & negotiated a discount so to say you must pay full price is misleading.
 

twofor1

Registered User
Messages
1,485
We bought our car on PCP this year & negotiated a discount so to say you must pay full price is misleading.

I agree, twice before delivery, after I signed contract to buy with my 10%+ discount and without garage finance I was contacted by garage to offer PCP or HP for the outstanding amount, probably they get some commission, which might be a bonus to them, but the deal was already done and going ahead regardless.

Whether the draft comes from savings, a loan from my bank / credit union, my granny or the garages finance company I think is mostly irrelevant, it’s all money in the bank for them.
 

Dr.Debt

Registered User
Messages
428
Cars are such a scam in this country. An individual approach to car purchasing is needed and really depends on your annual mileage, the length of the intended ownership, the availability of finance to you and your willingness to deal privately or not.

In my case, I drive around 28,000 business miles per year. The approach i use is to buy a three year old car every year (with cash) in the UK. I will usually buy a well specced Merc, BMW, Volvo etc from a main dealer for GBP 18k/20K with around 40,000 miles on the clock and full service history. After one year the car will then be approaching 70,000 miles and is then sold privately for more or less the same price as i paid for it (including VRT). I then buy a replacement car and repeat.

If I was to instead buy a new BMW 520 for 55,000 in Ireland. After three years, the mileage on the car will be 84K and if I'm lucky it might be worth €25,000, meaning that I have suffered €30,000 depreciation over three years. In addition I will have to pay additional interest on the extra capital.

Everyone needs to figure out the best method for themselves. Anyone driving less than 15000 miles per year is wasting money on a new car. The depreciation charge cant be justified UNLESS you plan to run it for ten years.

Someone driving 8000 per year and repeatedly buying new cars and changing every three years needs serious financial advice.
 

monagt

Registered User
Messages
880
Cars are such a scam in this country. An individual approach to car purchasing is needed and really depends on your annual mileage, the length of the intended ownership, the availability of finance to you and your willingness to deal privately or not.

In my case, I drive around 28,000 business miles per year. The approach i use is to buy a three year old car every year (with cash) in the UK. I will usually buy a well specced Merc, BMW, Volvo etc from a main dealer for GBP 18k/20K with around 40,000 miles on the clock and full service history. After one year the car will then be approaching 70,000 miles and is then sold privately for more or less the same price as i paid for it (including VRT). I then buy a replacement car and repeat.

If I was to instead buy a new BMW 520 for 55,000 in Ireland. After three years, the mileage on the car will be 84K and if I'm lucky it might be worth €25,000, meaning that I have suffered €30,000 depreciation over three years. In addition I will have to pay additional interest on the extra capital.

Everyone needs to figure out the best method for themselves. Anyone driving less than 15000 miles per year is wasting money on a new car. The depreciation charge cant be justified UNLESS you plan to run it for ten years.

Someone driving 8000 per year and repeatedly buying new cars and changing every three years needs serious financial advice.

Can you outline the process for these UK purchases? (If you don't want to, thats OK)

How do you find a suitable car? (web/visit/friend/car importer)
Visit garage in person to see car and deposit.
Rely on Main Dealer record and reputation or do 3rd party check on HP, history?
How do you get to garage and collect it (or use a car importer)
Is setting up Insurance so as to drive it back to Ireland difficult (or delivered by a car importer for a fee)

Any other info!

Thanks in advance, M
 

Firefly

Registered User
Messages
3,269
So, I think I have found out where most people buying PCP cars will be stung:

Firstly a word on the marketing. I notice that instead of calling these plans Hire Purchase (which is what they are and are referred to in the small print ("This offer is made under a hire purchase agreement." http://ext.volkswagen.ie/en/passat.html), they are called PCP plans. In addtion, the "balloon payment" at the end is now called the optional final payment. Balloons must be out of favour - perhaps people got stung with these beauties before?!

So, let's look at the the Options available after the 3 years are up:

1 - hand the car back and the GFV of the car will cover the baloon payment with a few thousand left over. Then what? Would someone who has been driving a shiny new car for the past 3 years and came up with a 30% deposit just walk away with a few grand and buy a 10 year old Primera on donedeal? I doubt it!

2 - Buy out the remaining balloon payment. After stumping up a 30% deposit and paying a few hundred a month for the past 3 years, how do you think people would feel about heading to the bank / credit union and borrowing money for a car they have being paying for for the last 3 years sitting outside their doors?

3 - "Go again", i.e. buy another new car on HP - this is what most people will do.

So, consider the following example for a VW Passat

Typical Finance Example: Passat Trendline 1.4TSI 125HP M6F OTRP €28,410.
Deposit / Part Exchange €8,151.88.
36 monthly payments of €329. APR 5.9%.
Optional Final Payment €11,054.00.
Total cost of credit €2,789.88*.

Let's make the following assumptions (even though these may not hold and may make things even worse in 3 years time):

The purchaser is happy to go for the same car again and the car hasn't gone up in price after 3 years
The interest rates haven't increased

The purchaser will need to get 19,205 (11054+8151) for their 3 year old Passat, otherwise they will need to find more money in order to have the same deposit and therefore the same monthly repayments. Maybe 19,205 is achievable but that would indicate a depreciation of just 32% and according to cartell.ie "As a general rule of thumb all new cars will lose about 50% of their value after 3 years – some more, some less". I'm not an expert on cars and their depreciations but I would imagine a Passat would be somewhere around the middle. If this was the case, a 50% depreciation would mean the purchaser would only get 14,205 meaning they would have to come up with exactly 5,000 euro more to have the same deposit for their next car. That works out at 139 euro per month - that figure should be added to the 329 euro per month figure above, so in addition to coming up with the initial deposit the true monthly cost is 468 euro per month in order to "go again" and have the same repayments. Of course, at some stage the "optional" final payment won't be optional anymore and this will also need to be saved for / borrowed for.

There are benefits to these plans for sure - a new, trouble-free (in most cases) car with low MPG and road tax. However, apart from the cost of the car (that will be paid for in the end), the cost of credit above is 77 euro per month in interest.

The only case for taking out a PCP plan I can see if the following are true:

You get a good trade in for your fully owned car
You get 0% or close to it for the 3 years
You have the balloon payment in the bank and are happy to use it to buy out the car at the end (Option 2).

If I am missing something let me know and really, this all just sounds too good to be true!

Firefly.
 

willyfones

Registered User
Messages
39
PCP is not as good as a credit Union loan.. its more generally more expensive (or about the same) but more restrictive.

The biggest drawback of all... you don't actually own the car.. (the garage does)... so you can't sell it..
The car can be repossessed for missing a payment,,, unlike the loan from the Credit Union,, where you can pay off the loan early with no hidden fees or charges.. and of course you actually own the car..

Car garage number one customer is someone who wants to buy a car using finance options from the garage.. that's how they make most money,,

I fully agree that cars are a scam in Ireland,, in particular upgrading to a new car every couple of years is a terrible waste of money,,, the whole system is geared towards this.. "NCT,, "emissions" higher tax for old cars,, "safety" everyone with kids must have an SUV..

I ditched my car years ago and walk or cycle,, anyone who can commute to work by other means should consider ditching one of their cars.. having access to one car is all you need.
 
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demoivre

Registered User
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2,719
The biggest drawback of all... you don't actually own the car.. (the garage does)... so you can't sell it..
The car can be repossessed for missing a payment,,, unlike the loan from the Credit Union,, where you can pay off the loan early with no hidden fees or charges.. and of course you actually own the car..

But you also have to tie up savings with the credit union as they will require security for the loan in the form of shares. On a 20k loan with the cu you might require savings of 5 or 6 thousand ! That, for me, doesn't make much sense when you could do a straight forward HP deal with the garage without tying up any savings.
 

Leo

Moderator
Messages
12,625
But you also have to tie up savings with the credit union as they will require security for the loan in the form of shares. On a 20k loan with the cu you might require savings of 5 or 6 thousand ! That, for me, doesn't make much sense when you could do a straight forward HP deal with the garage without tying up any savings.


Agreed, on top of that, CU APRs are higher than most PCP deals as well.
 

Gerry Canning

Registered User
Messages
2,505
On 10,000 loan , Credit union over 60 months start @ 10 euro per month more than most HP/PCP .
When you factor in
1. That you can repay CU earlier without penalty as against PCP/Hire purchase, where you will be penalised.
2. You really own the car with CU loan.
3. You are not tied in CU with mileage/condition /servicing etc.

People get caught up in APR but if you can,t afford the cost of car on Day 1 ?
 

Firefly

Registered User
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3,269
I think the vast majority of people would balk at going to the CU for a 30k+ loan for a car...and rightly so!
 

Gordon Gekko

Registered User
Messages
5,369
How the companies get away with the adverts is beyond me..."yours for €299 per month".

Eh, no it's not...it's yours for €10,000 upfront, €299 a month for three years, and a balloon payment of €15,000.

"A house on Shrewsbury Road, yours for €499 per month"*




*optional final payment of €4,982,000
 
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