Is PCP a good way to finance a car?

[Brendan Burgess]

The Indo has an article on it today in the motoring section

PCPs are popular, but don't overlook other ways of getting a car. Here's some advice

 

[Firefly]

Charlie Weston wrote another piece on 01.01

Charlie Weston: PCP car finance deals could be a sub-prime mess all over again

http://www.independent.ie/business/...-a-subprime-mess-all-over-again-35331251.html

I don't think these plans are going to work well for a lot of people. Doing the sums on bringing a car in from the UK and the difference is staggering. As an example, a 2015 Skoda Superb with 10,500 miles. All in (including VRT) that comes to approx. 18,000 - 18,500.



New price here is 28,950!

[broken link removed]

 

[Bronte]

I haven't examined this in great detail but anything that sounds like it makes it simple to purchase a big ticket item must have some catches. Listening to media I get the impression that a lot of cars have PCP's on them now.

 

[demoivre]

Charlie Weston wrote another piece on 01.01

Charlie Weston: PCP car finance deals could be a sub-prime mess all over again

http://www.independent.ie/business/...-a-subprime-mess-all-over-again-35331251.html

I don't think these plans are going to work well for a lot of people. Doing the sums on bringing a car in from the UK and the difference is staggering. As an example, a 2015 Skoda Superb with 10,500 miles. All in (including VRT) that comes to approx. 18,000 - 18,500.



New price here is 28,950!

[broken link removed]

Importing cars from the UK is becoming very common where I am in Wexford. If Sterling falls further as a result of Brexit it will become even more poplular imo.

 

[demoivre]

I haven't examined this in great detail but anything that sounds like it makes it simple to purchase a big ticket item must have some catches. Listening to media I get the impression that a lot of cars have PCP's on them now.

I had a fairly casual conversation with a guy recently who was considering a PCP on a suv costing about 40k. He wasn't that clear on how the GMFV worked and nor am I, but I'm not considering a 40k PCP !! How often is the returned car valued at more than the GMFV by the garage? If you only get the GMFV you have to stump up another deposit to change your car. If the amount offered by the garage, upon returning the car, is just the GMFV and this is less than the Open market selling price as determined by Revenues's VRT calculator how can you haggle since you don't own the car in the first place?

Has anyone on here actually done a PCP from start to finish and how did it work out?

 

[Blackrock1]

lads lets get some perspective here, whats the very worst that can happen to you on a PCP deal? you lose your initial deposit, thats it.

Ok its not ideal but as long as you are sensible about keeping that low and comfortable with the risk of losing it then whats the issue.

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.

 

[Ceist Beag]

I don't think these plans are going to work well for a lot of people. Doing the sums on bringing a car in from the UK and the difference is staggering. As an example, a 2015 Skoda Superb with 10,500 miles. All in (including VRT) that comes to approx. 18,000 - 18,500.



New price here is 28,950!

[broken link removed]

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.

 

[Bronte]

lads lets get some perspective here, whats the very worst that can happen to you on a PCP deal? you lose your initial deposit, thats it.

.

What an extraordinary statement on a financial advice website. I'm gobsmacked.

 

[Bronte]

I had a fairly casual conversation with a guy recently who was considering a PCP on a suv costing about 40k. He wasn't that clear on how the GMFV worked and nor am I, but I'm not considering a 40k PCP !! How often is the returned car valued at more than the GMFV by the garage? If you only get the GMFV you have to stump up another deposit to change your car. If the amount offered by the garage, upon returning the car, is just the GMFV and this is less than the Open market selling price as determined by Revenues's VRT calculator how can you haggle since you don't own the car in the first place?

Has anyone on here actually done a PCP from start to finish and how did it work out?

What kind of car do you get for 40K Demoivre. I'd be interested in whether anyone has done a PCP from start to finish. And that reminds me, this topic was discussed about two weeks ago on Irish radio, but I can't remember with who. I just got the distinct impression everybody was buying this way and I just wondered to myself at the time what catch was there to it.

 

[Blackrock1]

What kind of car do you get for 40K Demoivre. I'd be interested in whether anyone has done a PCP from start to finish. And that reminds me, this topic was discussed about two weeks ago on Irish radio, but I can't remember with who. I just got the distinct impression everybody was buying this way and I just wondered to myself at the time what catch was there to it.

i have already given you an example of what happens from start to finish, see above

once you get over your gobsmackedness

i wasnt belittling the loss of the initial depost merely trying to add some perspective, on a 40k car it could be as low as 4k altho probably more like 8k.

 

[Bronte]

i have already given you an example of what happens from start to finish, see above

once you get over your gobsmackedness

i wasnt belittling the loss of the initial depost merely trying to add some perspective, on a 40k car it could be as low as 4k altho probably more like 8k.

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.

 

[Bronte]

lads lets get some perspective here, whats the very worst that can happen to you on a PCP deal? you lose your initial deposit, thats it.

Ok its not ideal but as long as you are sensible about keeping that low and comfortable with the risk of losing it then whats the issue.

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.

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.

 

[PGF2016]

What does half way through mean?
What equity

I think it means...
Half way through a second PCP plan.
After the first PCP plan ends I believe you can buy the car or else use the 'equity' in it to fund a new car. The value of the car is used as a deposit on a new car.

 

[Bronte]

Thanks PGF but he needs to supply numbers. I don't believe anything without numbers. And he's gone very silent now !

I know from experience on here that when a man talks about a car being a better deal because of spec that the figures will not add up. So I'm dying to hear about the 'equity'.

It's the same story with TV's. That HD nonsense. And the latest now is curved TV's. Yes we got the HD, husband told me it was the biz, the kids laugh with me about it, they tell me their conclusion is that it might, as in could be, brighter. And of course he persuaded me about the SMart TV too. At least he's not going to buy a tv the same size as the wall, like my brother in law did.

 

[so-crates]

I think it means...
Half way through a second PCP plan.
After the first PCP plan ends I believe you can buy the car or else use the 'equity' in it to fund a new car. The value of the car is used as a deposit on a new car.

The value of the car is used in the first instance to clear down the balloon payment, any remainder can then be used as deposit on the new car.

The problem I would have is you are sourcing the car from them, agreeing in advance what they will buy it back for but allowing them to decide on a lower value if their conditions aren't met (you don't for example get more money if they car has a lower mileage or is in better condition than expected) and financing it by a loan from them. Basically you are completely tied into your provider. It may be a comfortable relationship and it may work out okay but it is you that are the vulnerable party in this and it is you that will suffer if you have to break out of the relationship.

 

[so-crates]

For example, you agree a future value based on an assumed usage. You change jobs and suddenly are driving considerably more. Your usage is now at a rate whereby you will exceed your arrangement with them and then you will (probably) be penalised for it. You might anticipate having 10k towards the next PCP arrangement but find that actually you only have 8

 

[Bronte]

Weston summary:

- Car needs to retain it's value
- Many PCP deals may bomb out
- Because of the volume of sales, when you go to do your deal, that will be a problem
- You've to decide how many KM you will do in advance (best be sure you're not changing job/moving house/going on maternity leave so, for three years)
- Instead of buying the car outright when the three years are up, most people buy another car !

Straight away there I have a mega problem with this. Firstly with the quality of cars nowadays you don't need to change your car every three years. And secondly, there's to me the trick, keep people constantly in credit. That's where they are making the money.

- Something about pre agreed value, lovely new word for me - GMFV - how is that decided? Sounds pretty vague to me

Next bit is very confusing

- Minimum value at the end of the term, must cover the final payment. ???
- Must be enough value in the car so that you have 'equity' - that's the word Blackrock used. Is this where he is getting that from.

 

[Bronte]

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

I only just read your great post Firefly now.

The thing about the CU is this, or a bank for that matter. You're unliely to lose the run of yourself and go to borrow 30K. When you're told a PCP only costs x and you just sign here, then it's easy money and nobody thinks about down the road.

With the CU you can pay it off early. No penalty. You'll get to own your car. You don't have to think about futrure values, how many km's your doing, will it be the magic value in three years time etc.

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.

 

[Firefly]

And secondly, there's to me the trick, keep people constantly in credit. That's where they are making the money.

This is it for me. Constantly making capital & interest payments without ever owning the car. If at the end you do go to buy out the car you will probably have to finance that balloon payment with some other loan. Looking at this over 10 years that could be a shed load of interest. Each to their own but changing cars is a very expensive process. I prefer the buy & hold strategy myself. As you pointed out, cars are so good they don't need to be changed as often. My own car is 11 years old. It was a high spec in its day and I've yet to drive anything as good that wouldn't cost an arm & a leg. Of course, it's only a wipper-snapper compared to my wife's car.

 

[Firefly]

I only just read your great post Firefly now.

The thing about the CU is this, or a bank for that matter. You're unliely to lose the run of yourself and go to borrow 30K. When you're told a PCP only costs x and you just sign here, then it's easy money and nobody thinks about down the road.

With the CU you can pay it off early. No penalty. You'll get to own your car. You don't have to think about futrure values, how many km's your doing, will it be the magic value in three years time etc.

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.

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...