Please talk me out of the new car PCP fallacy

[Stringy]

My Fiancee owns a 57 plate Mini Cooper with 26k miles on it. It is currently worth no more than £6k to sell privately. She recently had to have £3k of work done on the engine at the Mini garage (was initial quote, only paid £650 in the end and rest was covered between Mini and the dealership as 'goodwill', replaced Camshaft, Cylinder head cover and associated gubbins) and it is currently sitting Warranty-less. The comprehensive approved warranty costs £360 a year at the moment. It has one service left on a service plan we inherited when she bought the car which will be due in September.
We're concerned about the potential increasing cost of ownership from age based maintenance, and wondering if a brand new or nearly new car is worth the outlay based on the following potentially illogical assumptions:
- In 3 years time the car will be worth approx £4k as a private sale
- We will have spent £1k on the approved warranty if we wanted the same peace of mind we'd get from a new car
- Another ~£500 will have been spent on servicing
- Approx £100 spent on MOTs that a new car will not need.
- Factor in a few tyres or other odds and ends that will invariably need doing and you're left with £2k residual value, possibly less if something 'wear and tear' happens that the warranty scoffs at.

We looked at a brand new Seat Mii 'Mango' (special edition, leather seats, alloys, bluetooth/satnav, designery touches) at a dealership that costs £150/month including servicing and only requires a £500 deposit. It perfectly suits her driving habits (<5mile commute, limited long journeys) and she quite liked it. If we sold the Mini for £6k or nearly that amount then it would cover the cost of the deposit and 3 years of monthly payments. The dealership bloke assured us that there would probably be ~£500 left after 3 years to use as a deposit on another car and/or there is the option to buy or walk away.
So...Brand new Mii, no servicing costs, warranty included, no MOTs, tiny VED costs and peace of mind that it shouldn't/wouldn't break and if it did we throw it at Seat to sort out.

I've lurked long enough in Motors to know that THIS MUST BE A NONSENSE IDEA so I need you guys to talk me/us into a more logical solution.

 

[Slam62]

Where's the 500 quid at the end coming from?

Assume the worst is factor in some sort of extra payment at the end

 

[Conanius]

Life is all about choices and perspective.

If you have the money to have 'hassle free' and as close to fixed price motoring as possible, forget everyone who goes OMG BAD IDEA LAWLZ and do what works for you.

If you have done the numbers and feel it's a good deal, go for it, but I'd suggest you look at what the numbers are to own te vehicle at the end of the term.... I doubt it's that much more on a car like this ?

 

[Stringy]

Where's the 500 quid at the end coming from?

Assume the worst is factor in some sort of extra payment at the end

The £500 is when the dealership does *******ised maths comparing the car's value vs what they'd projected it to be at the start of the PCP and find it's £500 more than they thought. I have no prior PCP experience so don't know if this actually happens.

 

[rodenal]

There probably will be more left in the car than the sum to clear at the end - gfv's tend to be quite pessimistic now. Potentially you can get a bit more out of it again by selling it privately to clear the balance.

Where you're going a bit wrong with your workings is including things like tyres against one car but not the next, you're also looking at differing classes of car so I would expect there to be a difference.

Do the same but against a new mini and it won't look so attractive

I would be inclined to add in an option of buying the mii from a broker if she has decided she wants one, financed via a private sale of the mini or car buying service plus loan for whatever you need on top - rates are so low at the moment that it would be hard for this not to work out well vs PCP

Edit £10.5k!! Are you nuts!? Fiesta is surely more attractive at that price

 

[[TW]Fox]

Buy the Mini warranty and forget about it. It's excellent.

 

[Stringy]

Buy the Mini warranty and forget about it. It's excellent.

I understand that it's underwritten by the same people as the BMW warranty - will they not try and cite wear and tear on a 8+ year old Mini when stuff starts needing doing?

 

[atpbx]

agree with fox.

Get the warranty, drive car forget about everything else.

BMW are excellent when it comes to dealing with warranty claims, any other manufacturer and I would say bank the the money you would spend on an after market warranty as they are not worth the paper they are written on.

 

[[TW]Fox]

I understand that it's underwritten by the same people as the BMW warranty - will they not try and cite wear and tear on a 8+ year old Mini when stuff starts needing doing?

They only really seem to care about mileage. They were still paying out on my Dad's 12 year old E39 before it went.

 

[Jono8]

It is not a fallacy as such. Having done some extensive man maths, I worked out that a new Fiesta ST would work out only marginally more expensive than keeping my 2006 Octavia VRS over a 5 year period.

 

[HangTime]

- In 3 years time the car will be worth approx £4k as a private sale

10 year old mini cooper worth £4k? Must be pretty uber spec I would guess...?

 

[iaind]

If you want to be talked out of it then you must not be keen on the idea.

PCP is never the cheapest way to own a car in the long run, but if you get a decent rate then it's not a con or a stupid idea. PCP just means you're taking out a loan for the depreciation - cost now minus projected cost at the end of the term. The balance at the end is because the final repayment is normally designed to be lower than the cars actual value by a small amount, so if it's in good nick you'll have some cash in it.

Plenty of people do it this way, it's very convenient if you want to just see a car as a utility. It's simple, it's cheap on a monthly basis and it's convenient. Most people I know have found they've "broken even" before they reach the mid way point of the contract. For the first year you'll probably find your settlement will be higher than the car is worth, by mid way (sooner if it's a nearly new car that's already depreciated a chunk) you'll be able to walk away and by the end you should have some equity to use as a deposit.

I totally understand wanting the convenience of hassle free motoring, although for me it's because I do big miles for work - I need something to rely on with the lowest hassle possible. If having the car in the garage for a few days isn't too much hassle then I'd think twice about it. If you do decide to go the pcp route then consider 2 things - look for something nearly new because it'll be much cheaper and remember you don't need to use the dealers finance. There are plenty independents and you can haggle on the rate with the dealer.

Given the little use the car gets, I wouldn't bother though- 2 PCP payments pays for a years warranty so you've got £1500 a year extra for the car itself. The lower tax and fuel might make a bit of a dent in that but probably not by much. Remember at this point you own the car - if you sell it and use the funds to pay for the PCP, in 3 years time you own nothing.

It comes down to whether you care about ownership or utility - is the car an asset you own or a service you're renting?

 

[xs2man]

I wouldn't be put off by a PCP at all. In fact, that's pretty much how I finance my motors too.

The reason being, I would rather someone else's money is tied up in the car than mine. Sure, it helps that I have an offset mortgage, so my money sitting in my account "pays" me at around 7% rather than the 4-5% interest on the car loan.

You could keep running the Mini, but it's already 7 years old now. And for the same overall cost, you could be driving a new car. Okay, might not be as premium a car, but if that doesn't matter to you (or girlfriend), then I would prefer the peace of mind of the new car.

When I bought my 530d, I COULD have spent the same money as my NEW one will cost me over 4 years, and bought a 4 year old one. I would have owned it outright at the end. But, I would have had to pay all these costs you are thinking about on top, maintenance, servicing, warranty, mot's etc... As it is, I got a 5 year service pack, one MOT to pay for and GAP and wheel and tyre insurance thrown in too, so unlikely to have to pay out for anything extra over the ownership term. Along with the car with the exact spec list I wanted.

Don't be put off by other people's views on vehicle ownership. What suits them may not necessarily suit your circumstances / frame of mind. For me, PCP is a no brainer as I put in the lowest deposit possible, and negotiate the best possible monthly payments from there. I have VERY little capital invested in my car, as I prefer the dealership to hold this, freeing my money for other, more lucrative investments, while retaining piece of mind with regards ownership costs.

But then again, that may not be in keeping your ownership expectations.

 

[xs2man]

If you do decide to go the pcp route then consider 2 things - look for something nearly new because it'll be much cheaper and remember you don't need to use the dealers finance. There are plenty independents and you can haggle on the rate with the dealer.

I usually find that nearly new cars are terrible on PCP financing though. You don't get the special, manufacturer backed, interest rates. You lose out on the residual value because of the extra owner and slightly older car. You don't necessarily get the spec you really wanted, there is almost always a compromise there.

Any time I have looked at a PCP on a nearly new it has ALWAYS come up more expensive per month, with same deposit, over the same term. I found you have to go back at least 12 months, in general, before the numbers START to turn around again.

It is also worth looking at more premium brands too. They often depreciate less, meaning the monthly payments (and as such total ownership costs) can be lower. For example, I pay the same for my 530d Touring M-Sport as I was quoted for a 2.0 TDCI Mondeo estate. Or a 2.0 Diesel Avensis, or Passat, or Insignia. Although more than I was quoted for a 2.0 TDI A6 or E-Class (E250 CDI).

 

[[TW]Fox]

A 2007 Mini with Comp warranty has exceptionally low running costs. Cheap tyres, fuel efficient and minimal unplanned costs. Also very low depreciation. You can't PCP a comparable new for the same cost of ownership.

 

[xs2man]

Because they already own it, and it is 6 years old, that is true. For a comparable car.

But that is not the proposition put forward by the OP is it?

 

[[TW]Fox]

But it is the situation they are in.

 

[Richie]

I have VERY little capital invested in my car, as I prefer the dealership to hold this

The dealer doesnt hold anything. For some reason, some people seem to think they are paying the dealer back when they are financing a car. Its a finance company that is being paid back which is completely separate from the dealer.

I usually find that nearly new cars are terrible on PCP financing though. You don't get the special, manufacturer backed, interest rates. You lose out on the residual value because of the extra owner and slightly older car. You don't necessarily get the spec you really wanted, there is almost always a compromise there.

That can work both ways tho.

Any extra spec that you add onto the standard car is NOT seen at the other end with an increase in residual value.

Any time I have looked at a PCP on a nearly new it has ALWAYS come up more expensive per month, with same deposit, over the same term. I found you have to go back at least 12 months, in general, before the numbers START to turn around again.

Well that goes without saying given your first point about manufacturer SUBSIDISED interest rates and the car being newer. Of course, this is not always the case and, on occasion, there are comparable used car interest rates available to nearly new and the lower cost of the same car can help.

 

[xs2man]

The dealer doesnt hold anything. For some reason, some people seem to think they are paying the dealer back when they are financing a car. Its a finance company that is being paid back which is completely separate from the dealer.

Yeah, okay. Point taken. It's the finance company who holds the balance. Semantics though, my point was that I do not hold the balance of the cars worth. It's someone elses money there, whilst my money is free to use as I wish.

That can work both ways tho.

Any extra spec that you add onto the standard car is NOT seen at the other end with an increase in residual value.

Not true in all cases. Many spec items do add to the residual value. Sure, many do not, but equally, many do. The M-Sport package for example, as with the M-Sport Plus on my 530d, and my Pro Nav all added to the residual value.

Other spec, like colour combos etc.. may not add to the residual value, but may hinder selling the car privately.

Well that goes without saying given your first point about manufacturer SUBSIDISED interest rates and the car being newer. Of course, this is not always the case and, on occasion, there are comparable used car interest rates available to nearly new and the lower cost of the same car can help.

It can do in some cases, but not many that I've come across. Moreover, the often substantial saving that can be negotiated on a new car further lower the overall cost when comparing against a used model. An example of which would be my car, after negotiating over £10k off the list price.

A quick look on AUC shows me that there are currently 3 cars on there with an almost identical spec to mine, missing some here, adding some there, but they are all priced around the same value as what I paid for mine. Except for mine wasn't 6 months old with 8k on the clock, and came with the better finance rates. Which would inevitably make my car (a new order) the cheaper prospect to buy using PCP to finance it.

 

[xs2man]

But it is the situation they are in.

No. The situation they are in is comparing the ownership costs of a car they already own to a new car of lesser premium. Not comparing it against a car of equal premium.

Did you even read the OP? Or did you just decide to give information based on your own assumptions?