To PCP or not to PCP
- Thread starter Syla5
- Start date
He will indeed have been at those rates. Taking unsecured finance is the better option compared with item (car) secured finance, but why would you take this when alternative more competitive options are available? The 3-4% unsecured type rates are available only to people with reasonably good credit profiles who will also likely also have access to more competitive finance anyway.
So your recommendation is to borrow against a house to buy a car?
That could potentially lead to buyers adding (say) £20k to a mortgage to buy a £20k car, then paying it off over (say) 20 years. Dangerous territory for those without the best financial minds I'd have thought.
Yet it is still a better option than other forms of financing (unless you get a massive additional discount thrown in which can be factored into the effective rate you pay). Also no reason why you can't pay off the same amount as per any other option - doesn't have to be stretched over 20 years.
Of course. But it would be easy for a lot of less-than-savvy buyers to not be able to work out the exact amount of over-payment they would need to make each month, and then make sure they stick to it. And it's only cheaper if you pay it off over the same period. If it takes longer, then it's potentially more expensive.
By the time you've added to your mortgage for a car, a new sofa, a conservatory, a new driveway, you've ended up in quite a mess!
Of course. But it would be easy for a lot of less-than-savvy buyers to not be able to work out the exact amount of over-payment they would need to make each month, and then make sure they stick to it. And it's only cheaper if you pay it off over the same period. If it takes longer, then it's potentially more expensive.
By the time you've added to your mortgage for a car, a new sofa, a conservatory, a new driveway, you've ended up in quite a mess!
well yeah but you'd potentially be in an even bigger mess if you used other forms of finance for those things...
might as well just use Hertz at that point
It does seem that lots of these things are aimed at people who want to "Keep up with the Joneses"... it will cost them long term but they can get that new shiny status symbol on their drive right now/instant gratification etc.. even though they can't really afford to buy it conventionally.
Might as well go the whole hog, join one of the supercar clubs and get a Ferrari on the drive a few weekends a year... make sure to wash it frequently in front of the neighbours during summer time and then just tell people it is locked away in the garage during winter etc...
I mean it is technically 'your' Ferrari right, you've paying to rent ("part own") it just like all these people who are so keen to pay to rent some German car full time.
To be fair if someone is really, really into cars and super keen to get hold of the latest BMW M* as it is such an awesome drivers car etc..etc.. then I've probably got a bit more respect for taking that approach (and they can no doubt join some supercar club for the same reasons). But then again can you take PCP cars on track days? Seems it could perhaps be a bit pointless "buying"/renting a performance car if you can't actually do anything with it - some nice driving experiences on country roads perhaps?
But I suspect for a lot of people the PCP car is bought for the badge, it allows the salesperson the ability to sell them something they'd not otherwise buy - they now get some entry level model from a German manufacturer to park on the driveway because it is better for the ego than sticking a second hand Ford Mondeo on there that is perhaps more appropriate for their budget.
We went PCP to get the car we wanted as we could/can afford the monthly with 3.9apr. The GFV is slightly less than a similar age model now so we intend to finance that or pay it off and keep the car. We don't have an intention of getting a new model at the end or walking away without. It worked for us and meant not sinking a load of capital at the outset.
Managed to get a 0% PCP for my current car - need to have a think what to do when that finishes next year. Can't imagine I'd get a similar deal next time, so maybe a bank loan for a second hand car, or waste a pay rise on another new car 
My point was relating purely to people simply walking in and taking the dealers finance offer at face value. The whole "11% is good for a 2nd hand car, you need to go new if you want 4%" is what most people are happy to suck up. My point was that a person with a good credit rating looking at something nice can probably get a PCP type finance (deposit, month, bubble with GFV) at much lower rates on a 2nd hand car if they go outside of the dealer and seek it themselves or pressure the dealer to do that. Of course a Mortgage draw down / over pay could be even less, but that assumes the person has a mortgage.
Over 90% of people buy cars on finance today I believe, probably even higher as you get over 100K in value. I could go buy a 720 tomorrow for list price cash if I called on my mortgage as I have the equity and could easily afford the payments, I just chose not to. I could also drop say 50K deposit and pay 2K a month without an issue, but I also chose not to because for me it's too much to spend on a car, as is 150K frankly. The important thing with any finance deal is you need to ensure if the world goes crap you can get out without cost. That is what most don't do so they go minimum deposit and then wonder why when they want out after 6 months they owe 5K more than expected.
I'm not sure you've grasped that paying say 2% over 10-15 years is much more expensive than paying say 5% over 3 or 4 years.
You may find it helpful going forward to position yourself with an offset assuming that you have more equity available than your properties are worth. Instant available finance as good as cash but at a secured rate. This is how i am positioning - not that i spend anything much on cars, but a useful position nonetheless.
Not sure you've grasped that you can pay over the same period and the lower rate is erm obviously cheaper...
This only factors in if people are not paying back the loans at the say monthly payment amount.
If I was to borrow £18k over 5 years at 5% it would cost £340 per month with a total interest of £2310.
However if I was to borrow the £18k over 15 years at 1.79% it would cost £114 per month then I would overpay the difference to make the monthly payment the same as the loan above making the total pay off time 4 years and 7 months with a total interest payable of £766.
While what you have said is correct that it doesn't factor in firstly the extra monthly cost of a shorter higher interest loan, and it also doesn't factor in what can be achieved by sticking to the higher payment when borrowing at a lower rate.
Not to mention that with some mortgage providers the drawdown can be a separate loan and of shorter duration i.e. can match that of the other finance options if overpaying it is really too complicated for some hypothetical innumerate person the other poster is worried about.
Of course you can, there is nothing that forces you to. For many borrowers the temptation will be to not do so. If it's something they can kick down the road, and pay for it later then many will do that (especially when they think it's costing them only 2% pa.).
Obviously, savvy borrowers will not do that. Unfortunately however, current levels of household debt and the rise of payday lending etc demonstrate that there are not all that many savvy borrowers.
well people can let any form of finance go out of control, borrow from credit cards to repay bank loans or balloon payments etc.. it isn't something exclusive to mortgages
fact still remains that it is generally the cheapest way of borrowing for most people