To PCP or not to PCP

[Syla5]

Ok, getting a new (used by less than 2 years old) car on Friday.

We have the money to buy it outright but want to understand if there is any benefit to PCP or not.

Is there any benefit to PCP, I am put off by the high interest rates, and cant seem to see the need to do it.

The plan is to not replace the car within the next 3-5 years. If its anything like the one its replacing it will be owned for at least 10 years.

OCUK motors, your thoughts on this matter are requested.

 

[Rilot]

PCP only exists to put people in cars they could not afford to buy using other methods. If you have the cash, use it.

 

[Glanza]

If you've got the cash pay cash.

 

[Maccy]

You might be able to negotiate more discount with the PCP than paying cash, could go down that route and then pay it off within 14 days?

 

[DereksDontRun]

check the pcp interest rates. they're usually only good when the car is brand new (with a dealer contribution) - used car pcp rates seem to be a LOT higher interest, regularly over 10%! Just looking at BMW's fingures:
new car pcp - 4.9%
used car pcp - 11.9%

wheras a bank loan will be about 3.5-4% (at a guess)

So, pcp is only "worth it" for a brand brand new car, with a discount & dealer contribution... (and you know you're only going to have the car ~3 years and do under 8k miles/yr). For used cars (irrespective the age), avoid... A bank loan is far better.

 

[Shoeyuk]

You can normally get a little bit more discount with pcp as the dealer gets a kickback should you use the company the dealer suggests. In order to pay off early you would have to look at the fine print as some loans will allow early repayment but may still charge an early repayment fee.

If you have the cash upfront to pay for it i would do that.

 

[pioneer2000]

The vast majority of people running anything that isn't normal (i.e. all the Mondeos, Fiestas, Corsas, low spec 213d's, A3 etc) or ancient (old Evo's / Subaru / MX-5 / Boxster) are using PCP / HP / some form of finance.

Don't let facts be ignored.

 

[degen]

The vast majority of people running anything that isn't normal (i.e. all the Mondeos, Fiestas, Corsas, low spec 213d's, A3 etc) or ancient (old Evo's / Subaru / MX-5 / Boxster) are using PCP / HP / some form of finance.

Don't let facts be ignored.

Exactly. Most people even on huge salaries can't afford to drop 30 / 40 / 50k on a car at a whim.
People posting things such as 'people can't afford it etc' are mostly driving around in older 2nd hand cars - which is fine it's their choice but the constant can't afford it narrative gets a bit boring.

 

[Rilot]

Exactly. Most people even on huge salaries can't afford to drop 30 / 40 / 50k on a car at a whim.
People posting things such as 'people can't afford it etc' are mostly driving around in older 2nd hand cars - which is fine it's their choice but the constant can't afford it narrative gets a bit boring.

Yes but that's not how it works is it. Who walks in to a dealer and says "One car please" and pays cash with no trade in? In the past people took a loan on the entire price of the car. Let's say on a 50k car they are trading in their 20k car. They take a loan for 30k over 3 years and when it's paid off they trade it in and do it again. With the bubble payment of a PCP you are massively reducing your monthly figure due to the bubble payment at the end. This means that people who could not afford to finance the entire 30k can now afford to get in to the 50k car. So, my statement stands, PCP exists to put people in to cars they could not otherwise afford. Finance also exists for the same reason but with the added barrier to entry of financing the entire price of the car.

If people want to PCP things then it's their choice. I know many people who do and that's cool. But there's no denying that they would not be able to drive the cars they drive without PCP being a thing.

 

[DereksDontRun]

There's nothing wrong with PCP or HP, but you should't blindly sign up to any multi-year financial commitment without comparing other options.

PCP of a new car, when you get a good discount, with an ok apr, is a good way to "afford" a nice new car, with a full warranty for "worry free" motoring. Generally the pcp will cost a little more than the car's depreciation, so it's not like you're "losing" much more cash than you would by just buying a new car and keeping it for the same time. But, a pcp on a new car is bad for anyone doing a decent number of miles a year (most schemes are limited to 8k without a fee) and don't want to modify the car (depending on policy).

As mentioned, manufacturers generally offer discounts to get people onto pcp schemes - which can usually be taken advantage of, and then paid off, within the first 14 days. The combination of manufacturer/dealer discount, plus pcp contribution, can dramatically cut the cost of a car - ie, my M135i is on pcp and I drove it away new, at 21% under rrp. At the time, my local BMW dealer had an 18 month old approved used car (with a lower spec) for MORE than the price I signed up to (and it sold within a couple weeks!).

For used cars though, pcp apr rates are a lot higher and the discounts offered by the manufacturer is minimal, so when compared with a normal bank loan, it's not usually the "best" way to "afford" a car via monthly payments. Yes, the bank loan will be a bit more per month as you're borrowing more to effectively cover the final balloon payment, but with the smaller apr, you're not "losing" so much money over the term.

 

[SDK^]

£1k+ a month to rent an Audi RS3 seems to be the in thing

 

[Alex_6n2]

It entirely depends on the PCP deal on offer, the car in question and your personal circumstances.

If there is a cheaper way of being lent the money (e.g. Personal Bank loan), then PCP is no good.

Buying a brand new car on PCP with 0% APR however? It's a no brainer. (Must resist M4 CP with 0% APR!)

 

[On Holiday]

It entirely depends on the PCP deal on offer, the car in question and your personal circumstances.

If there is a cheaper way of being lent the money (e.g. Personal Bank loan), then PCP is no good.

Buying a brand new car on PCP with 0% APR however? It's a no brainer. (Must resist M4 CP with 0% APR!)

This, there are often incentives for PCP/HP which make it worth doing even if it's a case of settling within the first 2 weeks.

If your cash makes more interest than the % for PCP then leave it in the bank

 

[DereksDontRun]

£1k+ a month to rent an Audi RS3 seems to be the in thing

1k a month is crazy... That's the equivalent of a bank loan for the full car, not pcp?

looking at audi's site... a rs3 with the options I would want at a glance, would be about 52k

4yr pcp
deposit: 9.5k
47 months of £450
(optional balloon payment 22k)

total paid is £30k

Looking at motors.com for the car's depriciation:
3yr 30k (from motors.com)
4yr 27k (there isn't a 14 plate, but ~20%/yr depreciation is usual, so I've gone a little under that)

So, a dealer would have a 4yr car for sale about 26-27k? Trade in price a couple k under that? say 25k?

So, depreciation is 52k-25k = £27k

So, using pcp you've paid 30k for a car that's lost 27k - so effectively paid 3k to "rent" the car over 4 years? so £62/month - to me, that's not great, but not horrific either.

But, find a good pcp deal with low apr, and suddenly paying v similar figures to the car's depreciation, so it's not "costing" anything more than the car is naturally losing in value...

(just fag-packet maths, so probably wrong)

 

[Django x2]

PCP only exists to put people in cars they could not afford to buy using other methods. If you have the cash, use it.

Sadly, it's misrepresented sentences like this that cause issues.

If I have £30k cash, I'm not going to sink it into a car that will lose 10-15% of that value per year in depreciation. If said car was on a 0% PCP, I'd use a third of that capital as a deposit, keep the other £20k as working capital for other things as required and enjoy the car on a per monthly basis.

Nothing about "not being able to afford" the car. It's just making it work in the best way for the purchaser, which actually, you could argue, makes them more financially astute.

 

[[TW]Fox]

If I have £30k cash, I'm not going to sink it into a car that will lose 10-15% of that value per year in depreciation.

No, lets borrow it from someone else and then sink it into a car that will lose 10-15% of that value per year in depreciation instead.

Very few PCP deals are 0%.

 

[DereksDontRun]

isn't there a saying along the lines "buy things that appreciate and lease those that depreciate"? cars (that's we're talking about) depreciate, so tying up a large chunk into one isn't ideal, when you can equivalently pay a little a month to rent one while the rest of your cash is free to invest elsewhere.

 

[[TW]Fox]

So, using pcp you've paid 30k for a car that's lost 27k - so effectively paid 3k to "rent" the car over 4 years? so £62/month - to me, that's not great, but not horrific either.

You've not paid £62 a month at all you've paid £30,000 over 4 years, which is £625 a month.

No wonder PCP looks good if people can convince themselves the monthly rate is 10 times lower than it is!

 

[[TW]Fox]

isn't there a saying along the lines "buy things that appreciate and lease those that depreciate"? cars (that's we're talking about) depreciate, so tying up a large chunk into one isn't ideal, when you can equivalently pay a little a month to rent one while the rest of your cash is free to invest elsewhere.

Where are you investing spare cash that has a guaranteed return of over the 5%ish interest rate you could expect on a PCP?

It's all mental gymnastics by people trying to make PCP sound like the sensible option - the 'buy appreciate, lease depreciate' thing is similar rubbish, unless you're going to start leasing your television and your dishwasher as well - you don't beat depreciation by leasing, you simply add financing costs the depreciation you're also on the hook for.

There is absolutely nothing wrong with the idea that a PCP is a good way of getting into a car you don't have a pile of cash sitting around to pay for. I don't understand why we can't just accept that and why everyone has to try and convince each other that taking a car on a PCP is some sort of shrewd synergy leveraging investment strategy.

Because it isn't.

 

[Django x2]

No, lets borrow it from someone else and then sink it into a car that will lose 10-15% of that value per year in depreciation instead.

Very few PCP deals are 0%.

True, but throwing all your cash at a car immediately removes your ability to remain financially agile, irrespective, within reason, of the PCP rate. If you retain that £20k, you can use as required, another car purchase, a nice holiday, the tax man, etc.

If you've sunk £30k straight into your car and suddenly after a year, or even 6 months, thanks in part to our stupid new vehicle registration process, then you're not suddenly able to use that money. You'd have to sell the car, at a loss, pay whatever it was that needed paying, and then still have a requirement for a car, so buy another, cheaper car.

In which case, we are actually saying that £30k isn't enough to buy a £30k car. You need £40k, or, you do calculated PCP deals which are affordable each month, without having a crippling TCO and allow you to hold some cash in the bank. Most would choose the latter option if presented with the choice.