Is PCP a good way to finance a car?

Firefly said:
I think it's a valid assumption. The majority of people would not have the funds to buy out the car at the end. They will therefore need finance and 3 years would seem valid. Hence, the 3 + 3 costs provided by Demoivre.
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i disagree with your assumption, i can only take my own situation but i could buy my car out of savings at the end if i chose.

regardless of that comparing 3 years financing versus 6 is nonsensical
 
demoivre said:
You're comparing the cost of buying a car using two methods of financing. If you want to own the car outright through PCP you will probably pay more, fact , but its not what you want to hear.
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your comparison doesn't make sense
 
Total new car registrations according to SIMI [broken link removed]

2010 88,446
2011 89,918
2012 79,574
2013 74,364
2014 96,284
2015 124,804
2016 146,606

Impressive numbers for 2015 - up 30% on the previous year. There were 50% more cars sold in 2016 than in 2014. I am guessing that the period 2015-2016 will represent "Peak PCP". I would expect super deals in 2018-2019. Renault Kadjar anyone??
 
Firefly said:
There were 50% more cars sold in 2016 than in 2014.
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Still, fewer sold in 2016 than in 2007 or 2008, before PCP.

PCP is, at least, interesting, particularly 0%, as I enables someone who wouldn't secure finance for the full amount of a new car to buy it over 6 years (granted, assuming that they could finance the balloon payment). One should be wary of all such things but the aversion to it here may be overdone.
 
I think that's a scenario where PCP would not make sense. However there are a number of assumptions built into this scenario that make it unlikely this person would be suited to buying a new car in the first place.
1. You are assuming this person cannot save (if they could save why would they take out a loan for the GMFV sum) - clearly this is a person who is on a tight budget if they cannot set aside some money each month to save for the lump sum at the end of the three years. Not a good candidate for a new car if that is the case.
2. You are assuming the same person would be able to afford the €909 per month repayments on the straight loan. So let's go with this assumption. That would mean that if they opt for the PCP deal they should have a surplus of 315 each month which would build up to a savings of 11340 at the end of the 3 years. So the balance is only approximately €6500 to meet the GMFV (am allowing for a small amount of interest accrued on the savings). A loan for this amount, repayable over a further 3 years would be approx €215 per month so total cost of this loan would be around €1200. That's a total amount repaid of €14040 plus €11686 (in savings plus interest) plus €7700 for the loan for the balance - €33426 in other words.

This still works out more expensive than the straight loan agreed but I think you need to be clear on your ability to pay and save before you can compare these two approaches.
Ideally you would want to be able to save the full balance at the end of the 3 years which would make the PCP option repayment total add up to €14040 plus €18186 = €32226.
Also bear in mind that some dealers are offering more attractive APR than 4.9% - some are offering 0%.

To me the thing that makes the PCP option attractive is the fact it gives you 3 more years to save for the balance on the car. If you are not going to be able to save a substantial amount of this balance during the 3 years then agreed, the PCP option is not such a good one for you. But as I said, if you are on such a tight budget that you cannot set aside savings to meet the balance then you probably need to question whether you can afford a new car in the first place (which I think is the point some posters are making here)!
 
Blackrock1 said:
i disagree with your assumption, i can only take my own situation but i could buy my car out of savings at the end if i chose.
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Blackrock1, you are a bit special alright

I would say the majority of people will be looking for finance whenever they decide to finish the PCP merry-go-round.
 
Ceist Beag said:
That would mean that if they opt for the PCP deal they should have a surplus of 315 each month which would build up to a savings of 11340 at the end of the 3 years. So the balance is only approximately €6500 to meet the GMFV
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A ceist beag if I may - do you honestly think that the majority of people who are buying 30k-40k cars on PCP (given the amount of depreciation alone that goes with this) are diligently saving away in order to buy out the car at the end? I would say less than 10% fall into this category and the remainder will either go again or seek finance elsewhere to actually buy the car. It's the key danger with PCPs. You see the big sign that says you can drive the car for a few hundred a month, see everyone else driving new cars and just go with the flow.
 
michaelm said:
Still, fewer sold in 2016 than in 2007 or 2008, before PCP.
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September 2008 was when the curtains came down. The vast majority of cars pre 2013 were registered in the first 3 months of the year. So to compare car sales in 2016 with the very height of the Celtic Tiger (as if that represented the norm) kinda proves my point! Way too many people are using cheap credit to get themselves into debt again.
 

I agree with you. I heard an ad on BBC or ITV yesterday and they said it costs 200 GBP for a new car and it was a big car. There is something wrong about this from the get go and I suspect it's getting people who can't actually afford a new car to purchase a top of the range one and to keep them forever in credit and buying a new car every three years. My husband bought a new car in 2015 and it was zero credit so we took that option. Over 36 months. With a deposit. The way I look at it is that we own the car in three years, I don't have to think about scratches or anything as we own it, there is no balooon payment in three years. And the car will be with us a lot longer than 3 years. Now at month 21 of the 36 months. And servicing is our own business.

I'm also absolutely blown away by the ease with which Blackrock could get another new car after 20 months. How many people are doing that. If it were me on the PCP deal, I'd ask to repay more each month and try and own it in the three years. Can you do that?
 
Firefly said:
Blackrock1, you are a bit special alright

I would say the majority of people will be looking for finance whenever they decide to finish the PCP merry-go-round.
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are you assuming that because it suits your narrative or is it based on any factual premise?
 

so your husband availed of 0% finance as well, makes sense doesn't it

you are very suspicious of PCP but as i said this isnt new and most of your suspicions are unfounded
 
Blackrock1 said:
so your husband availed of 0% finance as well, makes sense doesn't it

you are very suspicious of PCP but as i said this isnt new and most of your suspicions are unfounded
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Unlike you though we are halfway to owning the car. We won't be trading it in after a mere 20 months to get better options, which I totally do not understand by they way, we will have no balloon payment either and we won't be at the mercy of a garage to comply with rules on mileage and condition.
 
You're changing the argument now Firefly. I was responding to your example where you were comparing one where the buyer could only afford 594 per month repayment with another where the buyer could afford 909 per month repayment and you were then expressing shock that the latter resulted in a lower overall cost. That's not a like for like comparison so should not be a surprise - so I was pointing out the flaw in your argument.
It's a totally different argument to say that 90% of PCP buyers are those who cannot afford the lump sum at the end of 3 years.
 

good for you i am glad that you are so happy with your own situation, you appear to be very concerned about mine however, rest assured it is very much in hand, i could pay off my car in the morning should i choose to, i am at the mercy of no one.
 
Bronte said:
I heard an ad on BBC or ITV yesterday and they said it costs 200 GBP for a new car and it was a big car.
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you must live your life in a permanent state of indignation and anger, i have this image of you protesting outside the garage with a down with this sort of thing sign
 
Blackrock1 said:
your comparison doesn't make sense
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I would totally disagree. It makes perfect sense when looking at finance options to buy a car to consider 3, 4 and 5 year repayment options as well as PCP deals. The overall cost of finance is what counts so it's perfectly valid to consider different time frames. If PCP was straightforward we wouldn't have 217 posts on the topic.
 

you can disagree all you want, but your comparison doesn't make any sense and you will struggle to find anyone who will agree that it does
 
The cons to a PCP deal are not in the cost of financing. Your comparison is not comparing two comparable scenarios. Ceist Beag has described why that isn't the case above.

There are a few cons to PCPs, which are mostly based around people either not fully understanding their commitments to the deal or simply overstretching themselves financially, but seeing as this is a finance website, from a pure mathematical analysis point of view, the low credit rate or 0% credit some dealers offer, PCP's will always work out cheaper than an alternative means of financing with a higher interest rate. You can't argue with the maths.
 
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