Is PCP a good way to finance a car?


which is a downside of buying a new car every 2 years rather than PCP
 
demoivre said:
I said "some folks" - circumstances change.
Click to expand...

Of course, but the same applies to someone taking out straight finance over 5 or more years, their circumstances can change too. So raising that as a downside for PCPs alone makes no sense.

demoivre said:
You made the assumption in the key post that borrowers will be able to increase payments to fund the balloon over 24 months ie from €363.77 to €444.17 in your first example.
Click to expand...

It's clearly stated the two year term chosen was to give a fair representation of total cost of credit financing over a 5 year term for PCPs and straight financing. Those who choose not to renew their car and pay off the GMFV can finance this however they choose.

demoivre said:
Can this be done ie pay some of the balloon in cash and finance the rest?
Click to expand...

Yes, of course. You terminate the PCP arangement and roll on to a brand new finance agreement.
 
Blackrock1 said:
which is a downside of buying a new car every 2 years rather than PCP
Click to expand...

I agree, however, PCP plans are luring people to buy new with low repayments. Not even that, people aren't even waiting for the plan to mature before going again. The end result for a lot of people will be that they will drive new cars but be financing debt over a long time which won't always be at 0%..
 

but they will know the interest rate when they sign up, no one is forcing people into these things,

best way to look at it (while int rates are low) if you can minimise the deposit its basically just a car rental
 
Beware - one in nine cars sold are not fully paid for

http://www.independent.ie/life/moto...ars-sold-are-not-fully-paid-for-35343172.html


According to new figures obtained by the Irish Independent, the proportion of 'indebted' vehicles being offered for sale went from 9.5pc in June to 11.5pc in December.

There was an 18pc increase in the level of 2015-reg cars for sale with repayments owed. The report said: "This means there is now almost a one-in-three chance of a one-year-old vehicle being offered for sale with finance outstanding."

2 possible reasons for the high number are given in the artile:

But there is also the strong likelihood that many people who have Personal Contract Plan (PCP) lease deals are testing the market for the value of their vehicle before entering a new contract.

But there is a growing concern too that the number of cars for sale with finance owed reflects an inability to meet monthly repayments.

Information is not available to identify the % of cars being offered for sale between the 2 camps, but it's surely a concern surely...
 
Blackrock1 said:
but they will know the interest rate when they sign up, no one is forcing people into these things,
Click to expand...

Yes, but do you think interest will stay at 0% for the 2nd and subsequent plans? A jump from 0% to 5% would see repayments shoot up. It wouldn't be such an issue if the amount borrowed was small to begin with but in many cases it's a lot.

Blackrock1 said:
best way to look at it (while int rates are low) if you can minimise the deposit its basically just a car rental
Click to expand...

I would think if you mentioned to 90% of people who are driving cars bought under a PCP plan that they were in fact just renting it either their nose would be out of joint or they'd think you were mad!
 
Firefly said:
Yes, but do you think interest will stay at 0% for the 2nd and subsequent plans? A jump from 0% to 5% would see repayments shoot up. It wouldn't be such an issue if the amount borrowed was small to begin with but in many cases it's a lot.
Click to expand...

It's clear they won't, and will rise to the prevailing rate at the time. Key Post calculations assume a jump to 11% for financing the GMFV.

Firefly said:
I would think if you mentioned to 90% of people who are driving cars bought under a PCP plan that they were in fact just renting it either their nose would be out of joint or they'd think you were mad!
Click to expand...

Most are PCPs are financed via a HP agreement, the dealer isn't fulfilling their obligations if they don't make that clear. It's also clearly stated in the paperwork.
 
Firefly said:
I would think if you mentioned to 90% of people who are driving cars bought under a PCP plan that they were in fact just renting it either their nose would be out of joint or they'd think you were mad!
Click to expand...

perhaps, but its the most sensible way to look at it
 
Leo said:
Most are PCPs are financed via a HP agreement, the dealer isn't fulfilling their obligations if they don't make that clear. It's also clearly stated in the paperwork.
Click to expand...

I agree with that, but it's a snobbish thing I am getting at. Tell someone they're just renting "their" new car and see their reaction!
 
Again, from UK sites:

PCPs look to be every bit as popular in the UK with some people there raising concerns too:

http://moneyweek.com/merryns-blog/p...d-that-could-turn-out-to-be-a-very-bad-thing/

....but that’s still an awful lot of happy people driving around in lovely new cars with reversing cameras, hill-start assist and voice-controlled Bluetooth.

So what’s the problem? The same as it always is. PCP deals are effectively debt. They are as popular as they are because they are cheap. They are cheap because interest rates are insanely low. So they are all part of a growing (again) debt problem in the UK.

Consumer credit has grown at a rate of nearly 11% in the last 12 months (we haven’t seen double-digit growth rates here for nearly a decade); and household debt to GDP is back up over 140% (it hit 160% at its pre-crisis peak).

That doesn’t look like a problem right now for the simple reason that, with interest rates so low, the cost of servicing all the debt is low – it came to 10% of household income in 2007 but comes to a mere 4-5% now. But that could all change fast: if interest rates rise (and they will!) the problems of the past could come back to haunt us.

Debt: it can be a good thing, but it doesn’t take much to turn it into a bad thing.


http://www.birminghampost.co.uk/business/business-news/record-car-sales-again-2016-12416753

...it’s a nifty financing model, for sure. But, the entire PCP structure depends on that residual value remaining robust and keeping the monthly repayments affordable.

And while PCPs have kept the corks popping at dealers, dark clouds may be looming on the horizon which may dent to the ability of PCP to keep cars coming out of the showrooms at quite such a dizzy rate: used car values and a possible slowdown in growth.

In effect, the surge in PCP-propelled new car sales may lead to a wave of used cars hitting the second-hand car market, in turn depressing second hand values

That in turn could impact on the very collateral that lenders rely on to make PCP deals work. If so, car firms may take a hit on the value of used cars being returned, and PCP rates may start be less attractive in the future
 

Hi Blackrock1,

I hope you don't mind me using your own case, but I am trying to show how falling car values in the 2nd hand market would adversely affect the above deal. I think (and I mean think) that the issue will occur when you try to renew on your 3rd car. If you go again and get something similar to what you are currently driving, the GMFV on that 3rd car will be much lower or the repayments would be much higher. You can of course shop elsewhere but I think the other dealers will be in the same position - 2nd hand values will have fallen to such a level that the GMFV promised will be a lot lower. When selling this car, the dealer may only offer the GMFV and you may have little choice if the market is flooded. You bought the car for 50k too so you are looking at a near 30k loss. Of course you have the funds so you're fine, but for many others it could be a different story.
 
Last edited:
It will be very interesting to track what impact these deals have on second hand values over the next couple of years. When you look at second hand prices like for example (21k for a 3 year old car listed at €27 new), that model coming off a PCP after the minimum 10% deposit would have a GMFV of ~€11k. It'd be very hard to understand why anyone would just walk away or roll on to a new car without a significant discount being applied.
 
If you ask me this whole think looks and smells like a pyramid scheme.

I think that the example in the Telegraph of the dealer ringing up the woman early on to get another new car sounds uncannily like what happened to Blackrock. I'd love to know what percentage of people break their PCP before the 3 years.
 
Bronte said:
If you ask me this whole think looks and smells like a pyramid scheme.
Click to expand...

That's exactly what I thought when I read the article too. All goes well until new would-be purchasers even pause to think and the whole thing could grind to a halt.
 

I think the going rate for a 3 year old car is 50% of its original price. That would then be 14k. Add another 2-3k to buy from a main dealer and you are still looking at 5k over what it should be.
 
A post in boards.ie on the topic

I work in advertising. It's all below and above the line, digital and traditional.

Two of the advertisers I work with are the most popular motoring brands in Ireland. The push for PCP is very focused, they're targeting young social climbing men that are brand and year-reg obsessed diesel drivers whom are gearing for a new car to show off to contemporaries and family. And it's working very very well.

Making normally unaffordable purchases all of a sudden affordable along with the typical Irish hankering for the newest 162/171 latest reg to impress the neighbours is the new black.

If you're buying a 60k car. You will pay 60k for that car. One way or another. You will pay for it, now, then, three years down the line, fifteen years down the line. You Will pay the top price for these cars. These deals have been very well thought out with the best minds in finance. Don't for a minute think you're cleverer than them. You're not. It's absurd to think that you're getting a deal.


http://www.boards.ie/vbulletin/showpost.php?p=101710453&postcount=84
 
You must log in or register to reply here.
Menu
Log in
Register