Is PCP a good way to finance a car?

[Leo]

Again, there were 50% more car sold in 2016 that in 2014. I hope you're right but my aging hunch tells me a lot of people are driving on the never-never.

2016 is the first year that sales exceeded pre-bust levels. There were a few years following the bust where we seemed to lose a lot of the new car snobbery of the good times and there was more kudos in keeping an older car in good nick. That pesky cheap finance is back with a bang now though.

However, look at the CSO stats since 1998:

Year	1998	1999	2000	2001	2002	2003	2004	2005	2006	2007	2008	2009	2010	2011	2012	2013	2014	2015	2016
New Private Cars	138,538	170,322	225,269	160,908	150,485	142,992	149,635	166,270	173,273	180,754	146,470	54,432	84,907	86,932	76,256	71,348	92,361	121,110	142,688

These numbers are new private car registrations, and include first time registrations of second-hand imports. So 2016 was a very good year on recent trends, but we've only just caught up with the 1998/ 1999 numbers, and our population has grown by almost 30%, more than one million people in that time.

 

[Firefly]

Sounds like 2018-2019 will be a good time to pick up a second hand car !

I agree.

PCP is only an issue, in theory, when it changes customer behaviour and they buy a car they cannot afford, or would never have bought otherwise, because of it.

I agree again.

 

[Firefly]

2016 is the first year that sales exceeded pre-bust levels. There were a few years following the bust where we seemed to lose a lot of the new car snobbery of the good times and there was more kudos in keeping an older car in good nick. That pesky cheap finance is back with a bang now though.[/td][/tr][/td]

Thanks for that. I've always felt that the real Celtic Tiger was from 1998 to about 2002. In that period the real economy grew. From 2002 - 2008 it was just massive credit expansion. The fact that we are now approaching the heights of 2006-2008 without any corresponding growth in the real economy tells me that it's all credit again. I think it's more than a coincidence that car sales have increased by 50% after PCPs have been introduced. My gut tells me that difference between the numbers for 2014 and 2016 are those who can't really afford a new car...about 50k cars..

 

[Leo]

Thanks for that. I've always felt that the real Celtic Tiger was from 1998 to about 2002.

It's a shame the CSO numbers don't go back even just another couple of years further.

In that period the real economy grew. From 2002 - 2008 it was just massive credit expansion. The fact that we are now approaching the heights of 2006-2008 without any corresponding growth in the real economy tells me that it's all credit again.

Yep, [broken link removed] right back up there at 2008 levels!!

 

[Firefly]

More references to PCP finance being sub-prime. Are we going to go through the whole thing again, this time with cars?

https://www.theguardian.com/money/2...s-driving-us-towards-the-next-financial-crash

 

[Setanta12]

I think the difference this time, is that loans for cars per household is a lot less than mortgage loans per household at a national level (I have no numbers backing up my assertion).

I do see problems though - but nowhere on the same scale. Cars can be repossessed very quickly without the political drama.

 

[podgerodge]

it's more than a coincidence that car sales jumped 50% in 2 years at the same PCPs were introduced all whilst nothing materially improved in the general economy.

This. I've seen no shortage of acquaintances who used to drive 5/6/7 year old cars moving to brand new Tucsons etc in last couple of years. Did they all win a few bob? No.
And, frighteningly, some of them think the gmv IS the future deposit .

PCP is fine if you understand it. If you minimise the deposit to bare minimum there is likelyhood you will achieve consistent monthly repayments if you want to go this route. Bit if low monthly repayments are what attracted you, then its likely you're using your current car as deposit and you will have little or no deposit in 3 years meaning much higher monthly payments to continue on impressing the neighbours or having to accept that you're not as upwardly mobile as you wanted to pretend to be and now they'll know.

 

[Firefly]

PCPs coming to 2nd hand cars....big push on PCPs for 131 (and newer) 2nd hand cars - there are obviously a lot of these hitting the forecourts that need to be shifted asap to keep the show on the road. I'd expect 10, 11 & 12 reg cars to start getting a lot cheaper in the coming months...

http://www.independent.ie/life/moto...-to-benefit-thousands-of-buyers-34563797.html

 

[Bronte]

More references to PCP finance being sub-prime. Are we going to go through the whole thing again, this time with cars?

https://www.theguardian.com/money/2...s-driving-us-towards-the-next-financial-crash

Oh Lordy that graph on the tripling of US car debt is frightening. Where America leads the British and Irish always seem to follow. Must say the American's are ever so inventive at getting poor people credit no matter what. A never ending viscious cycle.

 

[Brendan Burgess]

A good description of PCP by in this weekend's FT

Personal finance sets traps for dinosaurs - Financial Times



"Some PCPs may be good value. The problem is that it is hard to tell. ... PCPs are a hybrid of several different financial products, part lease, part hire-purchase, and part option to choose between the two. Variables include contract length, the guaranteed value of the returned car, the deposit, purchase price of the car itself, maintenance contract tie-ins, mileage allowances, and (of course) the interest rate. There is no reason to think customers can navigate these complexities.

Suzanne Shu, an economist at UCLA, has shown that picking the cheapest mortgage deals is a problem that will fox even MBA students. PCPs are harder."

 

[Mrs Vimes]

This article was in the Guardian yesterday - https://www.theguardian.com/commentisfree/2017/may/08/credit-car-crash-sub-prime-crisis-cause-next-financial-collapse.

The author reckons that too many PCP-type deals are being taken by people with poor credit ratings and insecure income who can't afford them and don't really understand them but *shiny*new*car*.

He says car sales are such a large part of the economy that when the music stops it could affect more than just garages.

 

[Firefly]

Given what's being touted here and elsewhere, I presume the Central Bank here are actively looking into this. After all they were blamed for falling asleep at the wheel in 2008 so I am sure they won't let this happen again, will they?

 

[Leo]

With Q1 used car imports up over 50% on last year, and an overall drop of 8% in new registrations, I don't think they'll be panicking yet.

 

[Firefly]

With Q1 used car imports up over 50% on last year, and an overall drop of 8% in new registrations, I don't think they'll be panicking yet.

That's a fair point. Kinda like that new Volvo S90 though so part of me is hoping for a shedload of them to be bought!

 

[Leo]

That's a fair point. Kinda like that new Volvo S90 though so part of me is hoping for a shedload of them to be bought!

Actually, you might not be alone there. The increased sales over the past two years may mean there are more bargains to be had in the second hand market.

 

[IrishGunner]

Question about PCP finance that may have been answered but cannot trawl through the thread

We are in the market for a new car and either looking at a Seat Ateca (about €25k+) or the Skoda Karoq(no price cost yet). We are trading in a Golf 08 GT Sports with 50k on it and a 05 Honda 1.5 with close to 200k. So we don’t know how much we can get or how much extra we can afford to put in, until we see trade in value. However Miss Gunner does a lot of miles for work while I don’t. We are both in full time employment and not going to stretch the budget but want to keep payments steady if possible so we can budget. Also we would like to keep the car for a bit so questions:

• Is the only option to have the car for 3 years ?
• After 3 years do we have to put in another 10% deposit to upgrade?
• Does the payment increase/ decrease if in first year we don’t do high mileage but second year yes (as miss gunner will go back to work)?

Trying to decide what is better in the long run and if it’s a case of putting more money in to get a Credit Union or Bank loan this is an option, with the fact that the cars will be ours. What are the other things to watch out for in the small print of a PCP

Anything else I need to consider?

 

[Leo]

Is the only option to have the car for 3 years ?

Some dealers offer 2-year along with 3-year deals, but 3 is more common.

After 3 years do we have to put in another 10% deposit to upgrade?

You don't have to, but your monthly payments will likely increase if you're replacing with a similar spec model.

Does the payment increase/ decrease if in first year we don’t do high mileage but second year yes (as miss gunner will go back to work)?

No, repayments are fixed for the term. Exceeding the mileage limits may mean you get a lower final value to use as trade-in against the next car if you choose to roll on to a new deal after the 3 years.

Trying to decide what is better in the long run and if it’s a case of putting more money in to get a Credit Union or Bank loan this is an option, with the fact that the cars will be ours.

You have the option of taking advantage of better interest rates on offer from some dealers, then at the end of the 3 years pay the final value with cash from savings or financed via conventional means.

 

[IrishGunner]

Thanks for the info

Still undecided what to do need to look more into this option. Need to look more into what we can do at the end of the deal and the value of the car and if we wish to keep/ upgrade or walk away. Need to determine if the car will maintain its value and we get this at the end, taking into account we will keep the car maintained well

Also if you get PCP from X dealer do you have to stay with that dealer. So for example we get a Seat does that limit us to Seat or whatever cars the dealer has or can you go to another dealer with another car brand?

 

[Leo]

Also if you get PCP from X dealer do you have to stay with that dealer. So for example we get a Seat does that limit us to Seat or whatever cars the dealer has or can you go to another dealer with another car brand?

At the end of your 2 or 3 year deal, you will have the option of rolling onto a new deal with that same dealer, handing them the keys and walking away with nothing, or paying the balance of the financing (the GMFV).

If you choose the latter option, after paying the final value, the ownership of the car transfers to you, and you are free to negotiate a deal anywhere you like using the car as a deposit. Likewise if you walk away with nothing, you need to come up with a 10%+ deposit in order to enter into a new deal with any dealer you choose.

If you choose your car well and there is strong demand for 3 year old examples, it will almost certainly be worth significantly more than the final value. In those cases, if you want to switch to another make, you'd be better off paying the final value to take ownership, then sell it privately or trade it in as the deposit.

Of course it isn't always easy to predict how well individual models will hold their value over time, but a little research will help. For example, look at how long the current model you're looking at has been in production and whether a significantly newer model is in production. After a significant upgrade, some older models can look very dated and this can affect resale value.

 

[joer]

If you take PCP you only have a limited driving "allowance". You can only have your car serviced by the place where you bought it. If there are any marks or scratches on it then that can have a bearing , so I believe.