Is PCP a good way to finance a car?

[Ceist Beag]

I hope I wasn't coming across as suggesting that anyone buying on PCP must be off their head? I previously made the point that it can be a good option for some and I certainly don't think there is anything wrong with people choosing this option, if it suits them and they have the money to spend.
Some of the concern raised on this thread about PCP was around those who may not have the money to spend and who see this as a cheap way of driving an expensive asset - and we know enough from the last 10 years that cheap credit can come back to bite some people!

 

[Learner2015]

I think the thread was good at showing both sides of PCP deals.

Like everything it has its pros and cons, if you are informed, know the risks and I think above all don't rely on the future value of your trade in being vastly more than the GFV then your fine.

0% sealed it for me, as a former car salesman I understand the unpredictability of used car values but think it is a calculated risk not a a Hail Mary to assume I'll have some equity at the end of it.

What's right for some is not for others. Over the years I had customers who would never buy a used car and the same who would never buy a new car. Some financed, some didn't, some bought with their heart and some with their head.

Yes this is a money forum but consideration needs to be thought of in respect of needs v wants. I actually don't need a car, I could survive without one (awkwardly) and save loads of cash. Fact is I want one, a nice one and am prepared to pay for it.

 

[Leo]

With all due respect Leo, I don't think you can compare purchasing a car with clothes! A car is probably the second biggest purchase people ever make (after house obviously) so financial terms form (or at least should form!) a massive part of the decision in buying a car.

True, it's a significant single purchase, but to say you can't compare the approach to an occasional large purchase to that of many, many smaller purchases that can amount to a greater spend makes no sense. I know quite a few people who drive decent cars, but spend more money on clothes.

 

[Brendan Burgess]

Anyone fancy doing a balanced summary of the pros and cons?

Brendan

 

[Bronte]

delete

 

[Bronte]

Example of PCP leading to another PCP - Poster Blackrock

Car 1 May 2013
Cost: 45k.
Deposit 10k (from savings)
Brand: Audi A 5 Sportback
3 year PCP 1.9 % monthly 446
Servicing Plan 167 annually, monthly 14
After 3 years GMFV 20k
Annual mileage 10K

GMFV
Car returned after 25 months with 15KM on the clock.

3 options

a) Hand the car back
b) Buy it for 20k
c) Trade it against a new PCP deal

Car 2 July 2015
Cost: 45K
Deposit 8K
3 Year PCP 1.9 % Monthly 476
Servicing Plan 167 annually, monthly €14
GMFV 21.5 K
Annual mileage 10K


Questions:
1. For car one, it's 1.9 % of what figure? 35K presume.
2. For car two, it's 1.9 % of what figure?
3. How was the GMFV calculated.



Figures
Car 1. 476 X 25 = 11,900 paid plus deposit of 10K = 21,900 Or 22K


Car 2

Car cost 45K
476 X 36 = 17,136
Car GMFV 21.5 K

 

[Blackrock1]

Questions:
1. For car one, it's 1.9 % of what figure? 35K presume.
2. For car two, it's 1.9 % of what figure?
3. Is the servicing plan monthly cost of 14 euro included in the 460 monthly, I presume it is.

the financing is on the cost price, less your deposit less the GFV, thats the amount you are borrowing.
the service plan is included in the monthly cost

 

[Bronte]

I'll subtract 14 Euro so. What is the GFV?

How much is the PCP for the second car? Is it 45K?

 

[Firefly]

of course like any finance, This post will be deleted if not edited immediately everyone loves the doomsday scenarios on here

I didn't paint any doomsday scenarios. You've stated that the worst that can happen is that you lose your deposit and the car. That is incorrect. You are on the hock for the balance between what the finance company purchased the car for and the repayments you have to the finance company thus far. If the finance company can sell the car for this balance, then you are right. However if they can't, you are on the hock for the difference.

so if i keep to the end thats 5.25 years motoring at a cost of 39k, or 7.4k per annum or 620 a month on the assumption that i have no deposit left at the end of the second PCP.

So you've spent 39k and you still don't own the car? You can keep kicking the can down the road if the finance company keeps offering this deal of course. Assuming that the price of cars doesn't increase and interest rates stay at 1.9% (not very likely I would say), your best case is paying 7,400 a year in perpetuity or else taking what little equity you have left and buying a jalopy. However if you go for PCP #3 though you are probably after paying 50 - 60k at this stage. Regardless, at some stage, that final "optional" payment will need to be repaid and you will be left with little or nothing to show for it.

I don't mean this as a dig at you, but I wonder how many people taking out PCP deals for cars costing 45k would spend 45k on a car from their savings account if 45k was magically lodged to their savings account. I would say very few.

 

[Firefly]

the financing is on the cost price, less your deposit less the GFV, thats the amount you are borrowing.

Are you sure about that? Why would the finance company factor this in when lending you money? It has to obtain the 35k itself (45k - deposit) and lend all of this to buy the car from the garage.

 

[Bronte]

so if i keep to the end thats 5.25 years motoring at a cost of 39k, or 7.4k per annum or 620 a month on the assumption that i have no deposit left at the end of the second PCP.

This is broadly correct.
Car 1 25 months plus car 2 36 months = 61 months or circa you will have paid 620 a month. But you own nothing. And you've spent the guts of 40K in 5 years.

 

[Firefly]

For me it makes sense - 0% loan, hassel free motoring for three years and I'll have the purchase price in cash in the bank to buy the car outright at then end anyway so can decide what do do then. If there is equity I might go again if not I might buy it myself and run it into the ground who knows!

I actually don't need a car, I could survive without one (awkwardly) and save loads of cash. Fact is I want one, a nice one and am prepared to pay for it.

It's a great play in your case. You want a new car and have the funds to buy one outright. You are availing of 0% and probably getting free servicing and everything else. It's a no brainer (assuming you are ok with the depreciation side of things that go with buying a new car).

I may well adopt this strategy myself. I would be interested in a 3-4 year old car from a main dealer. If they can offer me 0% I would take it too as I will have the funds to buy the car outright before I step into the garage.

For the majority of people though they will be losing most of their initial deposit, paying several hundred a month over a number of years and in the end have little or nothing to show for it.

 

[Blackrock1]

your best case is paying 7,400 a year in perpetuity or else taking what little equity you have left and buying a jalopy.

I don't mean this as a dig at you, but I wonder how many people taking out PCP deals for cars costing 45k would spend 45k on a car from their savings account if 45k was magically lodged to their savings account. I would say very few.

A jalopy, is a jalopy not what the detractors are suggesting is the answer to everyones motoring requirements? or do you believe these 8 and 9 year old cars that are mentioned that never give a moments bother are worth any more than a couple of grand?

I could have bought my car outright from savings, i chose not to

 

[Bronte]

Are you sure about that? Why would the finance company factor this in when lending you money? It has to obtain the 35k itself (45k - deposit) and lend all of this to buy the car from the garage.

I'm not getting what he means here. Like you, his 'pcp' has to be for 35K?

What is GFV, did we mention this earlier. I realise now what GMFV because it's in the Weston article.

 

[Blackrock1]

Are you sure about that? Why would the finance company factor this in when lending you money? It has to obtain the 35k itself (45k - deposit) and lend all of this to buy the car from the garage.

the amount of credit is the amount of credit why would you pay interest on a different figure?

 

[Firefly]

I'm not getting what he means here. Like you, his 'pcp' has to be for 35K?

What is GFV, did we mention this earlier. I realise now what GMFV because it's in the Weston article.

I think GFV and GMFV are one in the same or pretty close. It's what the garage say they will give you if you return the car to them after the 3 years. That's between you and the garage though. Don't see where the finance company comes into it..nothing to do with them. They have lent you 35k to buy a car and surely they will charge interest on the 35k?

 

[Blackrock1]

This is broadly correct.
Car 1 25 months plus car 2 36 months = 61 months or circa you will have paid 620 a month. But you own nothing. And you've spent the guts of 40K in 5 years.

thank you for checking my maths

 

[Firefly]

the amount of credit is the amount of credit why would you pay interest on a different figure?

Exactly. The amount of credit is 35k.

 

[Blackrock1]

GFV GFMV interchangeable acronyms, guaranteed future value, guaranteed minimum future value

 

[Bronte]

your best case is paying 7,400 a year in perpetuity or else taking what little equity you have left and buying a jalopy. However if you go for PCP #3 though you are probably after paying 50 - 60k at this stage. Regardless, at some stage, that final "optional" payment will need to be repaid and you will be left with little or nothing to show for it.

I don't mean this as a dig at you, but I wonder how many people taking out PCP deals for cars costing 45k would spend 45k on a car from their savings account if 45k was magically lodged to their savings account. I would say very few.

I agree with you in that would you pay 45K if you had to pay for it out of your savings. BEcause then you see what it really is.

But another question is. How much would the 45K car cost if you paid cash? Does that make a difference.

Also are they luring people into coming back again and again, for the latest model, higher spec, in the case of the OP he got a this after 20 months, which is crazy (to me) because it would seem the salesman was able to show him it would only cost him an extra 30 euro a month. Like that's a no brainer right when you get a higher spec and a brand new car !