Car PCPs - Anyone on one or have used one?

[Evening Star]

L&G.

I'm planning on buying a new car, don't know whether it'll be a Skoda or something else yet.

However I am now starting to work out what finance I will roughly require, I was wondering what the benefits of doing a PCP over a straight loan + savings and I'm also a little confused about how I stand with insurance etc.

Any advice would (as always) be appreciated.

[Mike Wrightson]

I'm on PCP with my Fabia.

If you change your car regularly, say every 3 years or less, then I feel a PCP is a better way to go. Rather than financing the whole cost of the car, you effectively only finance the depreciation bit (actually a bit more, the plan is that you have equity left over to start a new PCP with). Monthly payments are cheaper and you stay under warranty, meaning you have no repair worries at all if something breaks.

Hint: Always over-estimate your annual mileage, it drives the Final Guaranteed Value down and you'll be better off at the end.

Since payments are cheaper, you can either save the difference or get a more expensive car for the same payment as your loan. It works best on smaller/cheaper cars, if you are going for one on an Octavia size car, pay close attention to that FGV and keep it low.

Insure as normal, you are the owner & registered keeper as far as insurance is concerned.

Edited 15 October, 2012 by Mike Wrightson

[gadgetman]

The biggest question is after the 3 years, what will you do with the car? If trade it, then PCP will help lower your payments thanks to the MGV ballon which you'll never have to pay, as you'll trade it against another.

However if you intend to keep it, then standard HP or a bank loan will be cheaper.

[Mike Wrightson]

However if you intend to keep it, then standard HP or a bank loan will be cheaper.

This.

If you want to keep the car 6 years (for example) then don't buy on PCP. It only works if you change after 3 years at most.

[Evening Star]

Some interesting advice there.

I do about 6-7,000 miles pa & I usually change every 3 years or thereabouts, so it looks like a PCP may well be the better deal for the next car.

I'm thinking that I might well have a 4x4 or SUV/Crossover this time, especially as we seem to be going through a phase of having more severe weather & winters at the moment; And as I live on the edge of the North Downs it's starting to become a real pain in the butt having a normal saloon car which gets stuck or can't go through any depth of water more than 3-4" deep.

[FUBAR]

Some interesting advice there.

I do about 6-7,000 miles pa & I usually change every 3 years or thereabouts, so it looks like a PCP may well be the better deal for the next car.

I'm thinking that I might well have a 4x4 or SUV/Crossover this time, especially as we seem to be going through a phase of having more severe weather & winters at the moment; And as I live on the edge of the North Downs it's starting to become a real pain in the butt having a normal saloon car which gets stuck or can't go through any depth of water more than 3-4" deep.

6-7000 miles pa. The Octy will last you forever at that rate stick with her and enjoy the extra cash in pocket?

[BossFox]

Just be aware that on a PCP (with is effectively a balloon deal) you pay more in finance charges.

This is because you pay interest on the whole amount of money you are not paying off for the whole of the agreement period.

On a loan or HP you are paying the capital off, so the actual amount you borrow over the time of the loan/HP deal is far lower.

The motor trade is very fond of PCP because it has brought a whole new band of customers that could not afford a new car before, which has helped sales. Plus as you don't own the car at the end you then either need to pay it off (usually by taking more finance out, so you pay for it over six years) or by buying another car.

I am not saying there is anything wrong with PCP deals, but the interest costs are higher than buying because they are more suited to the people that don't have the deposit to buy on a loan/HP. Or don't want to tie the money up from one car to the next, so pay more interest year after year.

Citigo example: (base model, Skoda deals)

HP

Car cost £7,630

Deposit £3,121.57

36 monthly payments of £139.00,

Acceptance Fee £125.00, Option to purchase fee on last payment £60.00.

Amount of credit £4,508.43

Total amount payable     £8,185.57

PCP

Car cost £7,630

Deposit £2,226.28

35 monthly payments of £75.00

Acceptance Fee £125.00, Option to purchase fee on last payment £60.00

Optional final payment £3,716.10

Amount of credit £5,403.72

Total amount payable     £8,677.38

So on the HP deal you pay £555.57 over the cost of the car in charges to buy and own it.

(7.3% of the value of the car)

On the PCP deal you pay £1,047.38 over the cost of the car in charges to buy and own it

(13.7% of the value of the car)

Or you hand it back having paid £987.38 in costs and interest and use the car as deposit for the next one.

The key thing about a PCP to me is that it helps you buy (or rather, rent) a car you couldn't afford to buy on a loan or HP, because the deposit is smaller and the monthly repayments are lower. But once you get into the habit of renewing your car every three years you are giving a nice slice of money to the finance company until the end of time...

Hope some of this makes sense.

In my view if you have the money buy the car. Even if you trade in every three years.

Because you pay less in interest.

I see people say a PCP is better if you regularly trade the car in, but it's not possible if you are paying noticably more in finance costs unless a car previously on a PCP deal is worth more than one that's on HP... It's only worth it if you can't tie the money up and are willing to pay more in charges.

Hope this helps, took longer to write than I was planning.

[Jabozuma]

There is no "good deal" out there when you are borrowing money. We were groomed by financial institutions into thinking that saving is bad and borrowing is good - life is short, live it to the full!

We can all see where this thinking got us...

PCP, HP, any other loan is only good when you can write the cost of it form you profits - buy it for a LTD company or such like.

For personal use, whether you want to keep it or sell it within warranty period the above doesn't make sense financially as BossFox totted it up for us above. The money you pay to finance those loans would buy you a cheap banger and if you saved the amount of your monthly repayments you will be able to get a brand new car for cash in shorter time than it takes for the loan to be paid off.

All that talk about not being able to afford to have the money tied in... please show me ANY GUARANTEED investment opportunity providing you returns equal to current loan APRs? The best investment a person can make in the current financial climate is t pay off their mortgage and loans as fast as possible. this way you will be "earning" the biggest "returns".

This obviously doesn't apply to businesses where money is needed grow it or manufacture.

Again all of the above goes out of the window if you simple want a new car period . Then steer clear from any finance deals offered by dealers and do 0% credit card transfer money shifting thang. Not suitable for all as requires patience to read all the small print, knowledge to understand it and iron clad discipline of repayments and taking up new 0% deals were the time comes in order to avoid 39% APRs .

DISCLAIMER:

None of the above constitutes in any way or shape any kind of financial or legal advice and should not be acted upon in any circumstances. Those are just idle musings of the poster. Independet advice should ALWAYS be sought before signing on the dotted line regarding any kind of financial product! The poster does not take any responsibility for the above post in any shape or form.

P.S. I am always rather skittish about posting any kind of words regarding legal or financial subjects... Sry!

[cheezemonkhai]

If you're changing it every 2 to 3 years and you're a business, you'd just rent one anyway rather than try a PCP deal, as there are so many extra costs all over the place. You can also rent for a lot less than you can buy through finance.

[BossFox]

If you're changing it every 2 to 3 years and you're a business, you'd just rent one anyway rather than try a PCP deal, as there are so many extra costs all over the place. You can also rent for a lot less than you can buy through finance.

I get the impresion the OP is not a business.

As a business I still buy on HP for various reasons.

[MattyD]

Have a look around, a lot of car manufacturers are doing 0% PCP's now. We (Toyota) are and there aren't any finance charges at all so no acceptane fees or option to purchase fees so they work out cheap.

[MattyD]

Citigo example: (base model, Skoda deals)

HP

Car cost £7,630

Deposit £3,121.57

36 monthly payments of £139.00,

Acceptance Fee £125.00, Option to purchase fee on last payment £60.00.

Amount of credit £4,508.43

Total amount payable     £8,185.57

PCP

Car cost £7,630

Deposit £2,226.28

35 monthly payments of £75.00

Acceptance Fee £125.00, Option to purchase fee on last payment £60.00

Optional final payment £3,716.10

Amount of credit £5,403.72

Total amount payable     £8,677.38

So on the HP deal you pay £555.57 over the cost of the car in charges to buy and own it.

(7.3% of the value of the car)

On the PCP deal you pay £1,047.38 over the cost of the car in charges to buy and own it

(13.7% of the value of the car)

Or you hand it back having paid £987.38 in costs and interest and use the car as deposit for the next one.

Don't forget tho, you'll be a lot better off financially every month on a PCP.

You put £895 less as a deposit down at the start, plus you save £64 every month over 35 months which is a total of £2240. All adds up, it's swings and roundabouts really.

[Evening Star]

I should have pointed out that I am looking to "buy" as an individual.

The reason I'm having to look at PCPs now is the fact that new cars are so expensive and my mileage is really quite low at the moment, so I was thinking that the PCP is probably the best way to go.

Also I'm not a home owner so the maximum unsecured loan I can usually get/afford is £15k, without resorting to crippling by high monthly repayments, especially if I want something like a Yeti or even a vRS!

[BossFox]

Don't forget tho, you'll be a lot better off financially every month on a PCP.

You put £895 less as a deposit down at the start, plus you save £64 every month over 35 months which is a total of £2240. All adds up, it's swings and roundabouts really.

It's only swings and roundabouts if you can't afford the higher repayments and deposit on HP.

Because if you can you are finacially better off long term.

With HP or a loan you pay more, but during the course of the agreement are actualy building up capital in the asset, so you could argue that gives you a stronger position in the future as in future the charges are less. You'll have a car to part ex next time so the payments wil be lower.

PCP are a great example of the current climate of borrow with no thought for the future.

You never actually have any assets or equity, you are paying higher costs rather than buying a car you can afford.

The culture is one where you swap the asset in every three years and keep paying through the nose, keeping the finance companies in profit while you own nothing.

IMO.

[MattyD]

You don't always pay through the nose for them. As its been said before, you can get a more expensive car for less a month on a PCP, and some manufacturers do 0% PCP's without any fees. Sometimes a PCP works for someone, sometimes it doesn't. It's the same argument in renting a house and buying one, your always better buying a house instead of renting one as in 25 years you own it and have all the equity in your house as yours, but not everyone can afford it. A PCP is just another way of buying a car, they are mainly designed for people who want to change their car every 3 years, don't want to be without a warranty, don't have loads of money as a deposit and only want to spend as little money as possible every month. My best advice with a PCP is don't put a massive massive deposit into your agreement, as you need the same level of deposit in 3 years into your next agreement to be in the same position

[dogdiego]

If it appreciates, buy it. If it depreciates, lease it.

[Jabozuma]

That is the name of the game, pressure form everywhere to borrow, borrow, borrow as there was no tomorow (unintentional rhyming ).

First of all part exchange looses you money, especially if it is a 3-year old car with main dealer full service history. That is obvious.

Then you will get whacked with all the admin fees and APRs.

There is no such thing as free lunch. They have to make their cut and they will one way or another otherwise they will not be able to function as a commercial business, simples.

PCP is designed to lock a customer in to a viscious circle of making money for the financial institutions and dealerships without owning anything ever.

Have you thought about shifting money using 0% balance cedit cards? Fees are there too so may work out to be not such a good idea.

@siha - only good art and classic cars increase in value, everything else goes down. Do you work for a financing company by any chance ? .

That is the problem these days, have new things all the time, whether you need them or not. Completley unsustainable from whatever point of view you would like to look at it.

[dogdiego]

Property goes up. It may have its peaks and troughs but generally you're never going to lose out as long as you can genuinely afford it in the first place.

I don't work in finance! But I'm on a PCP and it works for me. It's trouble free motoring. Tax, fuel and insurance is all I have to add. If it affords me the opportunity to change every 3 years then so be it. I'm not saying that's not possible with other forms of finance but it's convenient and I think that's why it's popular.

With all ways of buying a car there are ultimately pro's and con's. What works for my family, might not work for the family next door.

I think we should be grateful in some respects we've got the options afforded to us to purchase/lease new cars.

[jlwah]

I (we) have used PCP's and their business equavalent (Finance Lease) since 1996 and have generally done ok out of them.

Firstly, we have always sold the cars at the end of the deal (or in the case of a Scenic some while back, kept it as it had a £0 balloon at the end!) and because they've all been looked after we usually got our deposit back and sometimes a bit more (occasionally quite a bit more and we're expecting to do pretty well out of the Yeti soon).

Remember that if you increase the mileage for the quote, then the monthly payments will go up and the final value will go down.

DON'T hand the car back, particularly if you've gone over the mileage as they charge for excess mileage and can also claim for damage to vehicle as well.

Secondly, always choose a car with half an eye on resale time. e.g. pick something that the used market is likely to like (diesels and diesel estates - good, big petrol engines, funny colours - bad, etc.). Also take care with optional extras, some are necessary (leather for a convertible, nice metallic paint for example) but a lot aren't and basically have no residual value (e.g. the cost will be divided over the number of months of the PCP and added to the monthly payment). Having just said that, we are adding £5.5K's worth of extras to our next car, so I don't always practice what I preach!!

Thirdly, bargain hard! Use as many dealers and on-line brokers as you can, as the differences in price are huge and it could be the difference between you getting no deposit back at the end or making over and above your original deposit.

Good luck!

[Mercurio]

I bought my Octavia vRS on PCP and eventually replaced it with a Superb on the 0% HP over two years deal. Each time I got quotes for both PCP and HP finance and also considered non-dealer finance in form of a personal loan and picked the option that worked best for me at the time.

In 2007 the APR on the PCP deal was lower than for HP or a bank loan, and only the PCP deal also came with three years free servicing. The PCP monthly payment was more affordable and I liked having the option to change after three years. In the end I loved the vRS so much that I wanted to keep it and couldn't see the point of paying more depreciation on a like for like replacement, so I bought the car for the MGV and then enjoyed almost two years of low cost motoring - the MGV in May 2010 was £7,400 and I sold the car privately in February this year for £6,300.

That, plus the money I'd saved since 2010 while not having to make monthly finance payments, was just enough to raise the 50% deposit on the Superb needed to qualify for the 0% HP deal and save around £2k of interest that I'd have paid on a three year PCP. The opportunity to own the car outright after two years and still have a year's warranty left was a big incentive to take on a higher monthly payment.

So, in summary HP likely to be a better deal if you can afford the monthly payments, but PCP worked for me in 2007 - and you don't have to get locked into changing cars every three years.

[slider]

Did a PCP with the last car but this one is on a private lease.

The ballon payment on the PCP meant that I never "owned" and equity in the car anyway so not much different that the lease really. Just depand which result in the better deal at the time.

[Aspman]

I bought my VRS on PCP because the rate was low. Mileage limit didn't apply because I bought the car at the end of the term.

Probably wouldn't do it again I'd just get a personal loan from the start if the finance offered was rubbish.

[Jockdooshbag]

I got good advice from Skoda when i bought mine. They offered me various options and explained them all very clearly. I picked a PCP deal in the end as it suits my current circumstances. There was no hard sell and in the end i didnt pick the finace deal that had the least amount of interest payments. The reason there are different deals and types of finance is becuase everyone is different. Speak to the dealer and they can advise you better than anyone on here. Some dealers will try and rip you off and vear you in one direction i would imagine but this was not my experience with skoda. I was very happy with the advice i got and the deal i have chosen.

[silver1011]

Driving along in my 2007 vRS Octavia I often wondered how everyone was able to afford their nice new shiny cars.

I just can't get my head around how anyone would have upward of £20K sat in their bank to buy a car with.

Looking at the amount of members in this thread alone on PCP's now I know!

['daiking']

Driving along in my 2007 vRS Octavia I often wondered how everyone was able to afford their nice new shiny cars.

I just can't get my head around how anyone would have upward of £20K sat in their bank to buy a car with.

Looking at the amount of members in this thread alone on PCP's now I know!

My dichotomy here is there's no way I'd spend that much on a car if it were sat in the bank (unless it were in extreme multiples)