Hi

I'm itching for a change of car and historically have either funded this through cash (if the balance to change is reasonable) or via hire purchase.

Every dealer I talk to wants me to go down the PCP route and I can see their point to a degree but I'm struggling to take the plunge as I won't own the car at the end of the term.

I've tried to do a comparison of PCP vs HP - but go round in circles. I guess the finances are different for everybody but I don't want to break the bank at this time given the financial uncertainty.

The dealers always want to know what you're prepared to spend but I never want to reveal this, albeit I'm looking at £200 per month, or there abouts. What could I get for that money on PCP?

Skoda finance is 7.9% at the mo and for the money I could borrow via a personal loan it's 5%. Do Skoda have any flexibility in the APR?

I have a Roomster (valued at around £5k for part-ex) and am looking at FL Octavia (not keen on the new one), something like an ex-demo 2L CR estate.

Help guys and girls, what's gonna be the best way to get into one?

Thanks in advance.

Chubbs

I'm also considering a new car, possibly on a PCP deal.

What's people's experiences at the end of the term?

I remember when they started being offered it was suggested that the guaranteed final value was a cautious estimate so that there was likely to be some equity that could be used as deposit to the next car. Does this actually work in practice, and is there any scope for negotiation of the value at trade in time?

I've recently traded from a Fabia to a Citigo. Fabia was bought on PCP and I ended up with nearly £2000 equity from the trade-in value. Much better than I thought it was going to be. You can still negotiate the costs of the new car as normal. I just look to get the "cost to change" down to what I like and the dealer can take it from wherever he likes.

They do work, but choose carefully. Ideally you want to have a car that holds its value well to have it work the best. As an example, my sister had a Hyundai i20. Nice enough car, and cost about the same as my Fabia. Same horsepower, similar spec etc. On the same valuation site, hers was worth nearly £1500 less than mine at the same age! She now has a Citigo and can't believe how much better it is)

It depends how long you want to keep the car. If you want to keep the new car for 5 years, then don't buy it on PCP as it's more expensive than HP at the end of it all (unless you can save extra cash to pay the final payment off in one go). If you would be trading the car in after 3 years anyway, then PCP will work (this is what it's designed for) and makes the monthly payments more affordable.

Thanks for the reply. I understand if you choose to hand the vehicle back after the term then you lose any equity, is that correct? Do Skoda do different terms as opposed to the 36 months/3 years?

Yes, that's correct. If you just hand the vehicle back, the contract ends. You will have nothing to pay (unless you are over agreed mileage or condition is poor) but you do not get any money back either. Handing back the keys is the worst of the three options unless you don't want another car.

Best option is trading in. Here's another hint to maximise your equity - ALWAYS over-estimate your annual mileage. This pushes the final value down, then when you take back a car with a lot less mileage on it, it will be worth more I'll probably do between 6k and 8k miles per year, but my PCP is on 10k miles.

When you trade in you can buy the next car on HP if you want, or even buy it outright with cash and you'll still get the equity. You don't have to take another PCP.

Most PCP will be over 36 months, but you can do 24 months too and sometimes 40 months. Skoda also tend to throw in 3 years free servicing too, which can be a good saving for you. It'll be saving me at least £300.

Do your homework about how much the car you want would be worth at 3 years old and with the mileage you expect to do. Compare that against the final payment, you want to see a decent gap between the two.

Personally I am very anti-PCP.

Unless it really is on a great rate and suits you it's all stacked in the favour of the dealer. No wonder they like it.

You have this big lump of capital that you never pay off (balloon or future value) and so pay the interest on it for the whole term as you are not reducing it like on a HP deal where you reduce the capital owed over the term.

Yes, because you are not paying it off the monthly payments are less, but the finance charges are typicaly higher.

It is a good way to drive a car you can't afford to buy.

As long as you realise that after paying for the car over three years (or whatever the term is) you'll only have a minimal deposit to buy something else.

So you are in a good position to get one PCP after another and the amount you pay in finance charges add up and up and up...

That's why I am not a fan.

But the car companies/finance departments like them. Which is why the dealers get a back hander for selling you a car like that.

You'll always be offered bottom book for the car at the end of the 3yr too,

I did do this for my VRS but the rate was 5% and better than I could get from a bank. It's the other way round now so I'm not so sure.

Do you really want to own it, or at the end will you simply be trading in for another car?

You'll always be offered bottom book for the car at the end of the 3yr too,

I wasn't. Was pretty much top book for mine!

The other obvious downside to a PCP is being tied to a manufacturer - how sure are you they will sell what you want in 3 years? If you have the money to spare you can always pay the car off then trade it in against something else but that won't be available to everyone.

Anything I spend £22-25k on, I'd probably want to keep for 5 years but a PCP would mean I could keep a nice chunk of cash in my bank for three years rather than tying it up in a car.

You'd need to be doing something far more interesting that keeping the money in the bank Dr Zoidberg.

Otherwise the interest would be far lower than the finance charges, meaning you are worse off.

It' not unusual to see charges for the whole deal around 20%+ of the car value...

Under those terms tying the money up in the car could be a good, if you don't have profitable plans for it.

Looks like you'd be better of in the long run getting your own loan at a lower rate than SUK offer as you end up buying the car outright. Having a PCP will as Bossfox says get you in an endless loop it's then difficult to get out of unless your circumstances change significantly for the better.

It's bad enough paying interest on a car that looses value throughout the loan period, having 'nothing' at the end would not appeal to me. Buying it with a loan gives you more flexability at the end of the agreement as you then own the car, so don't have to stump up a lump sum to keep it or take on another PCP if you want to change it.

Not my cup of tea but I understand some would dissagree as a PCP fits in with their other commitments

I had the PCP conversation with an Audi guy at Docklands, London littleade.

Having been asked if I wanted a PCP and giving a frank response he told me they were very good for business.

They allow people to buy a car they can't afford to buy or afford the monthly payments for a loan.

So they get smaller payments, driver a better car than they can afford (status symbol effect?) and have little to show for it at the end, meaning they downsize to a worse car or start all over again...

The dealer incentive is apparenty quite good too.

Yes, some people like them. But you can't say they are good financial planning IMO as you move the problem of paying for the car three years down the line, or run the risk of getting caught in the trap. In the meantime you are paying for the depreciation on a new car (known to shed value) plus finance charges.

Have to agree with BF.

I recently bought my S4 after a lengthy conversation with the sales guy at Audi. Initially he gave the spiel regarding PCP's and how I could have this car for a fantastically low monthly payment.

I asked if we could compare the actual total amounts payable should I wish to own the car at the end of the term.

After a few minutes of fag packet maths, he put them to one side and said PCP was not for me and we should concentrate on a HP / cash deal.

I still bought the car, but PCP's are a very expensive way to buy a car, and only really good for keeping monthly payments low.

You'd need to be doing something far more interesting that keeping the money in the bank Dr Zoidberg.

Otherwise the interest would be far lower than the finance charges, meaning you are worse off.

One example I'd looked at would have meant financing about £21k on a £25k car, with a 4.9% apr and £10k GFV, so an extra couple ok thousand in Internet charges over three years.

That's about twice the interest rate I'd get on the £10k sat in a standard savings account, but there's also a £1k manufacturers contribution towards the car which helps balance things out. Plus, being able to keep more money in my savings as a safety net has some value for me too.

I'm still nowhere near a decision and would look at all the figures carefully beforehand and also have the option of a company car should I choose. Not quite as cost effective, but no debt.

I still bought the car, but PCP's are a very expensive way to buy a car, and only really good for keeping monthly payments low.

Yes, if you want to buy the car outright and not just trade in after 3 years, PCP's are not the way to go.

Just run one on the web site below, for Octavia Estate 1.4tsi SE

First Payment of: PCP £458.36 HP £504.69

46 Payments of: PCP £273.36 HP £319.69

Final Payment of: PCP £3,715.05 HP £468.69

So for £46ish a month the car is paid for, no restriction on milage and no worry about any car park rash picked up along the way, a personnal loan will reduce (I would think) the interest rate, Admin fee, Option fee's and all the other ripoff crap they think up these days.

http://www.newcar4me.com/New_Car_PCP-SKODA-OCTAVIA_42088.html

Now I know £46 a month makes a lot of difference to some (me included) but quite frankly I would rather settle for an S spec on a bank loan than an SE on PCP.

Another advantage of bank loan, if you have the missfortune to end up out of a job, you can hang on to the car for a while giving the option of commuting as the loan is not attached to the car (that I am aware of at least).

My 2p worth, for what it's worth.

I totally understand the appeal of a bank loan rather than tying yourself to a manufacturer - that's how I bought my last three cars - but it's not always straightforward and you do need to really look at the sums in detail.

On that example (Mk2 rather than Mk3 by the way), you end up paying just over £1000 more to buy on PCP than straight HP, and we can assume that a bank loan would be similar to the HP figures.

If you buy on the manufacturers finance you'll normally get an extra discount - £500 at the mo on a Mk3 plus three years servicing which is worth that much as well if not more.

That more than covers the extra interest charges plus you potentially get to keep £3k in your bank account for 4 years which might earn you another £250 even at today's crappy interest rates.

Yes, if you want to buy the car outright and not just trade in after 3 years, PCP's are not the way to go.

TBH that was not my point. The point I was trying to make was the actual cost of the PCP is hidden in the fact you never own the car.

I would have been happy to go the PCP route if the overall cost of ownership over thr term had not been so high.

I forget the actual numbers now, but it ran into several thousand more to go PCP.

I do trade my car every 2-3 years and PCP is definitely not cheaper, it just gives you lower monthly payments if you have no (or little) equity in the deal.

If you buy on the manufacturers finance you'll normally get an extra discount - £500 at the mo on a Mk3 plus three years servicing which is worth that much as well if not more.

That more than covers the extra interest charges plus you potentially get to keep £3k in your bank account for 4 years which might earn you another £250 even at today's crappy interest rates.

Thats why many, including myself, buy a car on the manufacturers (or dealers) HP to get the deals on free servicing etc, and then pay it off immediately.

Its a win - win, and usually the cheapest overall way to buy a car.

I had the PCP conversation with an Audi guy at Docklands, London littleade.

Having been asked if I wanted a PCP and giving a frank response he told me they were very good for business.

They allow people to buy a car they can't afford to buy or afford the monthly payments for a loan.

So they get smaller payments, driver a better car than they can afford (status symbol effect?) and have little to show for it at the end, meaning they downsize to a worse car or start all over again...

The dealer incentive is apparenty quite good too.

Yes, some people like them. But you can't say they are good financial planning IMO as you move the problem of paying for the car three years down the line, or run the risk of getting caught in the trap. In the meantime you are paying for the depreciation on a new car (known to shed value) plus finance charges.

As ever Richard a very comprehensive and knowledgeable reply ( which I totally agree with) I have a friend that fell into the PCP trap with a citreon picasso. His wife went over the mileage allowance too and it cost him a fortune at the end of the 3 years, but by then it was too late- he was trapped, with the only way out for him being another PCP. The dealer wins as he sells a car and benefits from the financial reward he gets for arranging the PCP, not unlike paint treatments and gap insurance as they try and make money on the sale to offset the small return they get on the actual sale of the car itself. Just business as far as they are concerned?

Cheers

Ade

Interesting thread. I've bought my 12 plate vrs on a pcp for the main reason that the monthly payments are low, as I want to use the improved cashflow to reduce other debt faster. I've also underestimated the annual mileage, but I'll buy the car outright and run it until the wheels fall off so the discrepancy between the fgmv and actual value is slightly less critical. Or so the theory should go.....

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Dr Z.

Forgot to say NC4ME was just an easy side by side example.

Excuse my ignorance on this one, but in that example are you not paying £1000 more on the deal, and still end up owing the final £3,715.05 on top, that's the way I read it, may well be missing something though, maths was never a strong point.

And on keeping you’re money the bank; do's a bank loan not do much the same thing?

Many thanks to all those who replied - As ever you've come up trumps and from what I've read so far I've made my decision - I will NOT be going down the PCP route.

Is it possible to negotiate the with the dealers on their APR (typically 7.9%) and what figures have been achieved?

Regards

Chubbs

Many thanks to all those who replied - As ever you've come up trumps and from what I've read so far I've made my decision - I will NOT be going down the PCP route.

Is it possible to negotiate the with the dealers on their APR (typically 7.9%) and what figures have been achieved?

Regards

Chubbs

Yes, everything is negotiable. I managed to reduce my rate from an eye watering 12.5% to 7.9%. I suspect they had raised the APR after I had battered them down on the actual cost of the car.

I wasn't too concerned as I knew I would be paying off early, but needed to keep it low just in case something happened financially after the deal had been done.

I spoke directly to the finance manager and he reduced the rate after I raised my concerns at such a high rate.

One other point is to ensure the set up fee and final payment fee are included in the APR calculation. Some are and some aren't.

I personally would get the best deal on the table before mentioning the finance rate, then you know any reductions are genuine, and they are not just massaging the figures in the deal to give you a better rate.