I always work out what the total cost of the car will be. if you pay cash then it's simple, although you wont make even the paltry amounts of interest our banks give us if you had kept most of your money in a savings account and taken a super low rate loan.

 

HP loans are also dead straight forward and there are still some pretty cheap ones about if you have good credit rating. I would always work with the flat rate though, not the APR rate as this is a huge and complicated formulae to get to grips with. It also shows different figures if you alter the length of the loan or the amount borrowed, even though the 'flat rate' stays the same. This is the reason the Wonga loans on telly have astronomic APR percentages advertised. even thought the actual (Flat rate) is much, much lower (it will still be high, but not of the order of tens of thousands of percentages) Big amounts borrowed over a long time, tend to bring the APR rate down to the Flat rate, eg your mortgage has similar percentage figures for APR and Flat rates. Small amounts and short terms of borrowing tend to make the APR figure go through the roof, even though the actual interest rate (Flat rate) is comparatively low. That might be a bit of an oversimplication, but the bottom line is to take a calculator and add together your deposit, the entire monthly payments and 'Fees' that are added by the dealers finance company.

 

If a dealer says £10,000 for 3 years at 5% then the sum is simple. one way is to multiply the 5% by the 3 years and you get 15% (£1,500) add the figures together = £11,500 divide by the 3 years in months (36) and you get £319.44 a month repayment (plus a little for those damned fees they always add). The advantage with HP is you get the rule of halves and thirds I mentioned earlier and in theory can hand the car back to the finance house if you have paid off half of it and want shot and hence stop making any further payments. Only you can deicide if the loan is worth it though as you will have access to your banks savings interest rates and can compare which is the better option.

 

PCP is great IF  there is an incentive to take it. Again you have to look as to what is on offer. You then can simply add up the deposit you wish to pay ( it can often be very low with a PCP) multiply out the monthly payments and finally add the balloon payment (if you intend to keep the car). the money you have saved by keeping the balloon part and the monthly payment amounts, in your own bank account, will have accrued a little interest along the way too. But the only way to work out if this is cheaper is to see how much incentive there is to take the PCP. Again you have the rule of halves and thirds and you are in no way tied to the manufacturer of the car you just bought. I sometimes take my car to a dealer and ask him if he would like to buy the car for stock. Haggle a bit to get the price above what I still owe and get a cheque for the balance. I then use this fro a deposit on my next car

 

Two things to remember about PCPs, is if you take a 3 year PCP out, then for every adjustment of £1,000 you make to the car over or under the base price or example quoted to you, then you add or subtract £30 a month to your payments. So if you increase your deposit by say £2,000, then the monthly payments come down by very close to £60 etc (it really does work like this too, for most cars and prices)

 

The other thing to remember is the incentive often comes from eh manufacture and the dealer combined. If you can find out who is paying what, then you can guess how much money is still left in the 'metal' of the car and haggle on that

 

Sorry I can't be more specific, but the best way is still to let the saleperson go through all the options, haggle and 'NEVER speak first' when the figures are first shown to you. He/she that speaks first - loses. The salesstaff usually have an automatic discretion of around 7% to offer you a discount and if you want more, they may well have to check with their boss, who will have an idea as to how much he can make from hitting his targets. Also you can always haggle on any form of loan/HP/PCP. I often take out GAP, but offer around half the money they want for it as that will cover the base cost of the policy, but the dealer will probably get a small backhand for selling the product anyway.

 

Finally can I just remind people that if the dealer does you a great price on a loan and car, if you pay off the loan really quickly, then the money the dealer makes from the finance company is taken back (often called 'Clawback'). So bare in mind that if the dealer has used this mechanism to get some incentive from a finance house in order to get you the car for the figures you want, you will be stitching him right up, by quick repayment. Check with the dealer first (they will be fine about it) and you will probably find the dealer will ask you not to repay the loan for at least 3 months. After all the dealer has to make a living

Amanda

 

You are a star 

 

Your post is the sort of simple, helpful information that every one should have access to before going into a PCP arrangement.

 

Thank You,

 

i will be re reading this before i change my car later this year & come to make a decision whether to PCP or not to PCP.

I always work out what the total cost of the car will be.

 

Surely that is the key point in any car purchase.

 

I don't change cars very often (usually keep them for ten years or more) so they generally have little inherent value at the end.  However, when I do change them I always look at the total cost and that's why PCP's don;t add up for me.

 

Prime example is when we purchased the Fabia.  We were offerred differnt deals - one with a higher trade in value and lower monthly payments but that worked out more expensive overall than another with a lower trade in value and then a third that was a PCP but that would have entailed a balloon payment at the end that was even more expensive - all were from the same dealer and varied because of the way the figures worked, what finance options were available and dealer margins etc.

 

We took the one that cost us least overall, despite that meaning that we only got a few hundred quid as trade in, as we didn't get hung up about what our old car was worth and wouldn;t be changing for many years.

 

Others may have done something different though if they prefer regular new cars...   which, with a PCP, then locks you in to constant monthly payments...

Surely that is the key point in any purchase.

 

Fixed that for you.

 

If something is £6000 I'll save until i have £6000 and buy it.

Not take it now, pay for it gradually and end up paying £7000 for the same thing.

Does the extra time i have the thing make it worth the extra money? doubt it.

 

In my opinion if it costs £6000 and i don't have £6000 then well that means I can't afford it so I can't have it.

 

That said i've was more than happy to dip into the 0% interest bank of mum & dad for a short term loan when we bought the black Fabia.

But only because the car was available and I wasn't finished saving. I had the debt repayed within a few months.

Perhaps I wasn't totally clear in my meaning. I know of many people who just look at the monthly payments and use this to gauge if they can afford the car. By doing the big sum (adding everything up) you can easily compare differently structured deals on the same vehicle and work out which is best. For instance, we've already had a poster on here saying if he didn't get 0% interest then he wouldn't buy a car. But a PCP may still have a larger than 0% interest, but will be cheaper in the long run, even with the balloon payment (assuming you want to keep the car). hence I always work out the total cost of the car and try to factor in, that if I had the money to purchase a car in one go, would it still be cheaper to take advantage of a dealers finance options.

 

So it isn't as silly as it might sound. My current car is a lot cheaper on a PCP than if I had bought it outright with my own money. The huge savings I made more than offset the total purchase price of the car (so you could almost describe my deal as having a negative % interest ). Plus if you assume I had the money to start with (and only spent the deposit money up front), it would not only accrue a little interest, but would be sitting in an account in case of an emergency whilst the PCP was running.

 

PCPs don't always work out like this and often don't. But this is why you should keep an eye on the deals in the press, be flexible about your car choice and use the £1,000 price adjustment = about £30 a month difference to the payments to get an idea as to what is affordable. I originally wanted a 330D BMW. but at the time, an identically specced car to my 350CDi would have cost my £250 a month more than the Mercedes deal I got. Perhaps the 330D is a slightly better car to drive, but it isn't £250 a month better. And the truth is I am not paying that much more for the Merc, than I was paying for my old Octavia!

Fixed that for you.

 

If something is £6000 I'll save until i have £6000 and buy it.

Not take it now, pay for it gradually and end up paying £7000 for the same thing.

Does the extra time i have the thing make it worth the extra money? doubt it.

 

In my opinion if it costs £6000 and i don't have £6000 then well that means I can't afford it so I can't have it.

 

That said i've was more than happy to dip into the 0% interest bank of mum & dad for a short term loan when we bought the black Fabia.

But only because the car was available and I wasn't finished saving. I had the debt repayed within a few months.

As I said above, don't forget you can on occasion get a car cheaper using finance than you can if you pay up front. Just put the £6,000 you mention to one side and pay for the car via finance (assuming you find a good deal) so your £6,000 lump is still dwindling, but you not only save money, but also have the peace of mind of the 1/2 and 1/3s and also you have an emergency nest egg that is making some -small amount- of interest .

 

 

Others may have done something different though if they prefer regular new cars...   which, with a PCP, then locks you in to constant monthly payments...

Most people who buy new cars, do so with at least a partial loan. That may come from a bank or even mum and dad.

 

It is important to note that PCPs on secondhand vehicles almost never work out in favour of the buyer. The best deals and hence the only ones that really work or on new cars.

Sorry Amanda run that one by me again - as i said above i've never bought ANYTHING on finance (other than my DFS sofa on 4 years 0%) so am struggling to understand it.

 

 

My current car is a lot cheaper on a PCP than if I had bought it outright with my own money. The huge savings I made more than offset the total purchase price of the car

 

so - again plucking numbers from thin air

say the car you want is £15000 OTR drive away today.

you have that money but rather than paying in full you lay down £5000 and manage to get a deal where the total of your 3 or 5 years worth of monthly payments plus the final balloon payment is less than the £10,000 you'd have had to spend as cash?

Sorry Amanda run that one by me again - as i said above i've never bought ANYTHING on finance (other than my DFS sofa on 4 years 0%) so am struggling to understand it.

so - again plucking numbers from thin air

say the car you want is £15000 OTR drive away today.

you have that money but rather than paying in full you lay down £5000 and manage to get a deal where the total of your 3 or 5 years worth of monthly payments plus the final balloon payment is less than the £10,000 you'd have had to spend as cash?

No she's saying that the PCP money she's paying is less than depreciation on the car if she bought outright.

£40k car, no deposit £350 per month for 3 years, hand car back - cost £12,600

£40k car, buy outright for £40k, drive for 3 years, sell for £25k - cost £15,000

And that's without the funny money which is the difference between GFV and value at trade-in although she did herself say she expected there to be nowt in it this time.

Edited 30 January, 201412 yr by 'daiking'

Sorry Amanda run that one by me again - as i said above i've never bought ANYTHING on finance (other than my DFS sofa on 4 years 0%) so am struggling to understand it.

so - again plucking numbers from thin air

say the car you want is £15000 OTR drive away today.

you have that money but rather than paying in full you lay down £5000 and manage to get a deal where the total of your 3 or 5 years worth of monthly payments plus the final balloon payment is less than the £10,000 you'd have had to spend as cash?

Don't think of PCP as 'buying a car'. Its not, its paying for a service for a fixed period of time and having the option to buy the car at the end.

Edited 30 January, 201412 yr by 'daiking'

I did kind of think that PCP was just a kind of extended hire/lease rather than a loan or finance solution to replace a short fall in outright purchase price.

I guess it does all hinge on giving the car back at the end of the agreement and swapping it for another new one on another agreement.

 

Hmmmm much to mull over.

 

so - again plucking numbers from thin air

say the car you want is £15000 OTR drive away today.

you have that money but rather than paying in full you lay down £5000 and manage to get a deal where the total of your 3 or 5 years worth of monthly payments plus the final balloon payment is less than the £10,000 you'd have had to spend as cash?

essentially yes

 

You have to look for the deals, they wont appear on a new model, but often appear after a year or two into the life cycle of the model (unless demand outstrips supply) and as I said, you have to be prepared to be flexible in your choice. I wanted a big engine diesel that was pretty quick and had lots of toys. I wanted the BMW, but the Merc was much much cheaper on a PCP. Probably because the new model BMW was always going to sell well initially and the C Class had just gone through a face lift, so Merc wanted to get things moving. I drove both cars and with a sensible choice of spec (the adjustable dampers are very nice) I have a car that is as quick, handles almost as well and at least to me, seems to be a nicer place to sit than the BMW. I saved a huge amount of money in making a very small compromise.

 

With a PCP, assuming you have all the money already saved up, you can put down a small deposit if you want and usually the dealer doesn't want you to put more than a third down anyway. This means even using your figures you have £10,000 in the bank. Now obviously that amount comes down as you make the payments, but you could leave the money in your account and use it towards an offset mortgage for instance, which is a useful way to make you money work. Ok, so you eventually come to the balloon, so lets say you have to pay the final £5,000. Now you have a choice.

 

Hand the car back. A good choice if the car is in negative equity. ie like my example with my Toledo

 

Keep the car. Great if you like it and you think it is worth the final payment

 

Trade the car in for a different car and not necessarily the same manufacturer (not necessarily new either). A good move if the car is worth more than the outstanding £5,000 as you get the difference to put towards a deposit perhaps.

 

Sell the car. Effectively what I have done a couple of times. When I bought my Audi, I took the BMW I had to a few dealers and asked them if they would like the car for stock. It was under 3 years old, in good condition and was a nice spec. They bid me, I haggled and eventually they settled my finance and gave me the difference (in that case there was about £!,500). You can still sell the car privately if you wish, but you have to pay the outstanding finance off first.

 

 

In fact my BMW was a good example of how a PCP can be better than cash up front. The car cost around £30,000. With haggling and the big incentive BMW had on the time, I got the car discounted by around £7.500.......but this was on proviso I took out the PCP. Luckily they had a very low interest rate on as part of the promotion. The incentive BMW gave me towards the PCP was much more than the interest on that loan would have cost me. So (and this is only a rough approximation as it was several years ago) I got the car for £22,500 but had to pay some interest as I was using the PCP. Lets say it was about £2,500 of interest. So the car was £25,000 in total (if I made the final payment). Although in this case I sold the car and made £1,500 in equity, so the car cost £23,500 minus the outstanding balloon payment and any monthly repayments I had to make still. that's still better than if I had bought the car cash as I wouldn't have been able to haggle as much discount anyway.  Yes if I paid cash, I would still own the car and that does have an inherent value, but the figures still were in the favour of the PCP.

 

But as I say, you have to do the big sums, then also take a small punt that the car you have just bought isn't going to turn into an instant classic and be worth a small fortune when it's a few years old Although even then, you can still buy the car by paying the final payment and sell the car privately for a killing (I'm thinking of the legendary 2.0 petrol Fabia here ) Of course if the car's value bombs while you are paying for it, you can hand the car back at any time after the 50% point is made and walk away thinking yourself lucky

No she's saying that the PCP money she's paying is less than depreciation on the car if she bought outright.

£40k car, no deposit £350 per month for 3 years, hand car back - cost £12,600

£40k car, buy outright for £40k, drive for 3 years, sell for £25k - cost £15,000

And that's without the funny money which is the difference between GFV and value at trade-in although she did herself say she expected there to be nowt in it this time.

That's a much betterererer way of describing it

Thanks Amanda....but I think my brain has just melted

I'll stick to buying 10 year old second hand cars for cash

I did kind of think that PCP was just a kind of extended hire/lease rather than a loan or finance solution to replace a short fall in outright purchase price.

I guess it does all hinge on giving the car back at the end of the agreement and swapping it for another new one on another agreement.

 

Hmmmm much to mull over.

A PCP is just a form of HP agreement. That's why you get all the same safeguards, but with (hopefully) a lump thrown in at the front end.

 

The manufacturers like them because they not only sell a car every 3 years, give or take, but they also get a nice used car to put into stock.

 

Somewhere along the line they have factored all these costs into the base price of the vehicle, so only the big financial gurus at the manufactures will ever know what the true cost of your car should be if they didn't offer these PCP and HP incentives.

Thanks Amanda....but I think my brain has just melted

I'll stick to buying 10 year old second hand cars for cash

Daikings example is a simple and effective way of showing how a PCP can work. Think of it as a simple loan, that come in 3 parts. A deposit, monthly payments and a lump at the end (as opposed to the one behind the sales desk). Don't be frightened of it, just take you calculator or even go home after your visit to a dealer and then work out whether it's worth doing. It often isn't, but sometimes........

PCP seems to have been the kick start to the sales of cars in this country, specially with the prices of even the 'cheaper' models now not so cheap. Specially as mainland europe has not seen the same boom

 

As Amanda has said, she could not afford to buy a £40K Merc, but can afford 1 on PCP, & with that statement, it has pinged a light bulb in my head thinking about the numbers of 'premium' brand cars appearing on the road that are £40K + when we till have not fully come out of the recession.

The question about  how can the driver afford it - well PCP it is .

 

With the joyous announcement just after xmas about the boost in car sales, there will be an impact 2-3 years time  on 2nd hand values when all these cars hit the market - Is this another bubble ?

 

Might be worth a look at a premium brand on PCP before i get too old - Does anyone know if Lambourghini do PCP   

And that's without the funny money which is the difference between GFV and value at trade-in although she did herself say she expected there to be nowt in it this time.

That is especially true as my annual mileage is starting to go through the roof. Also looking at the secondhand prices of Mercs, they have dropped dramatically since the announcement of the new model coming this year. Still I have PCP protection for when I find the car is in negative equity, which I feel certain it will be (not including any excess millage either)

PCP seems to have been the kick start to the sales of cars in this country, specially with the prices of even the 'cheaper' models now not so cheap. Specially as mainland europe has not seen the same boom

 

As Amanda has said, she could not afford to buy a £40K Merc, but can afford 1 on PCP, & with that statement, it has pinged a light bulb in my head thinking about the numbers of 'premium' brand cars appearing on the road that are £40K + when we till have not fully come out of the recession.

The question about  how can the driver afford it - well PCP it is .

 

With the joyous announcement just after xmas about the boost in car sales, there will be an impact 2-3 years time  on 2nd hand values when all these cars hit the market - Is this another bubble ?

 

Might be worth a look at a premium brand on PCP before i get too old - Does anyone know if Lambourghini do PCP   

I still keep looking at the BMW PCPs, but although they are better, they don't have the huge lump thrown in at the front end, at least the really huge lump that I would need. Nope my next car I think, is going to be a Suzuki S Cross (on a PCP) and to start to save for my retirement

 

Unless Porsche can do me a 911 for a £2K deposit and £300 a month

The question about  how can the driver afford it - well PCP it is .

 

But isn't the truth, really they can't afford it?

Yes they can afford the £200 a month they're paynig but really they've only paid a deposit of X amount to allow them to hire at Y amount for 3 years, but at the end of that 3 years they aren't really any nearer owning the car?

But isn't the truth, really they can't afford it?

Yes they can afford the £200 a month they're paynig but really they've only paid a deposit of X amount to allow them to hire at Y amount for 3 years, but at the end of that 3 years they aren't really any nearer owning the car?

But there isn't any reason to own the car if you intend to change it every 2-4 years. I agree it's nice to own a thing, hence I have a mortgage, but even then, I couldn't afford to buy a house, so I had to borrow money. In fact, I reckon that buying cars is the most expensive thing anyone can ever do and by some margin. House prices always seem to tend upwards and cars values always drop (unless you are lucky). Come to think about it, all the wealthy people I know, use other peoples money to buy stuff.

Edited 30 January, 201412 yr by Lady Elanore

Too true. I guess there is no real advantage to owning a car these days.

 

If it's a choice between buying something pretty old and pretty leggy for £2000 and paying X amount to maintain it

or paying £2000 as a PCP deposit and potentially paying the same X amount per month for the privilege but servicing and stuff in included i guess it's no brainer.

 

I think the mileage restrictions would be a limiting factor for the Pasty's.

I'd prefer Mrs Pasty to have a nice new safe car to commute in but at around 17000 miles a year in commuting alone before we do any trips home to Cornwall or anywhere else we'd never be able to swing it.

 

I'm off for a lie down in a darkened room

Too true. I guess there is no real advantage to owning a car these days.

 

If it's a choice between buying something pretty old and pretty leggy for £2000 and paying X amount to maintain it

or paying £2000 as a PCP deposit and potentially paying the same X amount per month for the privilege but servicing and stuff in included i guess it's no brainer.

 

I think the mileage restrictions would be a limiting factor for the Pasty's.

I'd prefer Mrs Pasty to have a nice new safe car to commute in but at around 17000 miles a year in commuting alone before we do any trips home to Cornwall or anywhere else we'd never be able to swing it.

 

I'm off for a lie down in a darkened room

 

Perhaps you might get a PCP one day

 

Pasty Car Purchase ??

PCP seems to have been the kick start to the sales of cars in this country, specially with the prices of even the 'cheaper' models now not so cheap. Specially as mainland europe has not seen the same boom

As Amanda has said, she could not afford to buy a £40K Merc, but can afford 1 on PCP, & with that statement, it has pinged a light bulb in my head thinking about the numbers of 'premium' brand cars appearing on the road that are £40K + when we till have not fully come out of the recession.

The question about how can the driver afford it - well PCP it is .

With the joyous announcement just after xmas about the boost in car sales, there will be an impact 2-3 years time on 2nd hand values when all these cars hit the market - Is this another bubble ?

Might be worth a look at a premium brand on PCP before i get too old - Does anyone know if Lambourghini do PCP

Finance has its place but what I don't like about it when used for consumption is how it mentally dilutes the cost of things.

Paying X per month is easy and you get the empty buzz of instant gratification. Its much harder to save that amount over the same time and wait before getting whatever it is you want. And by then you've realised how hard it is to save, you can appreciate that the lump sum is worth more than just the money and you're more particular about what you spend it on.

Opening up credit to every man and his dog side steps that sort of behaviour which develops other problems in itself. But in this case there might be something to be said for you can only have finance if you don't need, I.e proven record of saving like in the old days.

Where PCP turbo-charges this mental dilution effect over traditional HP or a personal loan is that you're not paying the full price of the car. As described above you're only paying the worth of the car in its first few years, let's say 50% of the total price. So of course it looks like a cheap way to buy a new car and why it looks like you can afford a better car for the same repayment.

And of course the manufacturers cynically exploit this effect to get you through the door and promote affordability over anything else which is less transparent.

Im my case a PCP makes perfect sense as I have absolutely zero intention of buying the car after 3 years and given the potential clutch / gearbox problems of the citigo would be lunacy too!

 

As the price of cars rise (and the cost of maintaining / taxing older ones  rises too) most people cant aford to pay cash for new cars and a lot of us need a reliable car to get us to work so need a new car under warranty and cant wait 5+ years till we save up for one.

 

I think PCPs make perfect sense when you dont buy the car at the end of it, maybe its Britains victorian values about owning things which is why we get hung up on owning cars (and houses). The rest of the world has been happily renting things for years.