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Sat 5 Aug 2017 11:35

Rethinking PCP's. - SLO76

Regarding PCP's on used cars I'm often struggling to talk people out of what is in reality poor value for money.

For example. An old customer of mine seeking a replacement for her 2007 Ford Fiesta asked me to recommend something suitable and I found a very nice 16 plate Fiesta 1.25 (82PS) Zetec at our local main dealer for £8598. Going through the Arnold Clark finance options available and on a 48mth PCP with a £300 deposit and borrowing £8298 for example it works out at £147.28 a month with a final payment or guaranteed value of £3424. Total payments £10,647.16. APR 8.91%

Now taking my advice she could take a loan from Sainsbury's bank. Borrowing £8298 again but over 60mths it'll cost £148.95 and total payments £8937 @ 3% APR, saving £1,710.16!

Now I'll hear people say that the term is longer and they'll only want to keep the car for 4yrs but with the personal loan there's less left on it after 4yrs than there is on the PCP meaning you can sell/trade-in the car and have more money for your next deposit or she could keep it and continue to pay the monthly amount. Either way it's a huge saving.

PCP's and dealer finance only work when there's a manufacturer subsidy in place. A zero percent deal or ultra low APR deal but even then you've got to watch you're not overpaying for the car itself with discounts often cut or unavailable if you take the subsidised finance. Sometimes you can score both on a new car but with used cars PCP's never make sense and will cost you dearly.

My customer is a happy bunny. She got her new car with a £200 discount I had to draw teeth to extract (not known for discounts is old Arnold) but the car was priced well enough to start with and the £200 extra she got for her old car from me along with the saving on her finance puts her at £2110.16 ahead of where she could've been!

Edited by SLO76 on 05/08/2017 at 11:38

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Sat 5 Aug 2017 15:30

Rethinking PCP's. - colinh

They're all at it - Kia's official website in Spain:

New Niro - discount of 21% off list - "The offer will be directed to private customers who finance with Santander Consumer EFC, SA a minimum amount of € 10,000 through the Flexible Range Finance campaign for a minimum term of 48 months and with a minimum stay of 36 months." - the same finance company who've had troubles in the USA

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Sat 5 Aug 2017 15:51

Rethinking PCP's. - argybargy

Very interesting. My original plan was to trade in whatever car I have in 2021 when my finances improve on a permanent basis, then go for one of those PCPs so that I can have, for the first time in my entire life, a new car.

However, I've heard from a number of authoratitive sources that they don't make any kind of financial sense, and if borrowing is as cheap in 2021 as it is now then it'd be pretty daft to take the PCP option.

Even buying on credit cards then transferring the balance to interest-free alternatives would probably be cheaper, as long as Brexit doesn't put a gigantic spanner in the country's financial works.

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Sat 5 Aug 2017 16:28

Rethinking PCP's. - Avant

The lesson here is, as I'm sure SLO would agree, that people need to do their sums and check out the alternatives - particularly as interest rates for bank loans are still very low.

PCPs can make sense for new cars - probably much less so for used. But you need to be buying a car that holds its value (to minimise the risk of still being in negative equity at the end of the contract) and also ideally have a subsidy from the manufacturer and/or a dealer contribution. These aren't always available for cash purchases, although some are.

I got £7,000 off my new Volvo last year: it wouldn't have been as much if I'd been paying cash. And of course not all that mamy private buyers have £28,000 in cash kicking around.

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Sat 5 Aug 2017 16:35

Rethinking PCP's. - Big John

There are some interesting 0% PCP's on some cars - these can be OK.

BUT - I now don't like finance deals for cars (or anything). I was made redundant 25years ago and was financially "embarrassed" over a car loan so now always put something to one side and plan the buying of my future cars “Yorkshire” style. The only way I’d take finance out now is for a 0% deal or low% deal with large deposit contribution when I’d also got the money saved to one side. That way if something happens (loose job, illness etc) your not stuck with a loan/finance and you still have a car

As I do a highish mileage (64 mile round trip commute) I always wait for potential sell off deals (end of a model etc) and buy as new as possible but for a Yorkshire price – I then run for quite a few years and effectively throw away (just presume it’s worthless with 150k+++ on the clock).

In the 24 years I’ve been doing this longish commute :-

Whilst saving up – used my wife’s old Polo

1996 1st purchase – 1990 Passat Estate 6 years old for £3.5k – ran for 4 years

2001 2nd purchase – 2001 Skoda Octavia new for £9k – still own it!!

2005 3rd purchase -- 2003 Skoda superb 18months old for £8k ran for 10 years

2015 4th purchase – 2014 Skoda Superb 14months old for £10k – will hopefully run until I retire

Even with my high mileage I manage to keep overall average car capital costs under £100 month

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Sat 5 Aug 2017 17:21

Rethinking PCP's. - madf

The annual deprectaion on our Yaris bought at 2 years and now 14 years old has been £9,000 (the purchase price) divided by 12 or £750 - assuming it is now worthless.. Or£ 63 per month. It has been very reliable and cost just over £100 in total for non consumables.

So buting at 2-3 years old an dkeeping makes sense if you can afford it and it is reliable.

I reckon it has another 10 years life left.

Our Jazz cost £12,000 5 years ago and is now worth c £5k so annual depreciation of around £1400 or £115 per month.. Cost nil in non consumables.

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Sat 5 Aug 2017 18:03

Rethinking PCP's. - bazza

Good going big John. £100 a month target for capital cost or depreciation is alsomy business model which I have largely achieved over many years. That is why iv never found the numbers add up for me with a PCP deal on a family hatch type thing.

Edited by bazza on 05/08/2017 at 18:04

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Sat 5 Aug 2017 18:33

Rethinking PCP's. - Terry W

As SLO76 said right at the outset:

"PCP's and dealer finance only work when there's a manufacturer subsidy in place"

.Otherwise you are simply paying a premium price for a car you probably can't afford anyway.

The reason is simple - any company providing a PCP contract has, on top of the cost of the car, to cover marketing, sales, administration, risk of defaults, interest costs, profit etc.

Some of these may be covered by any end of contract issues where the price offered is contingent upon the vehicle being returned in excellent condition - it would come as no surprise to find several hundred ££ deducted for minor scratches, car park dings, valeting etc

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Sat 5 Aug 2017 20:58

Rethinking PCP's. - Falkirk Bairn

Neighbour bought brand new 320d MSport, Xdrive - £400 down, £400/month.

He had looked at 2nd hand cars, 6 mth old ex day renters @ both BMW dealers & car Supermarkets.

Motorpoint wanted £2500 deposit & £440 / month for car with some 10K miles on the clock, the APR was 12.9%

BMW finance won the day for a new car - £5000 deposit contributions from BMW Finance, BMW & Dealer, APR was 4.9%

So 2nd hand car was more expensive than a new one.

If looking @ HP/PCP then look for new car deals, pre-reg cars, low interest loans.........PCP from 2nd hand dealers can be very expensive.

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Sun 6 Aug 2017 12:50

Rethinking PCP's. - Big John

Neighbour bought brand new 320d MSport, Xdrive - £400 down, £400/month.

He had looked at 2nd hand cars, 6 mth old ex day renters @ both BMW dealers & car Supermarkets.

Motorpoint wanted £2500 deposit & £440 / month for car with some 10K miles on the clock, the APR was 12.9%

BMW finance won the day for a new car - £5000 deposit contributions from BMW Finance, BMW & Dealer, APR was 4.9%

So 2nd hand car was more expensive than a new one.

If looking @ HP/PCP then look for new car deals, pre-reg cars, low interest loans.........PCP from 2nd hand dealers can be very expensive.

Interest paid obviously important - 12.9% is very high. On any deal you need to work out the true costs. Sometimes these can be hidden in end of deal baloon payments , very high excessive mileage charges etc.... Also look at how many months things are paid over. You need to compare "apples with apples".

However - sometimes buying new can be cost effective, especially with smaller or end of model cars.

One thing I forgot to mention in my earlier post - I always look carefully at the typre of tyres fitted and expected future costs (Currently get over 35k miles out of 205/55 r16 which are cheap to buy - I don't want a car where tyres only last 12k and cost £1000 a set. With my mileage the latter would be about £100 month JUST on tyres!!).

Edited by Big John on 06/08/2017 at 13:09

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Tue 15 Aug 2017 17:35

Rethinking PCP's. - concrete

The lesson here is, as I'm sure SLO would agree, that people need to do their sums and check out the alternatives - particularly as interest rates for bank loans are still very low.

PCPs can make sense for new cars - probably much less so for used. But you need to be buying a car that holds its value (to minimise the risk of still being in negative equity at the end of the contract) and also ideally have a subsidy from the manufacturer and/or a dealer contribution. These aren't always available for cash purchases, although some are.

I got £7,000 off my new Volvo last year: it wouldn't have been as much if I'd been paying cash. And of course not all that mamy private buyers have £28,000 in cash kicking around.

Couldn't agree more Avant. I did exhaustive research and calculations for 9 months and concluded, for what I wanted, a lease contract could not be bettered financially. However not everyone wants a brand new SUV diesel to tow a caravan. But believe me after 3 years I will hand it back and my payment will barely cover the depreciation. Over 3 years I will have a new car, full warranty and breakdown cover at a price cheaper than buying. Then hand it back before the emissions filters systems start to denegrate. What is not to like. For a brand new vehicle I would always consider the lease option. Cheers Concrete

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Tue 15 Aug 2017 18:34

Rethinking PCP's. - SLO76

"Couldn't agree more Avant. I did exhaustive research and calculations for 9 months and concluded, for what I wanted, a lease contract could not be bettered financially. However not everyone wants a brand new SUV diesel to tow a caravan. But believe me after 3 years I will hand it back and my payment will barely cover the depreciation. Over 3 years I will have a new car, full warranty and breakdown cover at a price cheaper than buying. Then hand it back before the emissions filters systems start to denegrate. What is not to like. For a brand new vehicle I would always consider the lease option. Cheers Concrete"

Agree. I have a CRV on a contract lease. I shopped around online then called Honda dealers to see if any were prepared to match it and one did which saved around £60 a month over the list rate which is nearly £3,000 over the term, all for a few phone calls and by my calculations the total cost is less than it would cost me in depreciation and interest to have bought it. Had I just taken Honda's normal lease rate however it would've been dearer.

The point I'm making on this post is that PCP's rarely add up on used cars. But leases often do on new metal as leasing firms get huge discounts and PCP's also often make sense when subsidised by manufacturers. Used buyers are better served by a personal loan however.

Edited by SLO76 on 15/08/2017 at 18:59

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Sun 6 Aug 2017 16:35

Rethinking PCP's. - Kekettykek

Sainsbury's bank (and some other lenders) seem to be running a bait-and-switch on their low interest rates for personal loans. Only around 20% of the customers get the 3% interest rate, the minimum to satisfy the regulators that they are not engaging in false advertising.

There are numerous complaints out there of people with perfect credit applying for loans with them and being offered rates in excess of 10%.

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Sun 6 Aug 2017 19:15

Rethinking PCP's. - SLO76

Sainsbury's bank (and some other lenders) seem to be running a bait-and-switch on their low interest rates for personal loans. Only around 20% of the customers get the 3% interest rate, the minimum to satisfy the regulators that they are not engaging in false advertising.

There are numerous complaints out there of people with perfect credit applying for loans with them and being offered rates in excess of 10%.

If your credit is ok and you own your home then you'll get the best rates as with other lenders. I took a credit card from them recently at 0% on purchases for 30mths. A very cheap way to finance anything, although many garages will charge a fee on card payments.

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Mon 14 Aug 2017 12:08

Rethinking PCP's. - NAthan smith

This makes sense up to a certain point i.e. £15-20k depending on your circumstances. For new or newish high value cars pcp does still make sense as long as it's a car that holds it value. I've keep taking out a 4 yr pcp selling the car privately after 2 , getting a tax rebate from finance company and not ending up in negative equity

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Mon 14 Aug 2017 12:17

Rethinking PCP's. - Manatee

How does one get a tax rebate from a finance company? I need to know:)

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Mon 14 Aug 2017 12:21

Rethinking PCP's. - NAthan smith

How does one get a tax rebate from a finance company? I need to know:)

When you request your settlement figure they should apply the tax rebate to your final figure

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Mon 14 Aug 2017 13:48

Rethinking PCP's. - RT

How does one get a tax rebate from a finance company? I need to know:)

When you request your settlement figure they should apply the tax rebate to your final figure

Is it a tax rebate - or an interest rebate?

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Mon 14 Aug 2017 17:42

Rethinking PCP's. - SLO76

How does one get a tax rebate from a finance company? I need to know:)

When you request your settlement figure they should apply the tax rebate to your final figure

Is it a tax rebate - or an interest rebate?

I suspect this is the case. There's no tax rebate coming from the finance company in any situation, business or personal. NAthan you will also have the same early settlement reduction on a personal loan if you sell and repay early but in general it will carry a much lower rate of interest to start with than a PCP unless again it's a manufacturer subsidised rate. You also have the freedom to sell the car privately with a personal loan while you cannot do this if there's a car loan of any kind outstanding so if you have sold your car privately while there's an outstanding PCP running then you've broken the terms of the loan and the law. You can trade it in or sell to a dealer who will settle the agreement but otherwise you can't sell it until the car finance is paid.

Edited by SLO76 on 14/08/2017 at 17:49

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Mon 14 Aug 2017 18:47

Rethinking PCP's. - Listeria

I would like to warn that PCP's are the basis for the next banking crisis, if you think of the sales value of a car and how it is financed.

A vehicle (with exceptions) is a depreciating asset, and has an economic life. PCP's are focused on a particular timeline in that economic life. If I take a 3 year PCP, the PCP is based on the idea that that is 30 - 45 percent of the economic life of a car depending on its resale value and expected life cycle. If there is not an active market for the vehicle after my 3 year period, who is going be left holding this particular bag.

With previous vehicle finance schemes the second hand market was where it lay. However PCP's are undercutting the second hand market, and dealers try to get around this by offering a PCP on some dubious vehicles to people who have not the wherewithal to maintain the vehicle and maintain its economic lifecycle.

The vast majority of PCP's are sold on and are being packaged as CDO type products and traded as such by the banks if this is not an indication that if interest rates are to rise default levels will rise too.

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Tue 15 Aug 2017 23:02

Rethinking PCP's. - Smileyman

Also with PCP you have a cap on mileage or pay an excess, and when the car is returned there is always the danger of an extra bill to cover any damage to the vehicle ... I'm not surprised some think this kind of deal is going to be linked to the next financial crisis. Should the customer buy the vehicle they have a big debt attracting interest at whatever rate of interest until they pay the baloon payment, the first line of attention should always be the bottom line, ie total payments for the life of the deal, not the monthly payments, and of course where a discount comes into the equation.

IMO these deals are great for the car manufacturer as they encourage the purchase of a new car every few years, keep their factories busy - like an endownment mortgage I run a mile at the sight of such deal, constantly paying with usage but no ownership to show for it. However, for those who cannot get on the housing ladder renting is like this so perhaps life's thought process operates on a different basis.

Makes me thing of an earlier discussion thread about living within means - but in this case means equates to short terms / long term ability to cover monthly payments.

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Tue 15 Aug 2017 23:46

Rethinking PCP's. - jamie745

If you think about it, car companies would be in favour of banning the resale of cars - unless its their own three year old models through approved used dealerships or some such. They probably hate the fact a car which was £50,000 just ten years ago can be picked up in a home traders back garden for £3,000 today.

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