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PCP is a bit of a scam anyway, so they will find a way to keep it up. A lot of buyers walk in thinking only about how much it will cost them per month. In their mind, they have already put down the value of any PX as just reducing monthly payments and they don't give a moment's thought to the balloon payment (why would you if you're never going to pay it).
That gives the finance firm two variables that the purchaser doesn't care about, plus the ability to vary the term of the finance. That's on top of any deposit contribution they want to use to offset higher interest rates.
Ultimately, they will find a way to make the monthly payments the same, and the punters will be happy.
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I remember going to a meeting with our main finance company back in the 90’s when PCP was first being touted. I was against it, I believed that you’d see a surge in sales with the lower monthly payment and then a sharp drop when the market became saturated with people with zero equity on their cars. The old school way was to buy it on finance, pay it off then run it a while or trade it in using the full value remaining as your deposit. People being as they are live week to week and rarely save much of at all so I expected it to become an issue getting deposit money out of them for another motor.
How wrong was I? PCP became the norm and prices surged upwards to push that monthly payment back up again to a level that was previously occupied by a full conventional finance agreement. People had a deadline at the end of their PCP to come up with many thousands of pounds to buy it or take another on a low deposit agreement. Thus the never-ending car payment madness began.
Manufacturing and dealers tailor deals and daft list prices towards pushing people onto these forever PCP deals, meaning almost no one actually owns their car from new. Finding a well cared for used car with full dealer history which hasn’t been clocked or had cheapo paint repairs is more difficult now than I ever remember and that’s all thanks to the PCP agreement.
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Those with a car on PCP will likely want a car at the end of their existing contract. They have two choices - buy the car, or replace (probably) with another on PCP or lease.
"Buy" seems unlikely - the high prices paid for new cars during Covid was, I assume, reflected in the monthly payments and end of contract price.
The end of the pandemic, has left a long tail of supply constraints but increased vehicle supply and a recession will tend to stabilise or even drive prices down. There are a lot more discounts around today than 6 months ago!
So I suspect that generally there will be a tendency for folk to "trade down" when replacing their cars. This may only impact a small percentage of folk as many:
- will be unaffected by rising interest rates (or even benefit with savings)
- drivers of premium motors may be unconcerned by a few hundred ££ pm
- there is fairly full employment - not all have cost of living or job security concerns
In many ways the popularity of PCP and lease deals in the UK has the effect of stabilising demand - the alternative model where new cars are largely owned means that folk could more easily defer a change with immediate impact on market demand.
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Interesting thread for me.
We have just taken delivery of a new car today (CX-5) which we decided to take on a personal lease for the first time.
We worked out that it would have cost us £20k more to purchase outright than the total cost to lease it for three years.
We realise that we won't have any vehicle to p/x at the end of it but have put the monies we didn't have to outlay into a fixed rate ISA to earn some interest over the period.
Our old car was sold to AC and makes up around 63% of the the total lease payments.
We factored in the fact that our old car was going to depreciate over those three years to a degree as well.
We now don't have to think what to do with a petrol-engined crossover in three years time, as well.
YVMV.
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I Don't bother with pcps. My current car was bought at 2 years old 4 years ago for £10,000 after a £1000 haggle discount with 3 years warranty. My latest wbac quote was £10250! I am quids in as they used to say. Unfortunately this years road fund licence has gone up to £35, I think I can handle that!
The maybe £300 a month pcp payment for a new car I could be paying is getting 4.81% in my local building society. Have I missed something?
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I Don't bother with pcps. My current car was bought at 2 years old 4 years ago for £10,000 after a £1000 haggle discount with 3 years warranty.
It's generally what I/we do. Bought my Skoda Superb in 2015 at 14 months old £10,800 and I found a 2016 Skoda Octavia for my son in 2019 £7800. All still going strong.
However recently with a new car shortage used prices have been bonkers, as you say we could still get the same back on the latter car now! - who knows what next????? I suppose there are some slight signs things are changing again as some manufacturers have brought back 0% interest deals.
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Leasing often works out cheaper for tax reasons and because large leasing firms can buy much more cheaply than we as individuals can. The last new car I took on was a 2014 Honda CRV and even with a meaningful discount it was cheaper to lease it over 4yrs than to buy outright or via PCP. The only failing was that again for tax reasons we couldn’t directly buy it at the end as you could with a PCP. I could’ve had another party but it on my behalf, but that would add complication and another name to the logbook. I’ve since then only bought used cars and here PCP’s are rarely competitive compared to traditional loans, they’re almost always higher interest.
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7.9% manufacturers finance when I last looked, I can get a loan for 6% apr.
That is a significant saving over 3/4 years.
On the topic of the UKs addiction to PCPs, I have noticed a few new 72 and 23 plate cars in our neighbourhood and the majority are smaller than the previous cars they owned.
For example, family on our street have gone from a Qashqai to a Juke, a young couple we know have gone from a Kuga to a Puma, the guy on the corner has gone from a 5 series to a A class.
Are people downgrading the size of car to avoid higher PCP costs?
The reason why I’m hesitant to buy a new car right now is the value question , which I accept is a different topic.
List prices are considerably higher, with less discount available.
Sadly the pound in my pocket is worth less due to government money printing.
But despite the economic reality, new cars do not represent good value compared to what I can buy elsewhere in the economy for the same quantity of pounds.
This is my personal issue, if I don’t want a Dacia (which are not as cheap or as budget as they used to be), what represents value?
There is no value, or maybe I am in the minority and too interested in the economics of cars and should just forget it and enjoy the nice shiny plastics and pay the going rate?
Edited by daveyK_UK on 27/08/2023 at 08:51
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7.9% manufacturers finance when I last looked, I can get a loan for 6% apr. That is a significant saving over 3/4 years. On the topic of the UKs addiction to PCPs, I have noticed a few new 72 and 23 plate cars in our neighbourhood and the majority are smaller than the previous cars they owned. For example, family on our street have gone from a Qashqai to a Juke, a young couple we know have gone from a Kuga to a Puma, the guy on the corner has gone from a 5 series to a A class. Are people downgrading the size of car to avoid higher PCP costs? The reason why I’m hesitant to buy a new car right now is the value question , which I accept is a different topic. List prices are considerably higher, with less discount available. Sadly the pound in my pocket is worth less due to government money printing. But despite the economic reality, new cars do not represent good value compared to what I can buy elsewhere in the economy for the same quantity of pounds. This is my personal issue, if I don’t want a Dacia (which are not as cheap or as budget as they used to be), what represents value? There is no value, or maybe I am in the minority and too interested in the economics of cars and should just forget it and enjoy the nice shiny plastics and pay the going rate?
I find the psychology of PCP fascinating. You tell someone that they can have an average car for £5,000 deposit and £300 a month over 48 months and they think it's a good deal. That's nearly £20k and you have nothing at all at the end.
It's a terrible deal, but people still go for it. I can do the maths above, say it's a terrible deal and 20 minutes later look at all the 'deals' available and start day-dreaming about a new toy. Utter madness.
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£30k for a new motor is more than most folk have easy or unconcerned access to.
£300 per month is easily related to whatever monthly income they enjoy. In context £300 is an unremarkable meal for two once a week, two tickets to a "premium" event (concert, sporting) once a month, a very average 2 night weekend UK hotel break.
That it is an expensive way to deliver personal transport either doesn't figure in their thought processes, or they simply like shiny bits of obvious status.
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That's nearly £20k and you have nothing at all at the end.
Same can be said for renting as well. Those who can't afford to buy a house their only option is to rent.
Those who can't pay upfront to buy a car, can only avail the car via monthly payment.
Even for cash buyers PCP is worth going as manufactures often do a deposit contribution, meaning the total cost of car goes down and one can always settle the figure after a month or two - thus not paying interest and actually owning the car.
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I'm hanging on to my old girl 'til she breaks and hope the prices drop a bit.
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I'm hanging on to my old girl 'til she breaks and hope the prices drop a bit.
Seconded...
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Out of six cars I have had on PCP, four were at 0% APR and that was on top of a dealer contribution and generous trade in value for the previous car. No brainer really. Current car, £28000 new 3 years ago, £257 pm over 3 years on PCP.
However, my PCP journey is about to come to an end. New car prices and APR's are too high now so will be buying my current car at the end of the lease period and hanging on to it for a while. It will be a bit of a bargain as the settlement sum is around five grand less than the private sale value at the moment.
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A son took out a PCP in 2015 - £33K list, BMW discount £2K, Finance Discount £2K, APR was roughly 4%. £420 per month
He bought it at the end of the 4 years for £14K. -
PCP costs + £14K to buy = £34k
WBAC offering £14,800 for his car a few days ago
In round figures depreciation = £200 per month!
I bought my CRV for £20K in 2012, sold it a week ago £9,000
£11,000 depreciation in 11 years = £83 per month - CHEAP motoring!
The only problem is that my new car list price was over £40K!
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The mortgage time bomb will explode with a lot bigger damage compared to PCP time bomb.
At least PCP payments are low and fixed for the duration. But everyone needs a place to live.
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one can always settle the figure after a month or two - thus not paying interest and actually owning the car.
Done this several times in the past and will do it again when we get the next car. To avoid paying charges you have to settle up within 28 days and even if you settle up after say for example a week you still have to pay a weeks interest.
Still very much worth doing.
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You're unlikely to see these sort of depreciation figures with cars being worth the same as they were 3 years ago again.
Slowly but surely the market is returning to normal with depreciation resuming.
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You're unlikely to see these sort of depreciation figures with cars being worth the same as they were 3 years ago again. Slowly but surely the market is returning to normal with depreciation resuming.
Meanwhile list prices have escalated to make up for it !
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Just read a comparison test of a vw Id3 and an mg4. They gave the pcp costs over 3 years with a £5000 deposit on each.
The vw cost was 36 x £555 (£19980) + £5000 deposit = £24980!
The mg cost was 36 x £454 (£16344) + £5000 deposit = £21344!
I think the world has gone crazy when it’s seen to be the norm to “rent” a new car for 3 years then hand it back and start again for “only” 21k to 25k!
If you’ve signed up to this then happen to lose your job, or the mortgage rate shoots up, you can’t even sell it or hand it back if you are struggling. Crazy!
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Just read a comparison test of a vw Id3 and an mg4. They gave the pcp costs over 3 years with a £5000 deposit on each.
The vw cost was 36 x £555 (£19980) + £5000 deposit = £24980!
The mg cost was 36 x £454 (£16344) + £5000 deposit = £21344!
What are the list/OTR prices those quotes are based on?
And what is the balloon payment to keep the car in each case?
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Just read a comparison test of a vw Id3 and an mg4. They gave the pcp costs over 3 years with a £5000 deposit on each.
The vw cost was 36 x £555 (£19980) + £5000 deposit = £24980!
The mg cost was 36 x £454 (£16344) + £5000 deposit = £21344!
What are the list/OTR prices those quotes are based on?
And what is the balloon payment to keep the car in each case?
The VW OTR price is £42870 with a balloon payment of £19340
The MG OTR is £32495 with a balloon of £17055
Edited by Oli rag on 29/08/2023 at 11:02
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