Are the wheels about to fall of car finance?

[djc206]

Mandat said:

djc206 said:

Those are the dealer rates for second hand cars. Unless you've got a terrible credit history you can get better rates elsewhere or do as many do and take bank loans at very low rates. And as some on this thread point out there are people who just don't like financing anything and pay cash for cars, I know my grandparents were of that ilk.

Second hand cars will always be popular because of the depreciation curve. With longer warranties becoming common there isn't the mechanical worry that accompanies owning a used car either.

Personally I like having new cars but I'm under no illusions and know that what I'm doing is more expensive than buying second hand in most cases.

All true, but is all this really a new thing?

It seems to me that all that you say would equally apply to car sales since time immemorial.

I should imagine so. The only thing that has changed is that cars are no longer marketed as yours for £xxxx's but now £xxx/month. I'm trying to recall the last car advert that I saw that gave the RRP in big font, probably a Dacia and they're aimed at older folks I would say.

[Chicane-UK]

gizlaroc said:

I have been one of the biggest advocates of financing cars, and still am, however, the PCP deals are bordering on a scam and mis selling imho, especially on used cars where the APR is sky high.

I just borrowed £30k from Hitachi Capital Finance for 2.89% at £537 a month.
BMW wanted me to borrow from them at only £527 a month.
He said that ''We Guarantee your car will be worth £13000 at the end of the term."
I kept saying "No, you guarantee that if I want to keep my car at the end of the term I will have to give you an additional £13,000 for the privilege."
Considering this guy was selling finance it was scary the fact he simply didn't get what I was saying.

Currently people are paying the equivalent in extra interest to the balloon at the end, and that is why I think car finance will be the new PPI, it is bordering on mis selling.

Literally just sold my car today, which I'd had on PCP. Went into the deal completely ignorant about car financing, and PCP, etc and got a pretty crap deal and have had the privilege of paying about £7,300 to 'rent' a Ford Fiesta ST for about 2 years which I'd have never owned at the end of the term anyway. What's insane is the first deal they tried to offer me when I first went to buy the car was substantially worse than what I ended up taking after some bartering.. I'm sure some people would have just signed the paperwork.

I'll just chalk it up to life experience I suppose, and I highly doubt I'll touch a PCP deal again.

I've gone back onto the route of bangernomics. Unless I'm catastrophically unlucky, I can't see my replacement car is going to cost me £3,500/year in maintenance so I figure I'll be better off overall, even if the car in the garage on a regular basis.

Edited by Chicane-UK on Sunday 26th March 17:45

[ashleyman]

djc206 said:

ashleyman said:

I have a Golf R on a PCP. When I was looking to buy it was cheaper for me to buy Brand New than it was Used. I got a good discount on mine, plus the interest rates on the new car were 4.8% compared to 10.9% on Used.

If that continues then people will just buy new and 2 Year old used cars will end up rotting on an airfield somewhere.

Those are the dealer rates for second hand cars. Unless you've got a terrible credit history you can get better rates elsewhere or do as many do and take bank loans at very low rates. And as some on this thread point out there are people who just don't like financing anything and pay cash for cars, I know my grandparents were of that ilk.

Second hand cars will always be popular because of the depreciation curve. With longer warranties becoming common there isn't the mechanical worry that accompanies owning a used car either.

Personally I like having new cars but I'm under no illusions and know that what I'm doing is more expensive than buying second hand in most cases.

The list price on my car was less brand new than it was used. £29K for new, £30k for used. I mentioned the interest rates as that was another factor in deciding to buy new.

[Bill]

Mandat said:

Yes, really.

You've obviously not understood, and I apologise if I'm not being clear enough.

Snip....

I understand, and even agree, with you. But that's not the point I am making.

£300 pcm leaves the loan taker with a car worth circa £5k after three years, but the PCP user has nothing.

A buyer who can afford a loan costing £300 pcm can have a used car that he will own outright after 3 years, or a new one he gives back after three years. The trick the car trade has pulled off is persuading people that £300 pcm is the important number, rather than the actual cost of ownership (Which is the bit you are talking about...)

Similarly "cost to change" is just a fudge to make the numbers look smaller.

[Sheepshanks]

ashleyman said:

The list price on my car was less brand new than it was used. £29K for new, £30k for used. I mentioned the interest rates as that was another factor in deciding to buy new.

That seems common with VW - same happened to us when we wanted a Tiguan. Dealer group, Inchcape had over 100 nearly new ones that were dearer than discounted new - you had to go back to a year old before they were cheaper. They wouldn't move on the used prices either.

[Sheepshanks]

ashleyman said:

The list price on my car was less brand new than it was used. £29K for new, £30k for used. I mentioned the interest rates as that was another factor in deciding to buy new.

That seems common with VW - same happened to us when we wanted a Tiguan. Dealer group, Inchcape had over 100 nearly new ones that were dearer than discounted new - you had to go back to a year old before they were cheaper. They wouldn't move on the used prices either.

The salesman we bought off said some people come in fixated on getting a nearly-new one and don't do the comparision, and it's different sales teams so they don't encourage people to look at new.

[rossub]

Bill said:

Mandat said:

Yes, really.

You've obviously not understood, and I apologise if I'm not being clear enough.

Snip....

I understand, and even agree, with you. But that's not the point I am making.

£300 pcm leaves the loan taker with a car worth circa £5k after three years, but the PCP user has nothing.

A buyer who can afford a loan costing £300 pcm can have a used car that he will own outright after 3 years, or a new one he gives back after three years. The trick the car trade has pulled off is persuading people that £300 pcm is the important number, rather than the actual cost of ownership (Which is the bit you are talking about...)

Similarly "cost to change" is just a fudge to make the numbers look smaller.

It's the same with mortgages. People are so sucked into the lower monthly payment that they ignore the £1,500 fee that's been added to the outstanding balance on the 2 year fix they've taken.

[philmots]

Bill said:

I understand, and even agree, with you. But that's not the point I am making.

£300 pcm leaves the loan taker with a car worth circa £5k after three years, but the PCP user has nothing.

A buyer who can afford a loan costing £300 pcm can have a used car that he will own outright after 3 years, or a new one he gives back after three years. The trick the car trade has pulled off is persuading people that £300 pcm is the important number, rather than the actual cost of ownership (Which is the bit you are talking about...)

Similarly "cost to change" is just a fudge to make the numbers look smaller.

There's extra costs on that used car that will eat into that 5k equity that you won't get on a new 3 year lease.. for example, warranty or repair costs on the used car, MOT cost on the used car, breakdown cover on the used car, road tax (lease not pcp), tyres/brakes on the used car that is avoidable on a new 3 year lease, potential extra servicing, the new car maybe more economical etc...

All that eats into the equity, I'm certain the new car is still more expensive, but not by as much as you'd first think.

The piece of mind for me having a new car is massive, specially as cars are getting ever more complicated.

I personally think owing a 10/15 year old current car could be hugely ruinous, and financing will only get more common.

[4941cc]

daemon said:

RSK21 said:

ChemicalChaos said:

Go to somewhere like Bruntingthorpe. There's are tens of thousands of ex finance cars there, filling up the site quicker than they can be sold on

I'll lay odds most of those are fleet not consumer.

And that 99% of them are waiting to go to auctions where they'll be bought up by the trade, not waiting for private customers.

Yes, but not all at once. You wouldn't send 300 of the same model in the same month, would you? You'd mix it up, creating a steady stream of used vehicle supply with a decent model mix, not just dumping a stload of the same make/model onto the market all at once, becuase the glut effect would reduce overall return value to a point lower than sending 50 per month for six months, you'll have got a spread of return values back, some of which will be over the stand-in figures, some below, but on average, you only need to break even when resourcing your return cars to the dealer network.

Just as with normal dealer PXes, your trade account should basically balance, if it loses money, you are buying (bad) business, if it makes money, you will be losing opportunities by undervaluing other trade-ins that don't deal.

Given the popularity of certain specific models and peaks in deals (Golf R, BMW 135i a couple of years back at £249 etc), it wouldn't make sense to have all the cars that were taken on cheap broker leases, PCPs etc all hitting the market for resourcing all together on the anniversary of when they were supplied. People in head offices of VW/BMW Financial Services work very hard to carefully manage the remarketing of return vehicles, to maximise sale values and also to keep the used market fed steadily and prevent any gluts occurring, which whilst good for us as buyers, isn't good for them as resellers! From that point of view, fixed term agreements are great, as they effectively have a 2/3/4 year forecastable vehicle parc to manage and time to plan it, many businesses would kill for that degree of forward visibility!

Edited by 4941cc on Sunday 26th March 18:39

[djc206]

ashleyman said:

The list price on my car was less brand new than it was used. £29K for new, £30k for used. I mentioned the interest rates as that was another factor in deciding to buy new.

Fair enough, it would likely be the same for mine but it's not a particularly common scenario except where a model is limited or new to the market with long lead times. Now if you were buying a golf R you'd find the market is awash with cheap cars thanks to VW flooding the market with bargain lease deals. 2 year old cars going for under £20k.

[nickfrog]

rossub said:

It's the same with mortgages. People are so sucked into the lower monthly payment that they ignore the £1,500 fee that's been added to the outstanding balance on the 2 year fix they've taken.

Some do. Some don't. Why generalise ? Besides, either deals can prove the better and/or the cheaper one depending on circumstances. Some deals are terrible, some are excellent, irrespective of new car payment method (cash, PCP, lease...)

[markstev0]

Been reading with interest, I'm currently 15 months into a PCP on a bmw 320d m sport, only put a small deposit down £500 when buying it as monthlies were and still are acceptable, love the car however circumstances changed and I've only done 6k miles in the 15 months, the car is sat on my drive 95% of the time. I owe 2k more than the local bmw dealer will give me for it so it's either take a hit now and save on payments in the long run or keep paying For a car that's hardly ever used. Really wish I Had got a loan to pay for it I could have sold it privately and maybe taken a smaller hit. With PCP I'm kinda stuck in a hole till I'm at parity.

[katz]

slightly off tangent... does all this mean that in say 10 years time there will be very little market for 15 year old performance cars?
Cars being built now are almost certainly sold via PCP, designed to last for 10 years max? also very complicated electronics. Currently if I want to buy a 20 year old performance motor I have a range of choices, most of which i can keep in tune/ in decent nick. If manufacturers are thinking there is no point in building cars to last as the finance model requires dumping or scrapping after 8-10 years, where do the good used motor deals come in for those of us who pay cash for cars?

[djc206]

philmots said:

There's extra costs on that used car that will eat into that 5k equity that you won't get on a new 3 year lease.. for example, warranty or repair costs on the used car, MOT cost on the used car, breakdown cover on the used car, road tax (lease not pcp), tyres/brakes on the used car that is avoidable on a new 3 year lease, potential extra servicing, the new car maybe more economical etc...

All that eats into the equity, I'm certain the new car is still more expensive, but not by as much as you'd first think.

The piece of mind for me having a new car is massive, specially as cars are getting ever more complicated.

I personally think owing a 10/15 year old current car could be hugely ruinous, and financing will only get more common.

Your last point is interesting. I've been following a thread on PH where a guy with a 4 year old S4 needs a new S tronic gearbox at £10k ish. My RS4 lunched it's gearbox at 2.5 years/14k miles which outside warranty would have been a £14k fix, that's about what a 10 year old RS4 costs give or take.

There will come a point where people buying 5/6/8/10 year old performance cars particularly automatics like the RS4 find themselves with 5 figure repair bills that write off the car. There's so much tech and stuff to go wrong on new cars that the more than lightly used market will be a minefield in years to come.

[djc206]

markstev0 said:

Been reading with interest, I'm currently 15 months into a PCP on a bmw 320d m sport, only put a small deposit down £500 when buying it as monthlies were and still are acceptable, love the car however circumstances changed and I've only done 6k miles in the 15 months, the car is sat on my drive 95% of the time. I owe 2k more than the local bmw dealer will give me for it so it's either take a hit now and save on payments in the long run or keep paying For a car that's hardly ever used. Really wish I Had got a loan to pay for it I could have sold it privately and maybe taken a smaller hit. With PCP I'm kinda stuck in a hole till I'm at parity.

You don't have to sell to BMW, so long as the finance is cleared you can sell it to whoever offers you the most money even if that doesn't fully cover the settlement figure. Edit for clarity: obviously you would have to top that amount up

Small deposits are sadly a big trap

[ashleyman]

djc206 said:

ashleyman said:

The list price on my car was less brand new than it was used. £29K for new, £30k for used. I mentioned the interest rates as that was another factor in deciding to buy new.

Fair enough, it would likely be the same for mine but it's not a particularly common scenario except where a model is limited or new to the market with long lead times. Now if you were buying a golf R you'd find the market is awash with cheap cars thanks to VW flooding the market with bargain lease deals. 2 year old cars going for under £20k.

Yep. It's only recently that the prices have all dropped off. I'm wishing I'd waited a year and got a 2015 car for £23k. The 2014 cars are going for £21k and trade in prices are £18k. I'm even on my finance so the car is worth trade what my settlement figure is but it's still annoying. I doubt we'll see any 'equity' at the end and would have been better off leasing. Unfortunately you can't predict the future!

[Welshbeef]

djc206 said:

Your last point is interesting. I've been following a thread on PH where a guy with a 4 year old S4 needs a new S tronic gearbox at £10k ish. My RS4 lunched it's gearbox at 2.5 years/14k miles which outside warranty would have been a £14k fix, that's about what a 10 year old RS4 costs give or take.

There will come a point where people buying 5/6/8/10 year old performance cars particularly automatics like the RS4 find themselves with 5 figure repair bills that write off the car. There's so much tech and stuff to go wrong on new cars that the more than lightly used market will be a minefield in years to come.

People will simply go for non AIC warranties to de risk the key parts of the car.
Gearboxes can be repaired not needing to be replaced.

Also you might find it's more often than not modified examples pumping out more than std power and torque which increases wear and tear.
Are auto boxes consumable parts? Does anyone change the gearbox oil?

[markstev0]

djc206 said:

markstev0 said:

Been reading with interest, I'm currently 15 months into a PCP on a bmw 320d m sport, only put a small deposit down £500 when buying it as monthlies were and still are acceptable, love the car however circumstances changed and I've only done 6k miles in the 15 months, the car is sat on my drive 95% of the time. I owe 2k more than the local bmw dealer will give me for it so it's either take a hit now and save on payments in the long run or keep paying For a car that's hardly ever used. Really wish I Had got a loan to pay for it I could have sold it privately and maybe taken a smaller hit. With PCP I'm kinda stuck in a hole till I'm at parity.

You don't have to sell to BMW, so long as the finance is cleared you can sell it to whoever offers you the most money even if that doesn't fully cover the settlement figure. Edit for clarity: obviously you would have to top that amount up

Small deposits are sadly a big trap

I've tried a few of the local independent dealers who weren't interested as it's still less than 3 year old, there reasoning being that it's too new for them! I found that strange as they would no doubt have made a few grand on the car. I'm toying with the idea of selling privately on PH but not sure about how to get around paying off the finance. I really don't want to settle it and the car not sell.

[mk2driver]

markstev0 said:

djc206 said:

markstev0 said:

Been reading with interest, I'm currently 15 months into a PCP on a bmw 320d m sport, only put a small deposit down £500 when buying it as monthlies were and still are acceptable, love the car however circumstances changed and I've only done 6k miles in the 15 months, the car is sat on my drive 95% of the time. I owe 2k more than the local bmw dealer will give me for it so it's either take a hit now and save on payments in the long run or keep paying For a car that's hardly ever used. Really wish I Had got a loan to pay for it I could have sold it privately and maybe taken a smaller hit. With PCP I'm kinda stuck in a hole till I'm at parity.

You don't have to sell to BMW, so long as the finance is cleared you can sell it to whoever offers you the most money even if that doesn't fully cover the settlement figure. Edit for clarity: obviously you would have to top that amount up

Small deposits are sadly a big trap

I've tried a few of the local independent dealers who weren't interested as it's still less than 3 year old, there reasoning being that it's too new for them! I found that strange as they would no doubt have made a few grand on the car. I'm toying with the idea of selling privately on PH but not sure about how to get around paying off the finance. I really don't want to settle it and the car not sell.

Advertise car for price X - explain to any enquiries that there is finance owed on the vehicle that will be cleared at time of sale.

Sell car for price Y. If Y is more than X then buyer can pay you and then you pay finance company straight away. Other option is that buyer pays the amount owed directly to finance company and then pays you the equity.

If you sell it for less than you owe the options above still exist but you need to top up the payment from the buyer.

Not the easiest way if selling a car and it takes an understanding buyer hence why so many people just trade in as they may not want to do the above and don't have the money to clear the PCP pre sale.

[gizlaroc]

Bill said:

I understand, and even agree, with you. But that's not the point I am making.

£300 pcm leaves the loan taker with a car worth circa £5k after three years, but the PCP user has nothing.

A buyer who can afford a loan costing £300 pcm can have a used car that he will own outright after 3 years, or a new one he gives back after three years. The trick the car trade has pulled off is persuading people that £300 pcm is the important number, rather than the actual cost of ownership (Which is the bit you are talking about...)

Similarly "cost to change" is just a fudge to make the numbers look smaller.

Even though I am against PCP on used cars with sky high interest rates, how old a car do you have to buy to be able to do what you are suggesting?

I would say these days it is probably 5-7 years old with 80k miles on it.
Run that for another 4-5 years and it could throw up some pretty big bills.


If you want a newish car with no expected bills Contract Hire is generally the cheapest way of doing it.