Explaining PCP's
Discussion
I don't about anybody else but personally I feel like the 'car guy' in my family and friends and one thing i'm always having to explain is a PCP. Which im normally comparing to a lease. I'm amazed but actually not surprised about how many people out there don't know about the mechanics of a PCP. Not that many seem to know that the outstanding 'GFV' is attracting interest all the way through, so you're not just paying interest on the portion you're paying back but the entire outstanding amount.
Another real confusion point is that people tend to think they can't change the car until their term ends, I say 'Yes, ofcourse you can, as long as you pay the O/S loan,', they say 'No, can't do anything until its 3 years, thats when my balloon is. So again, they don't really understand that it is a loan like any other.
A lot amount of people think you can only 'easily' get a new PCP by going to the same manufacturer and that going to a different complcates matters hugely.
The GFV, they think thats what the car will actually be worth in 3 years time, not that it is just a manufactured figure to allow a few quid to roll into the next deposit. Although I am aware of a few friends who had mercs where the value at the end was less than the GFV and it was best to just hand back. Another angle here is related to the point above, people assume that the manufacturer is the only one that can give you a value higher than the GFV. A few guys i've spoken to are all happy that they got more than the GFV for their mint cars within agreed mileages, great deal apparently cos they got more than it was 'worth'.
Anyway i'm not trying to criticise the average car buying punter, it took me a while to get my head around the above. But, I do think its concerning how many people have no idea what the finance agreement that they have already entered into means for them. And maybe thats ok, as if they're happy with the monthlies then good for them.
What I explained to the last 2 members of my family who asked me was that the car finance is a bit like a 6 year car loan, with a break clause at year 3. (I'm using 3 years for simplicity). At year 3 they can terminate everything, but if they want to carry on the loan they'll have to refinance. This seemed a clearer way of explaining the PCP thing.
So my thought of the thread is, are PCP's too complicated and not explained enough for the average consumer? I had one on my last car and with all the talk of monthly rentals, final values and the mileage charges it seems like anything but a loan you're taking out.
Another real confusion point is that people tend to think they can't change the car until their term ends, I say 'Yes, ofcourse you can, as long as you pay the O/S loan,', they say 'No, can't do anything until its 3 years, thats when my balloon is. So again, they don't really understand that it is a loan like any other.
A lot amount of people think you can only 'easily' get a new PCP by going to the same manufacturer and that going to a different complcates matters hugely.
The GFV, they think thats what the car will actually be worth in 3 years time, not that it is just a manufactured figure to allow a few quid to roll into the next deposit. Although I am aware of a few friends who had mercs where the value at the end was less than the GFV and it was best to just hand back. Another angle here is related to the point above, people assume that the manufacturer is the only one that can give you a value higher than the GFV. A few guys i've spoken to are all happy that they got more than the GFV for their mint cars within agreed mileages, great deal apparently cos they got more than it was 'worth'.
Anyway i'm not trying to criticise the average car buying punter, it took me a while to get my head around the above. But, I do think its concerning how many people have no idea what the finance agreement that they have already entered into means for them. And maybe thats ok, as if they're happy with the monthlies then good for them.
What I explained to the last 2 members of my family who asked me was that the car finance is a bit like a 6 year car loan, with a break clause at year 3. (I'm using 3 years for simplicity). At year 3 they can terminate everything, but if they want to carry on the loan they'll have to refinance. This seemed a clearer way of explaining the PCP thing.
So my thought of the thread is, are PCP's too complicated and not explained enough for the average consumer? I had one on my last car and with all the talk of monthly rentals, final values and the mileage charges it seems like anything but a loan you're taking out.
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