Help a naive new PCP’er
Discussion
Evening all,
Can someone explain plainly to a naive guy (me) about PCP vs buying.
Put simply I don’t understand PCPs with their deposits, payments and balloon payments etc not owning the car?
To set the scene; I’m buying a c£25,000 2-3 year old car (340i / 335d F31 or CLS SB 350d for anyone that’s interested).
Option 1; Buy outright.
Pros; I have the money (once I sell my current car).
Cons; spending all that money.
Option 2; PCP.
Pros; I can keep some money in the bank and spread the cost.
Cons; Put simply I don’t understand PCP. Looks expensive and ties me in for c3 years with limited mileages etc
Can someone explain plainly to a naive guy (me) about PCP vs buying.
Put simply I don’t understand PCPs with their deposits, payments and balloon payments etc not owning the car?
To set the scene; I’m buying a c£25,000 2-3 year old car (340i / 335d F31 or CLS SB 350d for anyone that’s interested).
Option 1; Buy outright.
Pros; I have the money (once I sell my current car).
Cons; spending all that money.
Option 2; PCP.
Pros; I can keep some money in the bank and spread the cost.
Cons; Put simply I don’t understand PCP. Looks expensive and ties me in for c3 years with limited mileages etc
It’s normally far better suited to new cars, where you get manufacturer subsidies (keeping people in a 3 year upgrade cycle as they’ll never save enough to pay the balloon) and interest rates are lower - for used cars it makes no sense at all (IMO).
If you don’t want to use all of the cash a good half way house could be a low cost personal loan (<£15k for <3% at the moment) balancing both issues at a materially lower cost.
If you don’t want to use all of the cash a good half way house could be a low cost personal loan (<£15k for <3% at the moment) balancing both issues at a materially lower cost.
kiethton said:
It’s normally far better suited to new cars, where you get manufacturer subsidies (keeping people in a 3 year upgrade cycle as they’ll never save enough to pay the balloon) and interest rates are lower - for used cars it makes no sense at all (IMO).
Yeah this is my concern, being trapped. Added to this a new car on PCP, to get anything I’d want with options you’re looking at an OTR of £55,000+
I was looking at PCPs to keep some money in the bank.
It can be cheap - usually on a brand new car when the manufacturer throws several £1,000s into the pot as a "finance contribution" and gives you a good rate of interest. It can be expensive. Often on second hand cars when the finance rate is poor. Anything above 6.9% APR is poor and you really want to try to get it down a few percent more.
You don't have to worry about being tied in. Unlike with a lease, you can pay off a PCP at any time without penalty, as long as you have the money. If you only put in the minimum deposit, you are probably in negative equity until 2.5 years in - but as you have the money for the whole thing in the bank, that wouldn't be an issue for you.
You don't have to worry about being tied in. Unlike with a lease, you can pay off a PCP at any time without penalty, as long as you have the money. If you only put in the minimum deposit, you are probably in negative equity until 2.5 years in - but as you have the money for the whole thing in the bank, that wouldn't be an issue for you.
syl said:
It can be cheap - usually on a brand new car when the manufacturer throws several £1,000s into the pot as a "finance contribution" and gives you a good rate of interest. It can be expensive. Often on second hand cars when the finance rate is poor. Anything above 6.9% APR is poor and you really want to try to get it down a few percent more.
You don't have to worry about being tied in - you can pay off a PCP at any time as long as you have the money. If you only put in the minimum deposit, you are probably in negative equity until 2.5 years in - but as you have the money for the whole thing in the bank, that wouldn't be an issue for you.
Problem is a new car (of what I want) would be c£55,000 which I don’t have in the bank. I could put in a £20,000 deposit plus any contribution etc etc I wonder what the repayment would be on that *off I go to fine out*You don't have to worry about being tied in - you can pay off a PCP at any time as long as you have the money. If you only put in the minimum deposit, you are probably in negative equity until 2.5 years in - but as you have the money for the whole thing in the bank, that wouldn't be an issue for you.
Joe5y said:
Added to this a new car on PCP, to get anything I’d want with options you’re looking at an OTR of £55,000+
If you think you might hand it back, options can be rather costly. They tend not to make any difference to the final payment (GMFV), so you pay for them over your 3/4 year PCP period giving you higher monthly payments. If you're going to buy the car at the end of the PCP, they're not so bad - although you'll still lose out when you come to sell it as the value of the options will have vanished to nothing. Often best, especially with with a PCP, to buy a higher spec car with the options already included in the package (eg get a HSE instead of an SE).Personally I would do this, if I were in your shoes.
1) work out how much the car will be worth at the end, using existing used car information. Pay that amount as a deposit from savings. You’re aiming to not degrade your savings.
2) the difference between the purchase price and 1) above is the finance deal, taken over the amount of time you’ve worked on in 1.
3) if you are happy with the resulting payments congratulations you can afford the car and you know you’re paying what it costs each month.
4) that’s it. Simple as that.
Edited to add it’s just an opinion and since this is about PCP I’m kind of cowering behind a sandbag right now!!
1) work out how much the car will be worth at the end, using existing used car information. Pay that amount as a deposit from savings. You’re aiming to not degrade your savings.
2) the difference between the purchase price and 1) above is the finance deal, taken over the amount of time you’ve worked on in 1.
3) if you are happy with the resulting payments congratulations you can afford the car and you know you’re paying what it costs each month.
4) that’s it. Simple as that.
Edited to add it’s just an opinion and since this is about PCP I’m kind of cowering behind a sandbag right now!!
With pcp list price doesn’t count for much. You may find a better deal going new.
If you pcp it put the smallest deposit down, don’t sink £5000 in it only to find when you get to year 3 that you cannot find another 5k for the next pcp which means your payments shoot up.
I’m not a fan of pcps and even less so on a used car.
If you pcp it put the smallest deposit down, don’t sink £5000 in it only to find when you get to year 3 that you cannot find another 5k for the next pcp which means your payments shoot up.
I’m not a fan of pcps and even less so on a used car.
Joe5y said:
snake_oil said:
Lesson 1. Never PCP a used car. Ever.
The end.
Lesson 1 noted. The end.
To help me understand why would someone not PCP a used car?
PCP can be good for brand new cars where the discount from RRP is good and the interest rate is low.
However with a used PCP you won't get that manufacture contribution and the interest rate will be far higher than a personal loan from a bank.
You are far better off getting a personal loan.
I note you are looking at throwing 25k at a 2/3 year old 340i. You won't pay much more for a brand new one. Go on car wow and compare new quotes with your used PCP.
Don’t PCP a used car! You end up with a car that won’t be worth much and possibly will start giving big bills at 6 years old.
On the other hand I don’t see PCP as a trap at all. You can get out of a PCP and be no worse off position as you were beforehand. The key to understand is that on a PCP the best way is to put the minimum deposit in... always. If this means the monthlies are too high get a cheaper car instead of upping the deposit. More deposit just waters down the repayments. Should the extra deposit reduce the balloon payment than that would be worth it but it doesn’t.
Say you put 2k down and PCP. No way in 3 years you would be worse off if wanting a new car. 2k should be easy to come by and you start again with a new car. The problem is that people put a deposit bigger than can save in 3 years and find that the so called “positive equity” doesn’t exist on their car in the end of the PCP.
Sure the the car is a depreciating asset and you should buy It with cash and run it to the moon and back to have value but forget that.
I am on a PCP and don’t feel trapped at all. It was my choice and when my deal ends I am in a similar position as I was before in terms of capital to buy a car. I had use of a nice car specced as I wanted and with no maintenance needed completely reliable and enjoyable experience. I suppose leasing is similar but I like to spec my cars prefer the option to keep them if I want. I think key on a PCP is really minimum deposit.
On the other hand I don’t see PCP as a trap at all. You can get out of a PCP and be no worse off position as you were beforehand. The key to understand is that on a PCP the best way is to put the minimum deposit in... always. If this means the monthlies are too high get a cheaper car instead of upping the deposit. More deposit just waters down the repayments. Should the extra deposit reduce the balloon payment than that would be worth it but it doesn’t.
Say you put 2k down and PCP. No way in 3 years you would be worse off if wanting a new car. 2k should be easy to come by and you start again with a new car. The problem is that people put a deposit bigger than can save in 3 years and find that the so called “positive equity” doesn’t exist on their car in the end of the PCP.
Sure the the car is a depreciating asset and you should buy It with cash and run it to the moon and back to have value but forget that.
I am on a PCP and don’t feel trapped at all. It was my choice and when my deal ends I am in a similar position as I was before in terms of capital to buy a car. I had use of a nice car specced as I wanted and with no maintenance needed completely reliable and enjoyable experience. I suppose leasing is similar but I like to spec my cars prefer the option to keep them if I want. I think key on a PCP is really minimum deposit.
PCP on a used car can occasionally be quite favourable. My GT86 has an APR of 3.9% which is better than many new car deals (car purchased at 3 years old) and ironically also better than what Toyota are currently offering on a brand new one! But these sort of rates are fairly few and far between from what I have seen.
You'd be mad to pcp a used car.
Interest rate is taking the piss - you can end up paying more for a used car than a new one because the interest rate is usually double.
You say 2-3 year old car...if it's 3 years old you're out of warranty and into MOT, tyres, consumables. PCP a new car and you'd be unlucky to even have to replace the front tyres, you might need windscreen wipers though.
It's only affordable because your monthly payments are deferred into a single final payment of around half the loan amount. But your interest is calculated on the whole amount. Make no mistake you are borrowing the FULL price of the car and that's what you are liable for and paying interest on. The PCP agreement allows you to return the car in lieu of a final payment, or to pay the lump sum and keep the car.
So if you are prepared to take out a pcp at 12% or more over 3 years then hand back the car - It's 6 years old now,by the way-you are actually accepting tht in 3 years time you will have spent 36x monthly payments at a sky high interest rate and have no car.
If you take out a bank loan over the same period but at a reasonable rate of interest, your payments will be higher but you will have a car after the three years are up.
Simple equation: Is the sum of (PCP deposit+(36xmonthlies) ) greater or lesser than ((total amount repaid in bank loan)-(residual value of car))
I think you'll find that pcp is far more expensive.
And if you can afford to buy outright, a pcp is even more unreasonable. You're simply borrowing cash at 12% interest to keep in your bank at 0%.
Interest rate is taking the piss - you can end up paying more for a used car than a new one because the interest rate is usually double.
You say 2-3 year old car...if it's 3 years old you're out of warranty and into MOT, tyres, consumables. PCP a new car and you'd be unlucky to even have to replace the front tyres, you might need windscreen wipers though.
It's only affordable because your monthly payments are deferred into a single final payment of around half the loan amount. But your interest is calculated on the whole amount. Make no mistake you are borrowing the FULL price of the car and that's what you are liable for and paying interest on. The PCP agreement allows you to return the car in lieu of a final payment, or to pay the lump sum and keep the car.
So if you are prepared to take out a pcp at 12% or more over 3 years then hand back the car - It's 6 years old now,by the way-you are actually accepting tht in 3 years time you will have spent 36x monthly payments at a sky high interest rate and have no car.
If you take out a bank loan over the same period but at a reasonable rate of interest, your payments will be higher but you will have a car after the three years are up.
Simple equation: Is the sum of (PCP deposit+(36xmonthlies) ) greater or lesser than ((total amount repaid in bank loan)-(residual value of car))
I think you'll find that pcp is far more expensive.
And if you can afford to buy outright, a pcp is even more unreasonable. You're simply borrowing cash at 12% interest to keep in your bank at 0%.
Edited by Macneil on Saturday 26th January 21:12
Not all used pcp deals are bad, we recently got a facelift v8 diesel 2014 cayenne with very low mileage, immaculate etc, Lovely! I cant find a mark on it, tyres are new on rear and about 6mm front, brakes look a little worn so i will expect to replace them to be fair.
Got the rate down a bit from the initial 6.9% (about 6.3 iirc) 35mths porsche warranty and a large balloon meaning that the cost of this fully loaded cayenne over the whole term was less than a new (but loaded) glc 350 on a lease.
I know you cant compare new and used but i know where id rather be sitting.
That said most pcp deals i see on used cars are so bad i am astounded anyone would even consider them. Thousands and thousands interest on cars in the mid 20's
Got the rate down a bit from the initial 6.9% (about 6.3 iirc) 35mths porsche warranty and a large balloon meaning that the cost of this fully loaded cayenne over the whole term was less than a new (but loaded) glc 350 on a lease.
I know you cant compare new and used but i know where id rather be sitting.
That said most pcp deals i see on used cars are so bad i am astounded anyone would even consider them. Thousands and thousands interest on cars in the mid 20's
Thank you all.
Put simply I can’t make the sums add up.
I’ve got a car that’s worth c£16,000 which I can use towards the new car and have & c£10,000 in the bank.
I have a car allowance of c£450PCM and I’m not keen on spending more than that per month.
For the car I want with the options I want it for the PCP length I want it simply doesn’t work.
On a £55,000 car over 36 months with a £5,000 deposit including the contribution of £9,400 it’s calculated at £880 PCM. This is based on a new car and if I base it on a secondhand car of a similar spec etc I can’t afford it unless I do go older etc and I fear that’s the issue; I’m trying to buy a car I can’t afford.
Edited to say I can get a bank loan of £20,000 with a monthly repayment of £590 over 36 months @3.9%.
Put simply I can’t make the sums add up.
I’ve got a car that’s worth c£16,000 which I can use towards the new car and have & c£10,000 in the bank.
I have a car allowance of c£450PCM and I’m not keen on spending more than that per month.
For the car I want with the options I want it for the PCP length I want it simply doesn’t work.
On a £55,000 car over 36 months with a £5,000 deposit including the contribution of £9,400 it’s calculated at £880 PCM. This is based on a new car and if I base it on a secondhand car of a similar spec etc I can’t afford it unless I do go older etc and I fear that’s the issue; I’m trying to buy a car I can’t afford.
Edited to say I can get a bank loan of £20,000 with a monthly repayment of £590 over 36 months @3.9%.
Edited by Joe5y on Saturday 26th January 21:33
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