Are the wheels about to fall of car finance?

[daemon]

Alex_225 said:

Was chatting to someone about their car and how they're getting rid of it as it's the end of the PCP deal they have. I asked how much the balloon payment was, about £10k. Car was worth more than that so I said, why not borrow £10k and buy the car, since they really liked it. Answer to that was, 'What if something breaks?' and 'I like new cars'. Like a BMW with 16k on the clock will be a sudden money pit.

Instead, start another PCP deal on a cheaper car than the previous model because the £8k deposit is now only £2k......I can't fathom this kind of mentality. As after then next PCP deal comes to an end where's no equity there so then what? Back to an older car? Downgrade to an even lower spec car? Just doesn't seem sustainable.

I'm not damning all PCP deals, I think there are some good deals out there at an almost disposable monthly amount for a really good car. I just don't understand paying so over the odds on mediocre cars.

People like the security of an all inclusive set monthly figure that covers depreciation, warranty and often servicing. Its pretty much hassle free.

For 90% of the general public a car is just an object. Chances are your mate "thinks" a BMW 318i / 118i / whatever is a decent car and hes happy with the brand so will pay a bit of a premium over a VW or Ford for it.

If down the line he doesnt want to continue with another PCP or PCH he'll either have to put his hand in his pocket and stump up some cash for another car or take out a loan or straight car finance.

Could he buy something a lot more interesting for less? Yes. Does he care? Probably not, no as what hes doing meets his primary requirements of a car.

[funkyrobot]

Alex_225 said:

Was chatting to someone about their car and how they're getting rid of it as it's the end of the PCP deal they have. I asked how much the balloon payment was, about £10k. Car was worth more than that so I said, why not borrow £10k and buy the car, since they really liked it. Answer to that was, 'What if something breaks?' and 'I like new cars'. Like a BMW with 16k on the clock will be a sudden money pit.

Instead, start another PCP deal on a cheaper car than the previous model because the £8k deposit is now only £2k......I can't fathom this kind of mentality. As after then next PCP deal comes to an end where's no equity there so then what? Back to an older car? Downgrade to an even lower spec car? Just doesn't seem sustainable.

I'm not damning all PCP deals, I think there are some good deals out there at an almost disposable monthly amount for a really good car. I just don't understand paying so over the odds on mediocre cars.

I'm pretty much the only person in my family who has not used some form of PCP to buy a car.

My brother just handed back a 2010 318d that he took out in 2014. In just under three years, he spent over £11k 'renting' that car.

My other brother took out an Audi A1 on PCP a few years ago. He got a terrible deal and was paying over £300 a month, with a stinking balloon payment. When he handed it back at 50%, he had spent thousands on it. I remember him trying to get rid of it when he had only used it for about a year and a half. He got right royally shafted with that.

My dad has been using BMW PCP's for a long, long time now. I think he pretty much got stuck with it around the year 2000. He is currently in a X5 M50d that is costing him much more than my monthly mortgage payments. Every so often, he will appear and say he only had to put another £3k or so in to get another new car. I don't think he will ever get out of that cycle.

I have other examples, but they are friends etc., so it's non of my business.

I understand that sometimes, the system can be used beneficially. Unfortunately, I think that a lot of people are won over by the novelty of a shiny new car, now, and they don't think of the long term. It's surprising how many people I know simply do not consider the balloon payment. It's as if the car is '£x' per month for three years, and that's it.

[Sheepshanks]

funkyrobot said:

It's surprising how many people I know simply do not consider the balloon payment. It's as if the car is '£x' per month for three years, and that's it.

A Honda salesman called and tried to get us to change one of our cars early recently, which is on PCP only because it was 0% AND had a deposit contribution.

He offered us a deal to change it into a new one and seemed genuinely baffled why I wanted to know the GFV. He said hardly anyone goes the full term.

[HedgeyGedgey]

Sheepshanks said:

A Honda salesman called and tried to get us to change one of our cars early recently, which is on PCP only because it was 0% AND had a deposit contribution.

He offered us a deal to change it into a new one and seemed genuinely baffled why I wanted to know the GFV. He said hardly anyone goes the full term.

Pretty much this. All of my friends who's car is on PCP would never be able to afford the balloon payment. All their disposable income is spent on the payments. And there is the problem in my opinion, these people will never be able to pay the balloon amount and they'd never get a loan big enough to pay for it either. Spend all their savings, or the cash they get from selling their previous car on the deposit for the PCP car. They're stuck in this cycle now as they have zero equity left at the end! I'm not an expert by any means on PCP deals, I still don't really understand how they work tbh but I know it's not something I won't be ever doing

[Granfondo]

BigLion said:

We have far higher levels of home ownership than our euro counterparts...

Not true!

[liner33]

Alex_225 said:

Was chatting to someone about their car and how they're getting rid of it as it's the end of the PCP deal they have. I asked how much the balloon payment was, about £10k. Car was worth more than that so I said, why not borrow £10k and buy the car, since they really liked it. Answer to that was, 'What if something breaks?' and 'I like new cars'. Like a BMW with 16k on the clock will be a sudden money pit.

Instead, start another PCP deal on a cheaper car than the previous model because the £8k deposit is now only £2k......I can't fathom this kind of mentality. As after then next PCP deal comes to an end where's no equity there so then what? Back to an older car? Downgrade to an even lower spec car? Just doesn't seem sustainable.

I'm not damning all PCP deals, I think there are some good deals out there at an almost disposable monthly amount for a really good car. I just don't understand paying so over the odds on mediocre cars.

This the situation I'm thinking about , I have until April next year but

My GFV is £10k if I take out a personal loan for £10k thats about £300 pm which is very close to the £300pm my pcp currently is

So I could pay £300 pm + maintenance and repairs and I will own a 6 year old car at the end or I could carry on paying £300 pm and be driving a brand new car instead with no extra worries and controlled costs

[funkyrobot]

liner33 said:

Alex_225 said:

Was chatting to someone about their car and how they're getting rid of it as it's the end of the PCP deal they have. I asked how much the balloon payment was, about £10k. Car was worth more than that so I said, why not borrow £10k and buy the car, since they really liked it. Answer to that was, 'What if something breaks?' and 'I like new cars'. Like a BMW with 16k on the clock will be a sudden money pit.

Instead, start another PCP deal on a cheaper car than the previous model because the £8k deposit is now only £2k......I can't fathom this kind of mentality. As after then next PCP deal comes to an end where's no equity there so then what? Back to an older car? Downgrade to an even lower spec car? Just doesn't seem sustainable.

I'm not damning all PCP deals, I think there are some good deals out there at an almost disposable monthly amount for a really good car. I just don't understand paying so over the odds on mediocre cars.

This the situation I'm thinking about , I have until April next year but

My GFV is £10k if I take out a personal loan for £10k thats about £300 pm which is very close to the £300pm my pcp currently is

So I could pay £300 pm + maintenance and repairs and I will own a 6 year old car at the end or I could carry on paying £300 pm and be driving a brand new car instead with no extra worries and controlled costs

Would you need more money for the next car deposit though?

[liner33]

funkyrobot said:

Would you need more money for the next car deposit though?

Depends on the cars value at the at of the term , I'm thinking not

[funkyrobot]

liner33 said:

funkyrobot said:

Would you need more money for the next car deposit though?

Depends on the cars value at the at of the term , I'm thinking not

I see. So if the GFV is £10k and the car is actually valued at £12k, you get the £2k for another vehicle?

[TA14]

liner33 said:

My GFV is £10k if I take out a personal loan for £10k thats about £300 pm which is very close to the £300pm my pcp currently is

So I could pay £300 pm + maintenance and repairs and I will own a 6 year old car at the end or I could carry on paying £300 pm and be driving a brand new car instead with no extra worries and controlled costs.

So you just have to decide whether it's worth £5K to minimise your risks for three years; if yes, new PCP, if no then car loan

[liner33]

funkyrobot said:

I see. So if the GFV is £10k and the car is actually valued at £12k, you get the £2k for another vehicle?

Exactly.

[Sheepshanks]

liner33 said:

So I could pay £300 pm + maintenance and repairs and I will own a 6 year old car at the end or I could carry on paying £300 pm and be driving a brand new car instead....

That's the PCP "trap". The above two options are the only things most people consider, so it looks like a no-brainer to start a new PCP.

[funkyrobot]

liner33 said:

funkyrobot said:

I see. So if the GFV is £10k and the car is actually valued at £12k, you get the £2k for another vehicle?

Exactly.

Right. Does this happen often (where the value is greater than the GFV)?

[liner33]

TA14 said:

So you just have to decide whether it's worth £5K to minimise your risks for three years; if yes, new PCP, if no then car loan

Its the same decision we all make, do I spend more to have a better car ? Its probably going to be more than £5k though , closer to 7 or 8k I reckon

I'm not sure which is going to be best for me, I'm doing the maths and working things out, my initial thoughts are that at 7% or so pcp wont work for me and a lot of deals are around that level now

[TA14]

liner33 said:

TA14 said:

So you just have to decide whether it's worth £5K to minimise your risks for three years; if yes, new PCP, if no then car loan

Its the same decision we all make, do I spend more to have a better car ? Its probably going to be more than £5k though , closer to 7 or 8k I reckon

I'm not sure which is going to be best for me, I'm doing the maths and working things out, my initial thoughts are that at 7% or so pcp wont work for me and a lot of deals are around that level now

Your decision will depend on your personal finances and preferences and you seem to be assessing your options in a reasonable way. I tend to get the impression that problems may happen if people have not done this and end up in a couple of years with a different financial landscape which offers higher PCP costs and them not having cash for an alternative purchase.

[Scootersp]

Sheepshanks said:

liner33 said:

So I could pay £300 pm + maintenance and repairs and I will own a 6 year old car at the end or I could carry on paying £300 pm and be driving a brand new car instead....

That's the PCP "trap". The above two options are the only things most people consider, so it looks like a no-brainer to start a new PCP.

Indeed, they could (should?) even consider keeping the car for 9 years.

Years 7-9 and they potentially save £10K on a pcp as there is no monthly loan/finance payment left to pay, if you could keep it until it was 12 years old (shock horror I know!) then that's £20K.

When it comes down to it, however you pay, new (all?) cars are expensive! The vast majority of us will have had finance of some sort to buy a car, lots will have upgraded/changed when an agreement ended, but I also I think anyone who hasn't tried it yet should aim to clear their finance and enjoy a spell with no commitments.

[Alex_225]

liner33 said:

This the situation I'm thinking about , I have until April next year but

My GFV is £10k if I take out a personal loan for £10k thats about £300 pm which is very close to the £300pm my pcp currently is

So I could pay £300 pm + maintenance and repairs and I will own a 6 year old car at the end or I could carry on paying £300 pm and be driving a brand new car instead with no extra worries and controlled costs

Thing is I can see the value in buying the car. Assuming that £10k is the cars value or ideally it's worth more.

It's a car you've owned from new and at the end you'll actually own it. That would be my preference but it's a personal thing.

You're right you could be driving a brand new car with no extra worries, until the end of that term and my worry would always be where my financial situation will be in that time? I'm not assuming anyone's situation but that'd be my concern.

[Sheepshanks]

Scootersp said:

Years 7-9 and they potentially save £10K on a pcp as there is no monthly loan/finance payment left to pay, if you could keep it until it was 12 years old (shock horror I know!) then that's £20K.

You say that, but the car is still depreciating, it's throwing up the odd chunky bill and you're starting to get advisories on the MOT for hefty work. If you need to make a long trip you're checking the recovery service options, etc.

[Lucas Ayde]

liner33 said:

This the situation I'm thinking about , I have until April next year but

My GFV is £10k if I take out a personal loan for £10k thats about £300 pm which is very close to the £300pm my pcp currently is

So I could pay £300 pm + maintenance and repairs and I will own a 6 year old car at the end or I could carry on paying £300 pm and be driving a brand new car instead with no extra worries and controlled costs

Except that you would OWN the current car outright in another three years (after six years total) whereas if you take on another £300 per month deal, you will either have to raise the GFV to buy that one or else give it back.

You can either own a car after six years or pay roughly the same for six years and NOT own the car (without paying another big chunk). You see the difference?

This cycle of people perpetually paying top whack to have a new car every three years or so (which they never get to own outright) is what the industry loves.

[Lucas Ayde]

Sheepshanks said:

You say that, but the car is still depreciating, it's throwing up the odd chunky bill and you're starting to get advisories on the MOT for hefty work. If you need to make a long trip you're checking the recovery service options, etc.

Depreciation levels off considerably over time - the monster depreciation is in years 1 & 2, which is why it's a dumb idea (financially speaking) to change to a new car every 2-3 years.

And it's not like any car over three years old is automatically going to give a massive amount of trouble. Assuming the typical 6k pa mileage of a PCP deal, you could reasonably expect trouble-free motoring out to the six year mark and modest maintenance fees out to about a decade.