Why the PH hatred for PCP?
Discussion
Afternoon chaps,
I have observed on here frequent disparaging comments with regards to the funding of cars through PCP, and was wondering why?
For the last 7 years or so, I've had a company car. That's nice and easy. It has a monthly cost that covers absolutely everything except for fuel. Recently, however, my employer announced that they're canning company cars and are just going to pay an allowance instead, so when the lease on my current car expires, I'm going to have to find an alternative.
Assuming that I don't happen to have many thousands of pounds sitting around doing nothing which I can use to purchase the vehicle of my choice, I am, in one form or another, going to have to set myself a monthly budget towards motoring costs.
Option one would be to take out a loan and get whichever car I want. Yes, this gives me the option of buying used as well as new, which isn't necessarily a bad thing, but on the other hand, means I've actually got to purchase the car and then go through all the hassle of selling it when I want something different.
Option two is the PCP-type arrangement, where I can just say "I want that car for a defined period of time, then I'll give it back and choose something new".
On the one hand, I assume there's more profit margin baked in to the PCP deal, but on the other, there's far less uncertainty, as I don't have to worry about trying to second-guess depreciation rates.
If I go second-hand, yes, I might well get far more car for my money with far less depreciation, but on the other hand, it'll be harder to get the car I actually want (a curse on all the weirdos who insist on buying dull as f
k cars with monochrome interiors and exteriors! You can have any colour you want so long as it's black, white, or any shade of silvery-grey in between!), and there's more uncertainty over running/servicing costs.
As someone coming out of a company car, it just strikes me that so long as I can find something I like within my monthly budget, then a PCP or similar deal with as much of the cost included into one single payment (in the ideal world, I'd like a deal similar to my company car, where fuel is my only variable) just seems like the sensible, logical approach to take?
What am I missing?
I have observed on here frequent disparaging comments with regards to the funding of cars through PCP, and was wondering why?
For the last 7 years or so, I've had a company car. That's nice and easy. It has a monthly cost that covers absolutely everything except for fuel. Recently, however, my employer announced that they're canning company cars and are just going to pay an allowance instead, so when the lease on my current car expires, I'm going to have to find an alternative.
Assuming that I don't happen to have many thousands of pounds sitting around doing nothing which I can use to purchase the vehicle of my choice, I am, in one form or another, going to have to set myself a monthly budget towards motoring costs.
Option one would be to take out a loan and get whichever car I want. Yes, this gives me the option of buying used as well as new, which isn't necessarily a bad thing, but on the other hand, means I've actually got to purchase the car and then go through all the hassle of selling it when I want something different.
Option two is the PCP-type arrangement, where I can just say "I want that car for a defined period of time, then I'll give it back and choose something new".
On the one hand, I assume there's more profit margin baked in to the PCP deal, but on the other, there's far less uncertainty, as I don't have to worry about trying to second-guess depreciation rates.
If I go second-hand, yes, I might well get far more car for my money with far less depreciation, but on the other hand, it'll be harder to get the car I actually want (a curse on all the weirdos who insist on buying dull as f
k cars with monochrome interiors and exteriors! You can have any colour you want so long as it's black, white, or any shade of silvery-grey in between!), and there's more uncertainty over running/servicing costs.As someone coming out of a company car, it just strikes me that so long as I can find something I like within my monthly budget, then a PCP or similar deal with as much of the cost included into one single payment (in the ideal world, I'd like a deal similar to my company car, where fuel is my only variable) just seems like the sensible, logical approach to take?
What am I missing?
hyphen said:
Kermit power said:
Cheers all. I guess the fact that I sell Software as a Service for a living goes some way to explaining why "Car as a Service" seems more logical to me than it does to many others! 
Not really. Business and domestic requirements are often different... Not much point attempting to sell office 365 to your average Joe who is happy with his office 2007.Pretty poor salesman to not know this
You'd think that this far into the history of the automobile, the evolution of bells and whistles would be starting to plateau, wouldn't you? Personally, I think with all the new stuff coming out around hybrid drivetrains and technology interfaces like Android Auto, it's developing faster than it has for a couple of decades or more.
Sheepshanks said:
Deep Thought said:
Because of course everyone who PCPs or leases has no savings at all and is living from one pay cheque to the next. 
From the OP:Kermit power said:
Assuming that I don't happen to have many thousands of pounds sitting around doing nothing which I can use to purchase the vehicle of my choice, I am, in one form or another, going to have to set myself a monthly budget towards motoring costs.
Inigo Montoya said:
Deep Thought said:
Agreed. That doesn't make PCP deals or credit cards for that matter wrong for everyone else though?
Depends what you mean by "wrong".With a PCP you are making a choice. The good news is that you get a shiny new car and a low (ish) monthly payment. The bad news is that you are locked into that car for several years, you will never own the car (unless you make a balloon payment), and you will pay more in the long run in interest because you are borrowing for a longer period. You get the big hit of the first depreciation.
If you really really want that shiny new car and you can't afford a higher repayment, then PCP is just about your only option. As long as you don't mind paying more for your motoring than almost any other choice (apart from credit cards).
PCPs aren't wrong, but they are generally better news for the car company than for the punter. That's why they were invented. One day we will probably see them in the same light as endowment mortgages or PPI.
Let's say I go to a mortgage advisor and tell him I've got a monthly budget of £1k for my mortgage. He gives me options of paying a straight repayment mortgage and paying my house off in 25 years, or he arranges an interest-only mortgage and an investment, both covered by the £1k per month, and projected to pay my house off in 23 years instead. So long as he has explained the risks involved, I don't see that it is intrinsically a bad idea for me to take it?
Let's say on the other hand, he says "hey, why don't you push the boat out and spend the whole grand on an interest only mortgage, and "make an investment to build up the capital, nudge-nudge, wink-wink"? In that case, yes, I'd totally accept it as a case of mis-selling.
Similarly, if I rock up to a car dealership and say I want to buy a car and run it into the ground over the next 20 years, I'd accept that trying to get me to take a PCP would be bad selling. If, on the other hand, I say "the company says I have to spend the allowance on something fewer than six years old, I'd like to make the process as simple as possible, and I don't want to mess around having to sell a car every few years", then I'd say it would be just as bad selling to try and get me onto a 3yr old used car for cash, even if it had taken much of the depreciation hit already.
From what I can see, the maximum vehicle age stipulation on the cash allowance is probably the big deciding factor here...
Dr Jekyll said:
Kermit power said:
Whilst I wouldn't necessarily argue the point, I think it's important to point out that there's nothing intrinsically wrong with endowment mortgages or PPI. It's the mis-selling of them which has caused all the problems.
Let's say I go to a mortgage advisor and tell him I've got a monthly budget of £1k for my mortgage. He gives me options of paying a straight repayment mortgage and paying my house off in 25 years, or he arranges an interest-only mortgage and an investment, both covered by the £1k per month, and projected to pay my house off in 23 years instead. So long as he has explained the risks involved, I don't see that it is intrinsically a bad idea for me to take it?
Let's say on the other hand, he says "hey, why don't you push the boat out and spend the whole grand on an interest only mortgage, and "make an investment to build up the capital, nudge-nudge, wink-wink"? In that case, yes, I'd totally accept it as a case of mis-selling.
Similarly, if I rock up to a car dealership and say I want to buy a car and run it into the ground over the next 20 years, I'd accept that trying to get me to take a PCP would be bad selling. If, on the other hand, I say "the company says I have to spend the allowance on something fewer than six years old, I'd like to make the process as simple as possible, and I don't want to mess around having to sell a car every few years", then I'd say it would be just as bad selling to try and get me onto a 3yr old used car for cash, even if it had taken much of the depreciation hit already.
From what I can see, the maximum vehicle age stipulation on the cash allowance is probably the big deciding factor here...
That's an important difference.Let's say I go to a mortgage advisor and tell him I've got a monthly budget of £1k for my mortgage. He gives me options of paying a straight repayment mortgage and paying my house off in 25 years, or he arranges an interest-only mortgage and an investment, both covered by the £1k per month, and projected to pay my house off in 23 years instead. So long as he has explained the risks involved, I don't see that it is intrinsically a bad idea for me to take it?
Let's say on the other hand, he says "hey, why don't you push the boat out and spend the whole grand on an interest only mortgage, and "make an investment to build up the capital, nudge-nudge, wink-wink"? In that case, yes, I'd totally accept it as a case of mis-selling.
Similarly, if I rock up to a car dealership and say I want to buy a car and run it into the ground over the next 20 years, I'd accept that trying to get me to take a PCP would be bad selling. If, on the other hand, I say "the company says I have to spend the allowance on something fewer than six years old, I'd like to make the process as simple as possible, and I don't want to mess around having to sell a car every few years", then I'd say it would be just as bad selling to try and get me onto a 3yr old used car for cash, even if it had taken much of the depreciation hit already.
From what I can see, the maximum vehicle age stipulation on the cash allowance is probably the big deciding factor here...
Inigo Montoya said:
Kermit power said:
Let's say I go to a mortgage advisor and tell him I've got a monthly budget of £1k for my mortgage. He gives me options of paying a straight repayment mortgage and paying my house off in 25 years, or he arranges an interest-only mortgage and an investment, both covered by the £1k per month, and projected to pay my house off in 23 years instead. So long as he has explained the risks involved, I don't see that it is intrinsically a bad idea for me to take it?
That's not necessarily an endowment mortgage. Paying off an interest-only mortgage with, say, an index tracker investment is a perfectly legitimate and sensible strategy if you know the risks. It's not for everyone but it can make good financial sense if you know what you're doing.Endowment mortgages got a bad rep when it was revealed just how much of the repayments go back to the adviser who sold it in the first place. Explaining that to the punter doesn't make endowments a good choice.
MAS said:
Grounds for complaint
- It wasn’t fully explained to you that there could be a shortfall at the end of your mortgage term.
- You were told that the endowment would definitely pay off the mortgage.
- The fees and charges were not explained to you.
- Your adviser didn’t complete an assessment of your financial circumstances and attitude to risk.
- Your endowment policy and mortgage were set up to run into your retirement and your adviser didn’t ensure you would have the income to continue to make payments.
- Your adviser recommended that you cash in an existing endowment and then sold you another.
Sure, big fees might've been a reason for an unscrupulous financial adviser wanting to sell you one, and the same may well be true of PCPs, but that's not in itself a reason for complaint.- It wasn’t fully explained to you that there could be a shortfall at the end of your mortgage term.
- You were told that the endowment would definitely pay off the mortgage.
- The fees and charges were not explained to you.
- Your adviser didn’t complete an assessment of your financial circumstances and attitude to risk.
- Your endowment policy and mortgage were set up to run into your retirement and your adviser didn’t ensure you would have the income to continue to make payments.
- Your adviser recommended that you cash in an existing endowment and then sold you another.
Inigo Montoya said:
Kermit power said:
Sure, big fees might've been a reason for an unscrupulous financial adviser wanting to sell you one, and the same may well be true of PCPs, but that's not in itself a reason for complaint.
We're not talking about reasons for complaints. We're talking about whether PCP or endowments or PPI are worth it or not. A poor deal which has been explained to you is still a poor deal.Inigo Montoya said:
Okay, so let's do the maths.
You've spent £1,500 on the Saab. Add in the £500k you paid for it and we're in for £2k. At any point we could sell the car and get something back, but not as much as we've put into it.
The golf costs £300 a month. You don't mention whether your mate had to pay a deposit. I'm in a generous mood, so we'll let that one go. I'd guess the deposit would be several thousands.
So in year 1, your Golf costs you £3,600 plus the deposit but you don't own the car. In year 2, it costs you another £3,600 and you still don't own the car. And it keeps on costing you £300 per month or £3,600 per year until you get to the end of the deal. At that point you still don't own the car. You either have to start another PCP deal or find the cash to buy the car.
Is your Saab going to cost you £3,600 a year in repairs?
Having a maintenance contract sounds like it's an easy life but it's very little difference from booking your car in the garage and paying for the repairs as you go. The cost of the contract is always set high so the garage makes a profit.
Your £300 a month Golf is actually £300 a month for the foreseeable future.
Still tempted?
This is a straw man argument though, as you're comparing a new car with an old clunker. However you pay for it, a new car is always going to cost more.You've spent £1,500 on the Saab. Add in the £500k you paid for it and we're in for £2k. At any point we could sell the car and get something back, but not as much as we've put into it.
The golf costs £300 a month. You don't mention whether your mate had to pay a deposit. I'm in a generous mood, so we'll let that one go. I'd guess the deposit would be several thousands.
So in year 1, your Golf costs you £3,600 plus the deposit but you don't own the car. In year 2, it costs you another £3,600 and you still don't own the car. And it keeps on costing you £300 per month or £3,600 per year until you get to the end of the deal. At that point you still don't own the car. You either have to start another PCP deal or find the cash to buy the car.
Is your Saab going to cost you £3,600 a year in repairs?
Having a maintenance contract sounds like it's an easy life but it's very little difference from booking your car in the garage and paying for the repairs as you go. The cost of the contract is always set high so the garage makes a profit.
Your £300 a month Golf is actually £300 a month for the foreseeable future.
Still tempted?
LarsG said:
If you want to be a PCP renter all you life, over 30 years of paying a month average PCP of £300 it will have cost you:
£108,000.
By the same token in 30 years you could own 4 cars as they last well beyond 10 years.
You could buy 4 top of the range all bells and whistles second hand cars for around £15,000, less if you are more frugal.
£60,000 over 30 years.
Saving you £48,000.
A little simplistic but it makes the point.
That's more compelling as an argument, although I'd have to figure out the impact of the "no cars over six years old" clause in the company allowance.£108,000.
By the same token in 30 years you could own 4 cars as they last well beyond 10 years.
You could buy 4 top of the range all bells and whistles second hand cars for around £15,000, less if you are more frugal.
£60,000 over 30 years.
Saving you £48,000.
A little simplistic but it makes the point.
Just to muddy the waters a bit further, I've been looking at 1-2 year old cars on Autotrader.
I kept to PHEVs, since I have one at the moment and like it, so the Merc C350e, Volvo XC90, X5 and so on...
How on earth do some people rack up such high mileages?!?!? They almost all seem to have done around 50k miles per annum!
I know my mileage is low at around 7k per annum, but 50k? How do people find the time to actually do any work when they stop driving???
I kept to PHEVs, since I have one at the moment and like it, so the Merc C350e, Volvo XC90, X5 and so on...
How on earth do some people rack up such high mileages?!?!? They almost all seem to have done around 50k miles per annum!
I know my mileage is low at around 7k per annum, but 50k? How do people find the time to actually do any work when they stop driving???
Dr Jekyll said:
Kermit power said:
Just to muddy the waters a bit further, I've been looking at 1-2 year old cars on Autotrader.
I kept to PHEVs, since I have one at the moment and like it, so the Merc C350e, Volvo XC90, X5 and so on...
How on earth do some people rack up such high mileages?!?!? They almost all seem to have done around 50k miles per annum!
I know my mileage is low at around 7k per annum, but 50k? How do people find the time to actually do any work when they stop driving???
A hundred miles each way commute can be only 1 1/2 to 2 hours each way. I kept to PHEVs, since I have one at the moment and like it, so the Merc C350e, Volvo XC90, X5 and so on...
How on earth do some people rack up such high mileages?!?!? They almost all seem to have done around 50k miles per annum!
I know my mileage is low at around 7k per annum, but 50k? How do people find the time to actually do any work when they stop driving???
You say that like you think it's sane and normal!!!
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