It’s all relative! Quite simple really. You’re paying the depreciation. Plain and simple. You don’t get your deposit back, so small deposit and larger monthly or vice versa, large deposit smaller monthly. Best thing is to find a car with low depreciation.
I managed to get £10k off the retail price, I paid £8k deposit (I should have paid £1k with hindsight) and £278/month for 3 years. The final payment was about 3k lower than the value of a 3 year old car that was the same spec as mine. The interest rate was 2.5%. I am happy that I had a car from new and now I plan to keep it for another 7-10years. Good video.
The real problem with a PCP is that it is likely that the first time it is done there will be a wholly owned part exchange as a great big deposit, as explained in the first minutes of the video. However when the PCP term comes to an end there is no more owner equity. The next car will therefore have to be financed in total. In my case, in 2017 I took a PCP on a Volvo XC90 and I was very glad indeed when it came to an end in March this year with lockdown starting. The car was almost certainly surplus to requirements so I could just hand it back with no more to pay and ho hassle. Not sure I'll do it again though. Probably not. It just happened to work out very well for me in the circumstances.
EXACTLY - nothing depreciates faster than a car. Get the cheapest PCP you can, save the extra you would have spent on HP and invest it. Keep doing that, stay in a new car with no repair costs. Keep rolling the extra money into investment that grows money. Lather-rinse-repeat.
You’re spot on, if you can budget an amount every month to pay PCP then you’ll always be driving around in new cars without forking out the huge amount to buy a car then having to run it into the ground to make it worthwhile. If you’re in a good job that’s secure it’s a no brainier.
Or... buy a 4 or 5 year old car and run it for 2 or 3 years and sell it for only a couple of grand less - that’s 55 quid a month in depreciation. If you get the right one, you could get away with no depreciation at all. Or buy a something worth 2k and Itll still be worth 2k in 5 years
the point you made at the beginning is also so important, the advent of PCP is allowing manufacturers and dealers to raise the on the road cash price. that means we are all paying more than what we should for our cars, it also makes cash buyers less powerful because the dealers have a bigger market for their cars by using PCP to enable those who do not have the cash to purchase a car to do so in reality they should not be even looking at the car let alone buying it a similar thing is happening in the housing market with help to buy another crash is coming
My dad used to say - A fool and his money are soon parted. I paid cash for a wonderful Porsche 997, we ran it for 5 years and lost £500.00 The key to success is, don't get carried away with things you can't afford but more importantly, if you buy right, then you can sell right.
I'm a petrol head, but I'm also cautious with money. Whilst I like the thought of driving a new car, I don't want the stress of having to make PCP repayments when the economy is uncertain knowing that I wll still not own the car at the end of it without a big balloon payment. So I save up and buy used cars outright. When I was furloughed at the start of Covid I knew my car was paid for, one less thing to stress about it. I know that for many the attraction of new cars is the perceived reliability and certainty of having faults fixed for nothing on warranty. Its the fear of unknown bills which drive many to PCP.
I'm not sure people rent cars on PCP contracts because of their fear of unknown bills, it's all to do with creating the illusion of perceived wealth and badge snobbery. Like you I have always saved money to buy a car outright and have never had a loan or PCP contract and in these uncertain times our attitude to money/debt will hold us in good stead. It's a shame that so many people are living beyond their financial means for a metal box on wheels.
Shinjuku Red You’re right that some people see cars as a status symbol. There’s a guy sat next to me at work who changes car every one to two years, always trading up a model or trim level, and always on PCP. I wonder how he felt when we went onto furlough! But there are people who like the certainty of knowing what their bills are each month, and PCP deals with insurance and maintenance included appeal to those people. And there are others (including my partner) who wants a car they can rely on and perceive new cars to be more reliable and therefore don’t drive cars over a few years old.
What you have got to think thought is that every car is a depreciating asset, yes new cars depreciate more than used, but they all go down in money. You can save up 15-20k over a few years and then you have a choice. Use that bulk sum of money to buy a car where you will never see that 20k again as next year the car will be worth 15k. After a few years you can sell it and then get 10k back and use that 10k plus the next 10k you have saved to buy another 20k car that will lose money. Or you can just get a car on pcp/finance and pay for the car monthly with your wages and you can use the 20k you have saved to invest it where it will make more money rather than lose it.
@@garymwilliams1 How people live their lives/spend their money is all down to priorities. Some have to have the latest phones, designer clothes, big house and rented German cars. I have spent most of my adult life reducing debt and not increasing it, I paid off my mortgage at the age of 47, have not taken out a loan for at least 15 years, have never used credit cards and never for a moment wanted to rent a car. I have 2 close friends who both rent German cars one has a Merc the other a BMW. Both paid a £5K deposit (which you never get back and so is a gift to the dealer) and pay £400 per month for 3 years. That's nearly £20K for a car you never own. To me that's absolute madness but is indicative of how many (mainly younger) people see that being debt ridden at a young age is now a normal part of life. I have a 13 year old Toyota Yaris 1.8 SR that has 140K miles on it and has never had a problem. The only thing I've ever had to change was one battery and and an end piece to the exhaust system. If you buy a Japanese car you don't have to worry about it going wrong ever and so there is no need to rent expensive cars on PCP contracts. I have been saving for a few years now for another car (I won't get rid of the Toyota as it's not worth anything now and yet just keeps on going and passing MOT's etc) I have enough money to buy a 2 year old Lexus CT200h maybe a Premier spec model but am going to wait until next spring before I do as I think when the furlough scheme ends in October their will be a lot of company cars given back to dealers as people start losing their jobs. I do think the pandemic may finally make people understand that being in debt to "stuff" is a ridiculous way to live and the stress it must cause cannot be worth it. I expect your PCP friendly work colleague is really stressed out atm. You should get your partner to buy a second hand Toyota, Lexus or Honda and save thousands of pounds.
@@jakbad7268 Or you could just buy the car outright and run it for the next 12-15 years as I have. Problem is a lot of people want the latest thing, can't save/won't save, want to keep up with their friends/neighbours and are badge snobs. I paid £7,800 for my Yaris 1.8 SR in 2009 and it's still not had 1 single fault, I've not even had the air con re-gassed yet. It just never goes wrong. Obviously the car is getting old and I have been putting money aside over the last couple of years for a replacement. But I won't be renting a car. I have a couple of mates who are badge snob German car PCP renters and are both paying £20K over 3 years for a car that will never be theirs. Crazy. I will have a about £20K to spend and I'll probably buy a 2-3 year old Lexus outright and run it for the next 12-15 years. that way I'll still have zero outgoings per month and will have a car that will never break down unlike my friends who's cars are always going back to the dealers (German cars are absolute rubbish) Still, each to their own right?
Excellent work and thank you. It seems just a very expensive way to borrow money that offsets the reality of the true cost until the end of the term. Whether you decide to stay in the cycle of trading in or not eventually you will have to pay. Also the dealer has the final say on the trade in value of the car...😬 Oh yeah, and then theres the mileage limit.. You can't have a cow and get the milk for free
Thanks for your comment. If you look at the situation with Porsche GT3's - people are being stung really badly lately - as their values have fallen way more than they said they would.
Certain car brands in 3 years time will not be worth anywhere near the final optional payment.......the only way to view any form of Car finance is that it buys you a lifestyle, so whatever you lose in interest etc, you can use as a value towards the personal happiness that you would never have had if you couldn’t obtain finance.
It’s the same with motorcycles, £11k for a z900rs, £20k + for some adventure bikes, pcp and the I want it now culture, it’s crazy, £10-£20k will get you a top quality second hand car.
It's all about the monthly cost with pcp if your happy with what your paying per month it's not a problem you keep the car 3 years on a 4 year deal while under warranty then trade it in for a new deal and repeat over and over again aslong as your comfortable with your monthly payments then its a good way to have a new reliable car every 3 years
In the BMW example when you factor in the Dealer contribution of £3,250 it is cheaper to buy using PCP rather than cash. The bottom line is you are charged for borrowing the money so you need to look at the APR and Dealer contribution closely to see whether the PCP is worthwhile
How can this possibly be true, you could negotiate the so called dealer contribution against buying a new car anyway, this is a financial impossibility !
With a PCP, you have keep the car in showroom condition otherwise when you hand it back, they'll charge you extra. Its negotiable if you're buying g another car from them and starting the PCP deal again. Its difficult to avoid getting a scratch on it somewhere. You might be ultra careful but there is always someone who damages it whether it be on purpose or not.
brilliant video, thanks a lot, very helpful, I always buy cars chase, regardless of how long I keep them and this shows I'm justified. I don't like the idea of always having a monthly payment for a car.
Appreciate this is 2 years old. BUT please don't get yourself into debt now (pandemic or no pandemic)... SAVE your money to support your family! The only reason anyone needs to be flash is pure ego! Let go of your ego, don't keep up with the Jones' (and you'll be far happier)! Material objects do not bring true happiness, they are a quick temporary fix! But then you knew that.... (it's breaking the cycle that's hard)! This video is insightful and can be helpful (if you can control yourself) and if you really do need a super duper bang up to date car, but I can't see what a new(ish) car can do that a 5 to 10 year old car can't?
Great video and great advice. (I'm a former car salesman) My only criticism would be that you never mentioned that the car could be part exchanged at any other dealership. People on PCP deals mistakenly believe that they are tied to that brand/dealership and that's how dealerships retain customers.
Hi, yes I have done a similar thing with my latest daily - I've put a good deposit down (as I owned the trade in), and then put minimal mileage on the PCP over a 48 month period. This gives me a great cash-flow (based on very low monthlys) and allows me to save enough to clear the PCP after 2 years, and start again. I really should make a video about it.
With PCP you must make sure you know you can save that final lump during the other 4 years. I worked it out I can on my new one; and still keep a bit back for other emergencies and work I need to get done. Don't be fooled by the cheap monthly rates; though the up side of them is they can make it affordable even with the lump sum at the end.
Save up a decent deposit of trade in your car, work with the dealer to understand your budget, and get the car over 3 years to run concurrent with the warranty. After 3 years car is paid off and then you have collateral on your drive, ready to put down on your next car... or simply keep. HP everytime .
Absolutely agree. It's the simplicity with which these companies dish out loans that propel the problem. The manager of a local car dealer told me in confidence that if all of their customers defaulted on the payments - they wouldn't know what to do with the cars!
Johnny S you’re misinforming people. The top and bottom of it is that they make millions of cars and new cars are way too expensive for the vast majority of people to buy outright, without these deals they wouldn’t be able to sell most of the cars they make. If you’ve got a decent, steady job PCP isn’t a problem, plus you avoid expensive repair bills with a new car and interest rates on most deals are fixed as far as I know.
Pcp just cost me 13500 grand over 2.5 years with absolutely nothing to show for it. So no, it’s not worth it. If I had bought outright, yes it wouldn’t have been new, but I would have at least had some residual value. THE BALLOON PAYMENT ISNT ALWAYS LESS THAN THE TRADE IN VALUE. This is the bull that the dealer suckered us with, and locked us into a more expensive deal than lease with all the same restrictions
There’s more to it than that. Some finances offer deposit allowance when going on finance, some offer 0% too. Some offer both. Ultimately it depends on whether you want to have the option to buy the car outright at the end. You have to remember that your car can potentially also be worth more than the balloon payment. If you plan on changing then leasing is your way to go. If you’re planning on potentially buying outright then pcp is you’re way to go as it gives you better options than a hp term. It also depends on if you go for new or used. Most used cars have a high interest rate and new cars have a low interest rate so going to a bank for a loan may work out better on a used car.
I view PCP as renting a car I can't afford by paying off the depreciation. An example would be if I bought a new car and sold it I would of lost £12K in depreciation. So PCP'ing the same car over 2/3 years I pay £12k total (with deposit) then I'm no worse off than if I bought the car outright (as still losing). But I have a better car than I can afford outright and I have all that new car main dealer warranty goodness.
Ray Crouzieres I would have agreed with that 15 years ago. Cars are bad now - full of plastic engine parts that degrade quickly and result in cars than depreciate even quicker than in the past. Modern cars cost so much to repair as they are all plastic moulded parts and compacted into the engine cavity so even basic repairs takes multiple hours to dismantle and reassemble. The old model of buy a car and hang onto it for 16 years is dead as fried fucking chicken because the cars themselves negate the process. Work out your own ‘cost of ownership’ (which is different for everyone) get the cheapest PCP you can, save the difference and invest over the PCP term; use your earnings as a trade in deposit and upgrade to a new car - stay in a new car every 4 years. Lather, rinse, repeat.
unclejezza lmao no way you get nothing back if you hand it back, or nearly nothing back. All but one of my cars have lasted with 0 - £500 in repairs over their lifetime and the one that never, I still got a good trade-in. PCP is the most expensive way to rent a car, and it is rent because they rely on people not having the money or credit facility to pay at the end. Leading you into a never ending rental! As I stated pcp is a mugs game, buy new on hp/cash or used with hp/cash but within your budget. My Daughter has an 8 year old car it’s only needed £150 in repairs and it’s perfect, my Wife’s car is 12 years old and has only had £80 spent on it again perfect condition. I’m certain in 10-15 years my car won’t need much spent on it if anything! Good cars made now still last!
@@Ray.842 I don’t think you understand what I’m saying. Yes, you can get lucky with a new car and have few if any repairs over the first 5 Or so years. My experience has been the opposite with my average monthly spend ending up being over £500 p/month across the last 4 cars. Now I spend £250 on 4 year PCP, I am in a brand new vehicle, I have a dedicated £150 p/m that I pay into an investment fund which I’ll use to finance the deposit on the next brand new vehicle (should be around £9k after 48 months) Car is under warranty for 36 months so the likelihood of any expenditure on repair is very low. My ‘cost of motoring’ is lower than ever, I don’t have a car I need to worry about and repair constantly, I have the priveledge of being in a new car every day, I have money making money instead of going into a vehicle. This works for me - the numbers don’t lie. If your system of owning a car for years and years without having to spend money on it works for you, then def keep doing that, but that is not the experience of the majority of people in modern cars!
unclejezza yes I do understand. You save £9k over 4 years for a deposit on your new next rental. Then repeat, to me that’s money down the drain. I just paid £36k for a new car, over the next 6 years it will pay for itself due to the ulez so after 6 years the car is at £0 so if I get another 4-9 years out of it it’s putting money in the bank! Any repairs needed if any come out of what it’s saving me. Tbh it’s the 1st car that should keep saving me money. But I’m not having to give it back for another even if I’ve saved up an extra £9k we only have 1 new car in the family, I wouldn’t have bought it if it wasn’t for ulez! The car I changed I had for 5 years, still had 2 years on warranty and it had 0 problems in 5 years. Whoever gets that car has a fantastic car just hope they live outside the ulez . If your happy doing pcp, it’s your choice but I stand by my comment “it’s a mugs game” dealers love you.
@@Ray.842 oh I understand, my approach is outside your pay grade. Understood! And for clarity - £2k is for the deposit on the next pcp, the other £7k gets rolled back into investment. For even more clarity, people who buy and OWN depreciating assets are the mugs. Anyone with any financial sense will tell you that. Pay the MINIMUM you can for a depreciating asset, Don’t own ANYTHING, invest the money you would have spent buying the thing - grow wealth. See you in 20yrs pal when you’re still working a dead end job for someone else and still driving the same car for 2 decades. I’ll be in the latest Audi with £200k liquidity 😂🤣😂
One thing to note, although you pay slightly more for the car over the term, you have only paid £5000 of your money to acquire the car, giving you the freedom to do as you please with the rest of the cash you had, using your first example, that would be over £14000 cash that you still have in the bank which you could invest or spend in a different manner, which if you did invest could potentially make you more than £599 you spent in interest for the PCP. However good video none the less :)
Would you agree that paying as little deposit (even £0) as possible is a great idea? From my calculations... unless it was specified in the offer to pay X deposit for X% APR (mostly on 0% Finance), putting up a deposit only lowers the monthly payment and doesn't change the total final payment. So from this, paying a £0 deposit and having a high monthly rate.. just pay that high monthly rate with your deposit and have the finance "for free" for the few few months and that'll let you save up more money to keep those payments flowing? Please let me know what you think :)
Samuel Joyce I would agree to an extent yes, if when buying the car and having £0 deposit you can afford the monthly payments then why not. The only way the final payment will change is through changing your annual mileage or length of the term. So if you know how much miles and how long you want to keep the car for certain, then personally I would put as low deposit as possible so that I could keep cash in my bank to invest in other things, but still have an affordable monthly payment - so yeah, if £0 works for you then go for it. Keep in mind manufacturers often offer a deposit contribution too in new cars so deposits are not always required on your part :)
The answer is simple: it depends on the car, depends on the deal. Sometimes PCP works out the best value, sometimes leasing does. Everything has its pros and cons - including buying outright.
Yep, if you can’t afford something without getting yourself into debt then unless it’s a house, it means you can’t afford it, look for a cheaper option. I ended up buying a 4 1/2 year old version of the car I was looking for (VW Touran) earlier this year for cash through a specialist sourcer / buyer for just under half the RRP in my favourite colour and with all the options I wanted (and more). It’s still a current model, has been cherished from new and is in near-perfect condition. If I was bothered then I could put a cheap private plate on it and it’d look brand new. I will continue to look after it and run it until it dies in say 10 - 12 years. Winner.
In the end PCP is like a phone contract - If you intend on outright buying and keeping a car PCP is not for you. Your better off getting a bank loan or HP /CP loan giving as much deposit as you can. PcP is to try and give as little deposit as you can (as long and as much as you can afford the monthly payments) then halfway through the PCP contract trade in the car for a better one youd like, by then the interest would of been paid and the car will be worth more as the next deposit or give it back outright at the end. It's better to get a second hand car on PCP in my oppinion as you dont get that hard loss at the start also. As someone who gets bored of cars quickly and has had bad luck PCP will hopefully work for me until I get the car I really want.
@@australiamak2488 Correct - I traded in my car (a Lotus Exige) which was worth over 50% of the price of the Posche - so I also ended up getting a refund too! That said, the point of video is to show how much more a PCP can cost you in the end, regardless of the monthly payment.
Some people can be extremely naive they just blindly think about the monthly payment but it’s the balloon payment (and even the term balloon payment is scary). In the UK people are so obsessed about having a new car they will happily get stung - I on the other hand only pay cash.
If you cant afford it twice, dont buy it at all. We would all love to drive lovely cars, but doing so is financially the most stupid thing to do. Save up, and buy it for cash when its 3-5 years old with low mileage. I have traded up from £1500 to a car worth over £15k in 2 years. Take your time and you can drive them all. But paying interest is not smart.
Both my pcp deals have been top notch,knew what I was getting into and knew what I was paying,ive had an Audi A5 and now an A6 on it and as long as your happy with the payments then stuff it,go for it🤣🤣🤣
PCP will be the biggest reason future generations get close to retirement age and then suddenly realise they are broke. There are many people who will have perpetual car payment but will never actually own a car. As someone who has always invested my money PCP has always seemed like madness to me.
rufdymond nonsense, I will retire in five to ten years and having had many PCP deals I’ll be far from broke. I’ll own the last car when I retire, and because I don’t buy crap I’ll be able to sell it if I find I’m not in need of it anymore.
Hi - it was actually a Cayman with a number of upgrades (I have made videos with it). But the deposit gave me the low payments and ultimately the cash-flow to run it. That said I did get most of the amount back when I sold it due to it's spec (it had a GT3 Steering wheel and yellow rev counter! - sometimes wish I still had it!). Thanks for watching.
I think a lot of car buyers knows this but not everyone has that amount of free cash sitting in the bank. So like you said buying on PCP can gets. you a much nicer car than you would if buying with cash.
If you are paying cash, where does the £19500 come from? Savings? Or personal loan. With PCP you are not using your money. Keep the deposit low enough and all you are paying is the depreciation of the car while you own it. Don’t forget that the finance company will give you the final valuation at the time of purchase. If your car is worth less at the end of the deal they will still give you the higher amount. I recently finished a PCP on a Range Rover and it was worth £8k less than the agreed final payment. However the finance company covers this amount as the value was agreed at the start of the agreement . If you used your own money you would be liable for this drop
I think we all know if you have to have something on the knock, you will have to pay more in the long run like buying my house, I cry when I see the interest I have paid, but most of us don't have the extra capital to replace the family car to get to work, I am looking at PCP/PCH whatever it's called to get me through the next 3 years because my car which i have had for 17 years is now costing too much and is unreliable. Wouldn't it be nice to just go out and buy a new car, not for me unfortunately so we/I am again are a victim of the fat cats once again bending us over and opening our wallets, just to get to work so we have work harder as usual. Thanks for the advise but 60.000+ for a car I would not entertain that I am looking at upgrading from my MK1 Ford Focus 2.0. for new focus. The way i am looking at it train tickets cost nealy 200 quid a month and at the end of the day you dont own the train, lol Take care Simon
Hi Simon, clearly you can see what the situation is here. The key thing with your house is that it is going up in value, but a car isn't. It makes sense to have a car that is reasonably new and covered under a decent warranty. So my suggestion is that you look for the lowest APR % possible - ideally zero! It can be done, currently our local Vauxhall dealer is offering 0% APR (but I wouldn't buy a Vauxhall even at that rate!). My local BMW dealer was offering just 2.9% recently - as shown in this video at 14:39 minutes in). You can also barter with the dealer for a better rate - I did, and got over 2% knocked off the APR. Finally - try the bank. The Halifax bank offers PCP deals on cars bought from main dealers, and often undercuts their rate (every time I show a car dealer their website they break into a sweat). Good luck, and thanks for watching.
Some of the best monthly payments are due to large deposits too. If you're paying a £5000 deposit every 3 years when you get a new car, that's another £140 onto your monthly cost
PCP can sometimes be good, if the value of the car is a lot less than the final payment, just hand it back. A lot of volume cars can have this negative equity problem. As long as you go into it eyes open, you can see exactly how much it will cost you.
Well it all depends on the trade in value and the residual value at the end of the lease, reality is you will be paying 5%+ interest and will never own an asset. Your point about the pricing of cars is very true, the cash value is unaffordable to the majority of people but just paying the interest costs through PCP is the only way people can access cars of that value. The good thing with a very high depreciation vehicle is that the end of lease value is guaranteed and so the risk lies with the leasing company, if you are only interested in the cash flow father than the true cost of ownership PCP works well but it is not a cheap option.
You can do PCP with £500 deposit. Best to pay as little deposit as possible and keep the period as short as possible (min 2 years I believe). The minimum future value is the kicker - since it is rare that the car when surrendered (if not kept) has actually got the value expected and hoped for. At the end of the day - it depends on your financial situation. The financial sage would say never invest capital in a depreciating asset. If you can get 7% yield on £20K tax free through an ISA - it might make you think again.
I prefer PCH. My car depreciates more per month than I pay. I only do 8K mpa so that helps although I’ve not found as many good deals this year so I’ve extended my 3 year contract by 12 months
My two cents of advice from bitter experience. Only buy a car for cash (bank loan at a low APR or whatever legitimate means) rarely brand new (unless very rare where car will hold value or appreciate), 3-years old where it will have taken its biggest loss, typically 30%-50%, low miles, in a colour most people like for when you sell it and if it’s an exotic a renewable bumper to bumper manufacturer warranty. For example my wife’s 7-year old Audi Q5 3.0 diesel gear box went with only 35,000 miles on it, it would have cost £10,000 to replace it but was covered under extended warranty.
When many people buy these cars on pcp they never go in with the idea that in say in four years you'll pay the balloon payment and own the car. Nobody does that they simply trade in before the end of the contract and start a new contract with the knowledge that its reliable, under warranty and up to date.
The problem with that is that you can end up in negative equity - where the you have to pay them to take the car back! I know a number of people in that situation. Thanks for watching.
Mark Rhoden that’s simply not true, depends on the car. Paid off and kept my s3 and gave it ti the wife as she needed a newer car. Plus I’ll likely keep my rs3 saloon when my contract ends next year.
I work in motor trade and also qualified motor finance specialist- my advice is simple. Look at the APR for whatever deal you are interested in. As for pcp, again it’s pretty simple. If you’re looking to pay off the balloon at the end meaning you’ve liked the car so much to the point you want to keep the car, you would have been better off getting a hire purchase from the start vs pcp. Although with HP you’d probably be looking at a bigger initial deposit plus your monthly payments will be higher than pcp but if you look at the final figure between the two (that’s assuming you want to keep the car) HP will work out much cheaper. Pcp is designed for those who want a relatively small deposit to begin with, slightly lower monthly repayments and at the end, you have a multiple of choices ie usually pcp customers like to change their cars every 2-3 yrs/ hence they part x it and repeat the process again.
Thanks for your input on this, and I entirely agree. My concern is that the sheer volume of people taking PCP's on cars they normally wouldn't be able to afford is going to cause a financial meltdown for the car industry (I'm not in that industry by the way). As I write the UK is now entering a serious recession - and I can't help but think that all those cars on PCP deals are about to be put to the test. And what will car dealers do with all those unwanted returned cars?
Johnny S It’s interesting you say that because I was just dealing with a customer earlier who owns a cake business but is out of business due to covid (cancelled weddings, parties etc) They wanted to return the car- can’t afford repayments. But yes, it’ll depend on the finance agreement one initially takes out Let’s use HP as an example, providing they have paid up to 50% of the repayment figure, they can simply ‘voluntary terminate’ the agreement. If they haven’t then technically they’ll have to pay up to 50%
@@johnny-S completely agree.... There will certainly be an abundance of cheap used cars. Music to my ears as im looking for a new car soon. Unfortunately im unlikely to buy new due to the reasons of PCP dominance now, which has helped to artificially hike true sticker prices, so ill plump for a nearly new car instead, or pre reg. PCP was a fabulous invention for the motor trader, giving them a guarantee of each customer returning after 2-3yrs, very similar to the way people buy a mobile phone contract, then return for a new handset. If people had to buy outright sales would be lower.
PCP’s are great if you want to have a car you couldn’t afford to buy, change it for a new one every three years, and can live with the monthly payment. Yes, you are paying the depreciation, yes if you want to own the car outright it’s not good, but I have had a PCP for the last 6 years and I like it. If I was to loan the money to buy the car I have from the bank, I could not afford the repayments. It’s horses for courses.
Sadly you are comparing PCP with a cash purchase here, but the issue really is, can you finance the car through a loan as most people don’t have 70k in cash sloshing about. If you compare a straightforward loan with PCP it gets a bit closer to the truth. Effectively it means do you want to stump up a big deposit with no balloon payment, or would you rather pay a bit more, but not have to find the upfront deposit and settle that question at the end of the lease. The real aim I think, is to handcuff you to the dealer so you are a perpetual customer because when the music stops you can’t afford to get off.
Where I work the car park is full of new cars "owned" by 20-to-30 year olds, most of whom seem to be living with mum and dad. Some of them have even splashed out on "wanker plates" (personal number plates) too!
This is a great con job and will eventually be regulated against. There is a place for PCP but most people should avoid unless for instance you have the cash but it is tied up in investments and they will make you more than the interest they are charging you. This is the kind of thing the great crash of 2008 was caused by. Giving large loans to sub-prime borrowers, but at least then it was property whereby oftentimes it was an appreciating asset. 99% of cars are depreciating assets so it's only a matter of time before this kind of thing blows up.
Obviously though - PCP works for many people. Works for us as a family as we keep a lot of our own cash in the bank as a safety net. Yes we have to pay a bit over the top for the car and over a number of years but when all is said and done, we don’t want to own them at the end, we go trade in and get another
I have just brought a type r on pcp The car was 36000I got it for 32000 ,I got 4000 cash back on px Ballon payment 17000 ,I done my homework and these go for around 25000 3 years olds Don’t forget you can sell this private So final payment is 17500 , if I sell it and get 25000 I get 7500 in the bank plus the 4000 cash back is 11500 The total payment is 36000 which is what it would have cost me if I had not done my homework so all I have lost is depreciation of the car , which is what you would have lost if you pay cash , I plan to pay it off anyway at the end ,how I here you ask , well I don’t pay for any repair any mot ,worry free driving .plus the dealer paid for the road tax which was for the 1st year 850 including reg fees . Just don’t trade it in ,sell it privately.do it
As my parents drilled into me as a young lad, "a fool and his money are soon parted". It is ALWAYS considerably more expensive to buy on pcp than cash. The dealer has you by the b@lls with a pcb and they are laughing all the way to the bank....WITH YOUR MONEY. far better to buy a pre-owned car less than 12 months old with low mileage for cash when someone else has payed the depreciation for you. If you need a pcp it means that you can't afford it and you will pay dearly for living beyond your means.
Right well, lots of automakers offer 0% fixed rate PCP. How is that ‘considerably’ more expensive? It’s actually better for you considering the money you’d make out of interest keeping it in the bank.
@@greendegenerationx You'll still have to pay rent to live somewhere, if you don't buy a house on a mortgage. Depending on where you live, the cost of rent is roughly the same per month as the cost of a mortgage. At the end of a 25 year mortgage, you own a house. At the end of a 25 year rental, you own nothing. Virtually no-one can buy a house outright when they start out, so a mortgage is the only option. Cars are different because they're so much cheaper than housing. A lot of people can and should save up and buy cars with cash. Also, a car is a depreciating asset (in most cases), whereas a house is an appreciating asset. So using credit to buy a house is sensible, but using credit to buy a car isn't (in most cases).
I've just taken out a PCP deal on a new car that I could have bought outright. Got 0% interest, so only pay the window price. The balance is in my bank account offsetting my mortgage payments, effectively saving me a few grand over the PCP period compared to if I'd handed the whole lot over, and the balloon payment has already been put to one side ready for when its needed. If I didn't have the cash I wouldn't have done it. Looking at the numbers, large deposits will only reduce the monthly payment, the final payment seems to be largely fixed.
PCP, loans or any kind of finance deal - it's all about showing the end user a small monthly payment. Most times they don't want to know the total cost even it was given to them. Such people just live for now and if someone is offering them something they believe they're being responsible in taking it. When they're struggling in debt it's then everyone else's fault.
Look for a low priced car with a good future value so you pay little depreciation. Then make sure the APR is under 5%. If you can find the right deal then it’s a good idea, they are rare but they exist.
Cash or a low cost loan,zopa etc, is best. The finance guys will always get a cut somehow, and try and disguise it best they can. OK I am lucky I have the cash, but maybe not luck, just good decisions over many years and avoiding finance deals. Save up first. Thanks for the detailed discussion.
yer OK very interesting video, but you have not factored in dealer contributions. Bought a BMW on finance 48k was the cost with options but the dealer got me a 8k contribution
PCP works is you see it as renting a high end car for three to four years . Then you can walk away , buy it or start again on a new car PCP. Cars costs big money and are a luxury item . So if the cost is not worth the enjoyment of the car then walk away .buy a three year-4 year old car on HP . Dont be buying high end though as any repair cost will be massive . So you either buy sensible boring cars or spend money lol
£599 interest cost is very competitive for a £19500 loan of this sort. What's the problem? Yes of course there's a balloon payment but that is optional depending on whether you wish to keep the car or not. It may well be 16% more than the cash price but you didn't pay in cash and if you had the cash you might have other uses for it or if you didn't you might have to borrow a very high proportion at a higher interest rates with capital repayment included in the monthly payment. Yes, paying cash is cheaper if you save up the cash rather than borrow it. Also it is way cheaper to buy and run a car for ten years or longer before changing it. Buy a three year old car and run it for another ten and you will be quids in. Handing it back only costs the depreciation over the years plus interest, so if buying new it should cost no more than buying it and reselling. Buying cars is expensive.
Good video. A dealer might also argue opportunity cost; essentially if you chose pcp, you also chose not to sacrifice a lump sum on the car, and that lump sum could be invested elsewhere and potentially make you money. However, in the real word you’d probably blow that lump sum on some other depreciating asset, like ... another car!
Many years ago the joke was that General Electric (GE) was a consumer credit company with a subsidiary global power and engineering conglomerate as a sideline. I think you could make the same comment about car companies, it's all about the finance. PCP can make sense if you have little intention of owning the car outright and change cars every 3 or 4 years, if the interest rate is low and if you will keep the car for the term. However, remember you are paying interest on the full loan amount, at 5 - 6% APR that will be a lot of interest. Dealers offering PCP on pre-registered and used cars often charge 10-15%, meaning that it can end up costing more than new and hideously more expensive than a simple bank loan (3% APR at the moment). And it can be very expensive to get out of a PCP early unless you have paid 50% (this is not the same as being halfway through the term, it's more like 3/4. And don't let a salesman tell you all that matters is the monthly payment, if you take £40k credit then you have a £40k regardless of how cheap the monthly payment is. That can be very important if things go wrong. And these days few cars will have much (if any) equity at the end of the term. Check out the difference in cost to just buy outright. Often if you add a year to the term it doesn't cost much more to just get a bank loan to buy outright.
All these figures are based on a maximum of 28 miles per day, 10,000 miles pa. Not exactly a daily driver, rather an extremely expensive weekend car. New and low mileage cars are now well beyond the reach of many lower and middle income households because of easy credit and inflated prices. We've been here before.
You paid an extra £500 over the period of a year (roughly £42pcm) for the luxury of being able to keep your monthly expenditure down should you need that money for emergencies. I would do that. And you don’t “have” to pay the guaranteed future minimum value payment - it’s there to protect you aim to give you equity moving into your next vehicle (should you wish to do that). If saving is the main aim then you can just pay cash.
PCP is not the best in you are buying a car cash or hire purchase is best on a £15000 car on pcp at apr 9.9% over 48 months the interest charges will be over £4500 buy on hire purchase with apr say 2.9% the difference is a saving of over £3500 in charges and you own the car no final payment plus you can settle the finance any time during the agreement then you have a much larger deposit to put towards the next car or simply keep it.
The point of PCP is you pay for the depreciation of the car + interest. So the thing to really focus on is cars with lower depreciation... the point is, of course, it's always cheaper to buy the car for cash. However, if you really want a brand new car and want one you can't really afford, then you may be able to get a more expensive car which depreciates less vs a slightly cheaper one that depreciates more, so effectively a better car for lower total outlay. Also, the video assumes you pay sticker price. If you look at something like CarWow (there are others now), you can get much larger discounts as well as potentially large 'deposit contributions' (basically just another discount) when you take out PCP. You'll still be poorer for the interest, but again you may be able to drive a nicer car for the same total outlay. Just to illustrate those facts... I specced-out a new 7 series on CarWow. RRP £88k Best deal was £71k cash, or £61k for the PCP... that £10k dif. won't cover all my interest over the period, but it may help some. Real question is.. what will the car depreciate by in that time...???!!!
Always remember PCP finance and the value of that new car goes on your credit file as it’s in your name. Lots of people, especially those trying for their first time mortgage are getting caught out being in PCP finance, as mortgage lenders don’t like an individual having a depreciating risk when assessing them for a mortgage. The answer for a new car is to lease every 2-3 years, it will work out cheaper monthly in most cases and as the car isn’t in your name, the value of the asset can’t be on your credit file ! It just shows as a monthly outgoing bill. I’ve advised dozens of 20-35 year olds on this over the years, who have struggled with getting a mortgage. As soon as they have ditched the PCP and leased. They then go on to get a mortgage a lot easier
We had PCP and couldn’t be happier. They told us at the beginning what the car would cost and the monthly payments + the first down payment. After the 4yrs we bought the car as we had 12,000 to pay and the car was worth 16,000 as low mileage. It was all straight forward. There’s no way we could have bought a new car so it was a good compromise. If you can handle the monthly payments then why not?
i had my car 2014 corsa limited edition( bought feb 2019 ) cost £5995 i put in £250 deposit( old civic ) £111.00 mth , on pcp i had it for 18 months it got shunted in the rear no gap insurance ( another con ) , it was a right off did not look it my gf was worried about the final payment after 4 tears that was going to be £1710. luckily for me the insurance valued the car more than what was the early settlement fee was, so that got sorted and got a few extra hundred £ in my pocket, i payed just over £2000 in the 18 months i had the car including the deposit, so payed that money for the pleasure have having a newish car for less than 2 years, never get pcp again, thats why so many young people are driving £20k cars they are on pcp, so i was out of pocket and iam still looking to get another car 7 weeks down the line, not sure to get a car for £2500 or get a bank loan , its a piss about
I paid a large deposit for my Lexus under pcp remaining I guess I'll keeping it for a long long while. I checked how much the car is worth online I could easily sell privately for £10,000
It's best to keep it for as long as you can, that way the depreciation is spread over a longer time frame and has less impact when you do come to sell it. Thanks for watching.
What happens if you or somebody else crashes into the car and it’s then a cat write off but repairable.. so you’re left with a car worth way less? Is thrrr some sort of insurance or something for this?
Just wanted to say there are some good 0% pcp deals around at the moment. Take it out over as long as you can if want to maximise the free borrowing. Now to watch the video.
Fair point - borrowing rates as the lowest they've ever been currently - but there's a reason for that: the economy is in a mess and people may not be able to repay them! Thanks for watching.
What was your trade-in to pay only 60 quid a month? You must have paid a sizeable deposit for a credit length of only 12 months and 60 quid pm.. Anyway most PCPs are over 3 or 4 years. It's a very good way to buy a new or used car and either hand it back at the end of the term contract or use the balloon / guaranteed final value as a trade-in for an alternative car, obvs minus the charge if you have over run the mileage. Anyway Who buys a car over 12 months ???
I’ve read some of the comments and think that their tone is inappropriate. I have no reason to believe that Johnny S is being disingenuous. I do think that more clarity is required to fully understand the financial argument. The cost of PCP with a balloon option relies on these factors: - balance of purchase price less and p/x. For instance, the new car is £40,000 but my existing car is sold to the dealer for £15,000. Of course, the price paid for the new car may well be lower if I didn’t p/x but that is the same for PCP or outright purchase or whatever. - the size of the optional balloon payment. The finance house might say that the new car will be worth £10,000 in 3 years time. The value of second hand cars fluctuates very regularly and so I am sure that most finance houses would put in a margin to protect them against severe falls in value - the rate of interest on the amount being borrowed. Clearly the BoE rate is known but the finance house rate will be much higher than that - so, if my rudimentary maths are correct and use those examples above, I am borrowing £15,000 for 3 years but the finance house gets £10,000 back at the end of the term. I appreciate the effect of compound interest and depreciation of money but, for the sake of simplicity, am I not correct in saying that the net effect is that I am borrowing £5,000? Again, I stress that is too simplistic calculation and I’m sure the finance houses use complicated formula to work out the cost of borrowing £15,000 and then getting a potential £10,000 back. In the case of Johnny S, we don’t know the net sum borrowed. It could be that the new car less p/x left a net loan of £2,000; or £20,000; or £50,000. We don’t know the size of the balloon payment agreed; there is a huge difference in a final payment of £5,000 or £20,000. We don’t know the interest rate although this is likely to be a prevailing commercial rate. Therefore, for us to understand the value of the argument being put forward (a Porsche Cayman for £60 per month), we certainly need to know the answers to the first two points. I’m sure the man will provide those in order to allow us to understand his view
Car dealers have over inflated prices because the majority of people now purchase via pcp. Cars are not worth the price they are advertised as they know 99% of the time no one will ever pay the balloon payment and own the car, keeping the customer on the monthly payment loop for years.
Is pcp good for part time uber for 2 years? Or hp still better? I will want to get rid if the car after 2 years tbh or exchange it.. Any advice would be great?
thanks for the clarity info pcp seems a clever way of making people think they are wealthier than they actually are, when in reality they are even more poor than they were with their cash. i have always saved and paid cash for cars and only bought what i can afford, anything else is delusional. however on the downside i will never drive a porsche but i would only want one if i could buy it and own it
It’s all relative! Quite simple really. You’re paying the depreciation. Plain and simple. You don’t get your deposit back, so small deposit and larger monthly or vice versa, large deposit smaller monthly. Best thing is to find a car with low depreciation.
I managed to get £10k off the retail price, I paid £8k deposit (I should have paid £1k with hindsight) and £278/month for 3 years. The final payment was about 3k lower than the value of a 3 year old car that was the same spec as mine. The interest rate was 2.5%. I am happy that I had a car from new and now I plan to keep it for another 7-10years. Good video.
I was lucky mate I got my Brabus on 0% PCP and had all intentions of buying it after 3 years so I was more than happy
The balloon payment is on paper for all to see
The real problem with a PCP is that it is likely that the first time it is done there will be a wholly owned part exchange as a great big deposit, as explained in the first minutes of the video. However when the PCP term comes to an end there is no more owner equity. The next car will therefore have to be financed in total.
In my case, in 2017 I took a PCP on a Volvo XC90 and I was very glad indeed when it came to an end in March this year with lockdown starting. The car was almost certainly surplus to requirements so I could just hand it back with no more to pay and ho hassle.
Not sure I'll do it again though. Probably not. It just happened to work out very well for me in the circumstances.
I've always been told what goes up in value invest your own money , if your purchase depreciats then lend the money.
EXACTLY - nothing depreciates faster than a car. Get the cheapest PCP you can, save the extra you would have spent on HP and invest it. Keep doing that, stay in a new car with no repair costs. Keep rolling the extra money into investment that grows money. Lather-rinse-repeat.
@@unclejezza great minds think alike
You’re spot on, if you can budget an amount every month to pay PCP then you’ll always be driving around in new cars without forking out the huge amount to buy a car then having to run it into the ground to make it worthwhile. If you’re in a good job that’s secure it’s a no brainier.
@@punkoid76 finally some intelligent reasoning on this thread 👍
Or... buy a 4 or 5 year old car and run it for 2 or 3 years and sell it for only a couple of grand less - that’s 55 quid a month in depreciation. If you get the right one, you could get away with no depreciation at all. Or buy a something worth 2k and Itll still be worth 2k in 5 years
the point you made at the beginning is also so important, the advent of PCP is allowing manufacturers and dealers to raise the on the road cash price. that means we are all paying more than what we should for our cars, it also makes cash buyers less powerful because the dealers have a bigger market for their cars by using PCP to enable those who do not have the cash to purchase a car to do so
in reality they should not be even looking at the car let alone buying it
a similar thing is happening in the housing market with help to buy
another crash is coming
jtk1ify Spot on nice!
Bingo!
My dad used to say - A fool and his money are soon parted. I paid cash for a wonderful Porsche 997, we ran it for 5 years and lost £500.00 The key to success is, don't get carried away with things you can't afford but more importantly, if you buy right, then you can sell right.
I'm a petrol head, but I'm also cautious with money. Whilst I like the thought of driving a new car, I don't want the stress of having to make PCP repayments when the economy is uncertain knowing that I wll still not own the car at the end of it without a big balloon payment. So I save up and buy used cars outright. When I was furloughed at the start of Covid I knew my car was paid for, one less thing to stress about it.
I know that for many the attraction of new cars is the perceived reliability and certainty of having faults fixed for nothing on warranty. Its the fear of unknown bills which drive many to PCP.
I'm not sure people rent cars on PCP contracts because of their fear of unknown bills, it's all to do with creating the illusion of perceived wealth and badge snobbery.
Like you I have always saved money to buy a car outright and have never had a loan or PCP contract and in these uncertain times our attitude to money/debt will hold us in good stead. It's a shame that so many people are living beyond their financial means for a metal box on wheels.
Shinjuku Red
You’re right that some people see cars as a status symbol. There’s a guy sat next to me at work who changes car every one to two years, always trading up a model or trim level, and always on PCP. I wonder how he felt when we went onto furlough!
But there are people who like the certainty of knowing what their bills are each month, and PCP deals with insurance and maintenance included appeal to those people. And there are others (including my partner) who wants a car they can rely on and perceive new cars to be more reliable and therefore don’t drive cars over a few years old.
What you have got to think thought is that every car is a depreciating asset, yes new cars depreciate more than used, but they all go down in money. You can save up 15-20k over a few years and then you have a choice. Use that bulk sum of money to buy a car where you will never see that 20k again as next year the car will be worth 15k. After a few years you can sell it and then get 10k back and use that 10k plus the next 10k you have saved to buy another 20k car that will lose money. Or you can just get a car on pcp/finance and pay for the car monthly with your wages and you can use the 20k you have saved to invest it where it will make more money rather than lose it.
@@garymwilliams1 How people live their lives/spend their money is all down to priorities. Some have to have the latest phones, designer clothes, big house and rented German cars.
I have spent most of my adult life reducing debt and not increasing it, I paid off my mortgage at the age of 47, have not taken out a loan for at least 15 years, have never used credit cards and never for a moment wanted to rent a car.
I have 2 close friends who both rent German cars one has a Merc the other a BMW. Both paid a £5K deposit (which you never get back and so is a gift to the dealer) and pay £400 per month for 3 years. That's nearly £20K for a car you never own.
To me that's absolute madness but is indicative of how many (mainly younger) people see that being debt ridden at a young age is now a normal part of life.
I have a 13 year old Toyota Yaris 1.8 SR that has 140K miles on it and has never had a problem. The only thing I've ever had to change was one battery and and an end piece to the exhaust system. If you buy a Japanese car you don't have to worry about it going wrong ever and so there is no need to rent expensive cars on PCP contracts.
I have been saving for a few years now for another car (I won't get rid of the Toyota as it's not worth anything now and yet just keeps on going and passing MOT's etc) I have enough money to buy a 2 year old Lexus CT200h maybe a Premier spec model but am going to wait until next spring before I do as I think when the furlough scheme ends in October their will be a lot of company cars given back to dealers as people start losing their jobs.
I do think the pandemic may finally make people understand that being in debt to "stuff" is a ridiculous way to live and the stress it must cause cannot be worth it.
I expect your PCP friendly work colleague is really stressed out atm.
You should get your partner to buy a second hand Toyota, Lexus or Honda and save thousands of pounds.
@@jakbad7268 Or you could just buy the car outright and run it for the next 12-15 years as I have. Problem is a lot of people want the latest thing, can't save/won't save, want to keep up with their friends/neighbours and are badge snobs.
I paid £7,800 for my Yaris 1.8 SR in 2009 and it's still not had 1 single fault, I've not even had the air con re-gassed yet. It just never goes wrong.
Obviously the car is getting old and I have been putting money aside over the last couple of years for a replacement. But I won't be renting a car. I have a couple of mates who are badge snob German car PCP renters and are both paying £20K over 3 years for a car that will never be theirs. Crazy. I will have a about £20K to spend and I'll probably buy a 2-3 year old Lexus outright and run it for the next 12-15 years. that way I'll still have zero outgoings per month and will have a car that will never break down unlike my friends who's cars are always going back to the dealers (German cars are absolute rubbish)
Still, each to their own right?
Excellent work and thank you. It seems just a very expensive way to borrow money that offsets the reality of the true cost until the end of the term. Whether you decide to stay in the cycle of trading in or not eventually you will have to pay. Also the dealer has the final say on the trade in value of the car...😬
Oh yeah, and then theres the mileage limit..
You can't have a cow and get the milk for free
Your on the button dude. Cars scross the board have gone up by 10grand in past 10 years.
Thanks for your comment. If you look at the situation with Porsche GT3's - people are being stung really badly lately - as their values have fallen way more than they said they would.
Certain car brands in 3 years time will not be worth anywhere near the final optional payment.......the only way to view any form of Car finance is that it buys you a lifestyle, so whatever you lose in interest etc, you can use as a value towards the personal happiness that you would never have had if you couldn’t obtain finance.
Very good point, and an interesting way to look at it.
Maybe joy but not happiness
I understood it as the final car payment is what the market value is at the time. Correct me if I am wrong :)
It’s the same with motorcycles, £11k for a z900rs, £20k + for some adventure bikes, pcp and the I want it now culture, it’s crazy, £10-£20k will get you a top quality second hand car.
Agreed, I've been pretty shocked by some of the prices that bikes (both motorcycles and pedal cycles!) are now reaching.
It's all about the monthly cost with pcp if your happy with what your paying per month it's not a problem you keep the car 3 years on a 4 year deal while under warranty then trade it in for a new deal and repeat over and over again aslong as your comfortable with your monthly payments then its a good way to have a new reliable car every 3 years
In the BMW example when you factor in the Dealer contribution of £3,250 it is cheaper to buy using PCP rather than cash. The bottom line is you are charged for borrowing the money so you need to look at the APR and Dealer contribution closely to see whether the PCP is worthwhile
How can this possibly be true, you could negotiate the so called dealer contribution against buying a new car anyway, this is a financial impossibility !
With a PCP, you have keep the car in showroom condition otherwise when you hand it back, they'll charge you extra. Its negotiable if you're buying g another car from them and starting the PCP deal again. Its difficult to avoid getting a scratch on it somewhere. You might be ultra careful but there is always someone who damages it whether it be on purpose or not.
Normal wear and tare is included including minor scrathes, dents, chips and scuffs to each alloy.
brilliant video, thanks a lot, very helpful, I always buy cars chase, regardless of how long I keep them and this shows I'm justified. I don't like the idea of always having a monthly payment for a car.
Appreciate this is 2 years old. BUT please don't get yourself into debt now (pandemic or no pandemic)... SAVE your money to support your family! The only reason anyone needs to be flash is pure ego! Let go of your ego, don't keep up with the Jones' (and you'll be far happier)! Material objects do not bring true happiness, they are a quick temporary fix! But then you knew that.... (it's breaking the cycle that's hard)! This video is insightful and can be helpful (if you can control yourself) and if you really do need a super duper bang up to date car, but I can't see what a new(ish) car can do that a 5 to 10 year old car can't?
Great video and great advice. (I'm a former car salesman)
My only criticism would be that you never mentioned that the car could be part exchanged at any other dealership.
People on PCP deals mistakenly believe that they are tied to that brand/dealership and that's how dealerships retain customers.
Set the PCP up over 48 months, lowest possible mileage , minimal deposit, trade in after 2 years. This is the sweet spot!
Hi, yes I have done a similar thing with my latest daily - I've put a good deposit down (as I owned the trade in), and then put minimal mileage on the PCP over a 48 month period.
This gives me a great cash-flow (based on very low monthlys) and allows me to save enough to clear the PCP after 2 years, and start again. I really should make a video about it.
@@johnny-S a loan for the value from the bank could likely work out better still at maybe 3% interest or even less.
@@philipporter4433 Agreed - in fact many banks are now offering PCP deals! Thanks for watching.
With PCP you must make sure you know you can save that final lump during the other 4 years. I worked it out I can on my new one; and still keep a bit back for other emergencies and work I need to get done. Don't be fooled by the cheap monthly rates; though the up side of them is they can make it affordable even with the lump sum at the end.
I’ve just been comparing PCP offerings between banks and dealers. The additional cost using a dealer is staggering.
Thanks Johnny, very insightful.
If it sounds too good to be true, then it probably is....
Save up a decent deposit of trade in your car, work with the dealer to understand your budget, and get the car over 3 years to run concurrent with the warranty. After 3 years car is paid off and then you have collateral on your drive, ready to put down on your next car... or simply keep. HP everytime .
When it's too easy to get finance it's too easy to end up in a lot of debt. Cars are and will always be a depreciating asset. The world has gone mad!
Agreed, however I think this situation will take a turn when interest rates start to rise again. Thanks for watching.
Absolutely agree. It's the simplicity with which these companies dish out loans that propel the problem. The manager of a local car dealer told me in confidence that if all of their customers defaulted on the payments - they wouldn't know what to do with the cars!
Johnny S you’re misinforming people. The top and bottom of it is that they make millions of cars and new cars are way too expensive for the vast majority of people to buy outright, without these deals they wouldn’t be able to sell most of the cars they make. If you’ve got a decent, steady job PCP isn’t a problem, plus you avoid expensive repair bills with a new car and interest rates on most deals are fixed as far as I know.
Pcp just cost me 13500 grand over 2.5 years with absolutely nothing to show for it. So no, it’s not worth it. If I had bought outright, yes it wouldn’t have been new, but I would have at least had some residual value. THE BALLOON PAYMENT ISNT ALWAYS LESS THAN THE TRADE IN VALUE. This is the bull that the dealer suckered us with, and locked us into a more expensive deal than lease with all the same restrictions
There’s more to it than that. Some finances offer deposit allowance when going on finance, some offer 0% too. Some offer both. Ultimately it depends on whether you want to have the option to buy the car outright at the end. You have to remember that your car can potentially also be worth more than the balloon payment. If you plan on changing then leasing is your way to go. If you’re planning on potentially buying outright then pcp is you’re way to go as it gives you better options than a hp term.
It also depends on if you go for new or used. Most used cars have a high interest rate and new cars have a low interest rate so going to a bank for a loan may work out better on a used car.
I view PCP as renting a car I can't afford by paying off the depreciation. An example would be if I bought a new car and sold it I would of lost £12K in depreciation. So PCP'ing the same car over 2/3 years I pay £12k total (with deposit) then I'm no worse off than if I bought the car outright (as still losing). But I have a better car than I can afford outright and I have all that new car main dealer warranty goodness.
Brilliant video, helped me make my mind up that cash is king for me. Thanks again. Very well explained.
Cash or HP is the only way to buy a car. PCP is a mugs game! Only buy what you can afford!
Ray Crouzieres I would have agreed with that 15 years ago. Cars are bad now - full of plastic engine parts that degrade quickly and result in cars than depreciate even quicker than in the past. Modern cars cost so much to repair as they are all plastic moulded parts and compacted into the engine cavity so even basic repairs takes multiple hours to dismantle and reassemble. The old model of buy a car and hang onto it for 16 years is dead as fried fucking chicken because the cars themselves negate the process. Work out your own ‘cost of ownership’ (which is different for everyone) get the cheapest PCP you can, save the difference and invest over the PCP term; use your earnings as a trade in deposit and upgrade to a new car - stay in a new car every 4 years. Lather, rinse, repeat.
unclejezza lmao no way you get nothing back if you hand it back, or nearly nothing back. All but one of my cars have lasted with 0 - £500 in repairs over their lifetime and the one that never, I still got a good trade-in. PCP is the most expensive way to rent a car, and it is rent because they rely on people not having the money or credit facility to pay at the end. Leading you into a never ending rental! As I stated pcp is a mugs game, buy new on hp/cash or used with hp/cash but within your budget. My Daughter has an 8 year old car it’s only needed £150 in repairs and it’s perfect, my Wife’s car is 12 years old and has only had £80 spent on it again perfect condition. I’m certain in 10-15 years my car won’t need much spent on it if anything! Good cars made now still last!
@@Ray.842 I don’t think you understand what I’m saying. Yes, you can get lucky with a new car and have few if any repairs over the first 5 Or so years. My experience has been the opposite with my average monthly spend ending up being over £500 p/month across the last 4 cars. Now I spend £250 on 4 year PCP, I am in a brand new vehicle, I have a dedicated £150 p/m that I pay into an investment fund which I’ll use to finance the deposit on the next brand new vehicle (should be around £9k after 48 months) Car is under warranty for 36 months so the likelihood of any expenditure on repair is very low. My ‘cost of motoring’ is lower than ever, I don’t have a car I need to worry about and repair constantly, I have the priveledge of being in a new car every day, I have money making money instead of going into a vehicle. This works for me - the numbers don’t lie. If your system of owning a car for years and years without having to spend money on it works for you, then def keep doing that, but that is not the experience of the majority of people in modern cars!
unclejezza yes I do understand. You save £9k over 4 years for a deposit on your new next rental. Then repeat, to me that’s money down the drain. I just paid £36k for a new car, over the next 6 years it will pay for itself due to the ulez so after 6 years the car is at £0 so if I get another 4-9 years out of it it’s putting money in the bank! Any repairs needed if any come out of what it’s saving me. Tbh it’s the 1st car that should keep saving me money. But I’m not having to give it back for another even if I’ve saved up an extra £9k we only have 1 new car in the family, I wouldn’t have bought it if it wasn’t for ulez! The car I changed I had for 5 years, still had 2 years on warranty and it had 0 problems in 5 years. Whoever gets that car has a fantastic car just hope they live outside the ulez . If your happy doing pcp, it’s your choice but I stand by my comment “it’s a mugs game” dealers love you.
@@Ray.842 oh I understand, my approach is outside your pay grade. Understood! And for clarity - £2k is for the deposit on the next pcp, the other £7k gets rolled back into investment. For even more clarity, people who buy and OWN depreciating assets are the mugs. Anyone with any financial sense will tell you that. Pay the MINIMUM you can for a depreciating asset, Don’t own ANYTHING, invest the money you would have spent buying the thing - grow wealth. See you in 20yrs pal when you’re still working a dead end job for someone else and still driving the same car for 2 decades. I’ll be in the latest Audi with £200k liquidity 😂🤣😂
One thing to note, although you pay slightly more for the car over the term, you have only paid £5000 of your money to acquire the car, giving you the freedom to do as you please with the rest of the cash you had, using your first example, that would be over £14000 cash that you still have in the bank which you could invest or spend in a different manner, which if you did invest could potentially make you more than £599 you spent in interest for the PCP. However good video none the less :)
Would you agree that paying as little deposit (even £0) as possible is a great idea?
From my calculations... unless it was specified in the offer to pay X deposit for X% APR (mostly on 0% Finance), putting up a deposit only lowers the monthly payment and doesn't change the total final payment.
So from this, paying a £0 deposit and having a high monthly rate.. just pay that high monthly rate with your deposit and have the finance "for free" for the few few months and that'll let you save up more money to keep those payments flowing?
Please let me know what you think :)
Samuel Joyce I would agree to an extent yes, if when buying the car and having £0 deposit you can afford the monthly payments then why not. The only way the final payment will change is through changing your annual mileage or length of the term. So if you know how much miles and how long you want to keep the car for certain, then personally I would put as low deposit as possible so that I could keep cash in my bank to invest in other things, but still have an affordable monthly payment - so yeah, if £0 works for you then go for it. Keep in mind manufacturers often offer a deposit contribution too in new cars so deposits are not always required on your part :)
The answer is simple: it depends on the car, depends on the deal. Sometimes PCP works out the best value, sometimes leasing does. Everything has its pros and cons - including buying outright.
Really interesting video. Think I will still keep paying cash for my cars!
Me too! PCP with it's mileage restriction and balloon payment just scares me. It would make me feel a little bit out of control.
Yep, if you can’t afford something without getting yourself into debt then unless it’s a house, it means you can’t afford it, look for a cheaper option.
I ended up buying a 4 1/2 year old version of the car I was looking for (VW Touran) earlier this year for cash through a specialist sourcer / buyer for just under half the RRP in my favourite colour and with all the options I wanted (and more). It’s still a current model, has been cherished from new and is in near-perfect condition. If I was bothered then I could put a cheap private plate on it and it’d look brand new. I will continue to look after it and run it until it dies in say 10 - 12 years. Winner.
David Foster-Key Absolutely the way to go
In the end PCP is like a phone contract -
If you intend on outright buying and keeping a car PCP is not for you.
Your better off getting a bank loan or HP /CP loan giving as much deposit as you can.
PcP is to try and give as little deposit as you can (as long and as much as you can afford the monthly payments) then halfway through the PCP contract trade in the car for a better one youd like, by then the interest would of been paid and the car will be worth more as the next deposit or give it back outright at the end.
It's better to get a second hand car on PCP in my oppinion as you dont get that hard loss at the start also.
As someone who gets bored of cars quickly and has had bad luck PCP will hopefully work for me until I get the car I really want.
Phenylcyclohexyl piperidine is rarely, if ever, a good idea.
£60 per month for a Porsche on pcp? I have searched high and low and can’t find any car for that price on pcp..........
He traded in his car too.
@@australiamak2488 Correct - I traded in my car (a Lotus Exige) which was worth over 50% of the price of the Posche - so I also ended up getting a refund too! That said, the point of video is to show how much more a PCP can cost you in the end, regardless of the monthly payment.
Ban Powel yeh that's a lie
SodenCine Video those maths don't work out lol i gave over 50% of my car which isn't worth as much as yours and I pay 145 per month lol
was the term 15 years?
Some people can be extremely naive they just blindly think about the monthly payment but it’s the balloon payment (and even the term balloon payment is scary). In the UK people are so obsessed about having a new car they will happily get stung - I on the other hand only pay cash.
You don't have to pay it...
If you cant afford it twice, dont buy it at all. We would all love to drive lovely cars, but doing so is financially the most stupid thing to do. Save up, and buy it for cash when its 3-5 years old with low mileage. I have traded up from £1500 to a car worth over £15k in 2 years. Take your time and you can drive them all. But paying interest is not smart.
Knowledge sharing is caring
Thinking of ones own needs /profit is normal. Thinking for others/society is maturity kudos.!!!👍👍👍👌👌👌
Both my pcp deals have been top notch,knew what I was getting into and knew what I was paying,ive had an Audi A5 and now an A6 on it and as long as your happy with the payments then stuff it,go for it🤣🤣🤣
Sounding a little naive - it’s the balloon payment that is the issue not the monthly payments..
@@Chillednfunked hand car back
@John Small you know nothing mate
So you class anything under 100k a low salary
Twat
PCP will be the biggest reason future generations get close to retirement age and then suddenly realise they are broke. There are many people who will have perpetual car payment but will never actually own a car. As someone who has always invested my money PCP has always seemed like madness to me.
rufdymond nonsense, I will retire in five to ten years and having had many PCP deals I’ll be far from broke. I’ll own the last car when I retire, and because I don’t buy crap I’ll be able to sell it if I find I’m not in need of it anymore.
That is indeed my main concern and why I made this video. Thanks for watching.
Excellent video made a lot of sense explained well too.
Glad it was helpful! Thanks for watching.
I can't believe anyone in their right mind with enough cash for a £25k deposit would put that down on a Boxter.
Hi - it was actually a Cayman with a number of upgrades (I have made videos with it). But the deposit gave me the low payments and ultimately the cash-flow to run it. That said I did get most of the amount back when I sold it due to it's spec (it had a GT3 Steering wheel and yellow rev counter! - sometimes wish I still had it!). Thanks for watching.
@@johnny-S And if you know about cars, Caymens are in fact a very good affordable spots car, top gear rate them highly!
@@johnny-S they were talking about the Boxter which you showed in the showroom for £68k
I think a lot of car buyers knows this but not everyone has that amount of free cash sitting in the bank. So like you said buying on PCP can gets. you a much nicer car than you would if buying with cash.
If you are paying cash, where does the £19500 come from? Savings? Or personal loan. With PCP you are not using your money. Keep the deposit low enough and all you are paying is the depreciation of the car while you own it. Don’t forget that the finance company will give you the final valuation at the time of purchase. If your car is worth less at the end of the deal they will still give you the higher amount. I recently finished a PCP on a Range Rover and it was worth £8k less than the agreed final payment. However the finance company covers this amount as the value was agreed at the start of the agreement . If you used your own money you would be liable for this drop
I think we all know if you have to have something on the knock, you will have to pay more in the long run like buying my house, I cry when I see the interest I have paid, but most of us don't have the extra capital to replace the family car to get to work, I am looking at PCP/PCH whatever it's called to get me through the next 3 years because my car which i have had for 17 years is now costing too much and is unreliable. Wouldn't it be nice to just go out and buy a new car, not for me unfortunately so we/I am again are a victim of the fat cats once again bending us over and opening our wallets, just to get to work so we have work harder as usual. Thanks for the advise but 60.000+ for a car I would not entertain that I am looking at upgrading from my MK1 Ford Focus 2.0. for new focus.
The way i am looking at it train tickets cost nealy 200 quid a month and at the end of the day you dont own the train, lol
Take care Simon
Hi Simon, clearly you can see what the situation is here. The key thing with your house is that it is going up in value, but a car isn't.
It makes sense to have a car that is reasonably new and covered under a decent warranty. So my suggestion is that you look for the lowest APR % possible - ideally zero! It can be done, currently our local Vauxhall dealer is offering 0% APR (but I wouldn't buy a Vauxhall even at that rate!).
My local BMW dealer was offering just 2.9% recently - as shown in this video at 14:39 minutes in).
You can also barter with the dealer for a better rate - I did, and got over 2% knocked off the APR.
Finally - try the bank. The Halifax bank offers PCP deals on cars bought from main dealers, and often undercuts their rate (every time I show a car dealer their website they break into a sweat). Good luck, and thanks for watching.
Cheers buddy a lot of food for thought. Take care.
Some of the best monthly payments are due to large deposits too. If you're paying a £5000 deposit every 3 years when you get a new car, that's another £140 onto your monthly cost
PCP can sometimes be good, if the value of the car is a lot less than the final payment, just hand it back. A lot of volume cars can have this negative equity problem.
As long as you go into it eyes open, you can see exactly how much it will cost you.
Well it all depends on the trade in value and the residual value at the end of the lease, reality is you will be paying 5%+ interest and will never own an asset. Your point about the pricing of cars is very true, the cash value is unaffordable to the majority of people but just paying the interest costs through PCP is the only way people can access cars of that value. The good thing with a very high depreciation vehicle is that the end of lease value is guaranteed and so the risk lies with the leasing company, if you are only interested in the cash flow father than the true cost of ownership PCP works well but it is not a cheap option.
If you do the maths correctly, numbers come out as ~15% interest ;)
You can do PCP with £500 deposit. Best to pay as little deposit as possible and keep the period as short as possible (min 2 years I believe). The minimum future value is the kicker - since it is rare that the car when surrendered (if not kept) has actually got the value expected and hoped for. At the end of the day - it depends on your financial situation. The financial sage would say never invest capital in a depreciating asset. If you can get 7% yield on £20K tax free through an ISA - it might make you think again.
Far point if indeed you can get a 7% yield on anything these days! Thanks for watching.
I prefer PCH. My car depreciates more per month than I pay. I only do 8K mpa so that helps although I’ve not found as many good deals this year so I’ve extended my 3 year contract by 12 months
Try changing the word sell to rent on PCP cars and the developing problem becomes more clear.
You do realise they are making you pay the depreciation of the car in your payments you don’t mention that
This is such a great video
but you’ve got to borrow the £19500 if you pay “cash” - at 5% interest that’s nearly £1000!
I was taking the £19,500 from cash savings in the bank, not borrowed money. Thanks for watching.
If you have the cash, pay it outright. If you don't, and you're prepared to lose a bit over a few years, use PCP
My two cents of advice from bitter experience. Only buy a car for cash (bank loan at a low APR or whatever legitimate means) rarely brand new (unless very rare where car will hold value or appreciate), 3-years old where it will have taken its biggest loss, typically 30%-50%, low miles, in a colour most people like for when you sell it and if it’s an exotic a renewable bumper to bumper manufacturer warranty. For example my wife’s 7-year old Audi Q5 3.0 diesel gear box went with only 35,000 miles on it, it would have cost £10,000 to replace it but was covered under extended warranty.
the Balloon payment is nothing ..give the car back get another deal...easy
When many people buy these cars on pcp they never go in with the idea that in say in four years you'll pay the balloon payment and own the car. Nobody does that they simply trade in before the end of the contract and start a new contract with the knowledge that its reliable, under warranty and up to date.
The problem with that is that you can end up in negative equity - where the you have to pay them to take the car back! I know a number of people in that situation. Thanks for watching.
John Soden Is this just with certain places as I’ve heard some places don’t charge to hand back?
Mark Rhoden that’s simply not true, depends on the car. Paid off and kept my s3 and gave it ti the wife as she needed a newer car. Plus I’ll likely keep my rs3 saloon when my contract ends next year.
@@johnny-S if the car is worth less than the GFV then that's the lenders problem not the customer. You don't owe a penny when you hand back
I work in motor trade and also qualified motor finance specialist- my advice is simple. Look at the APR for whatever deal you are interested in.
As for pcp, again it’s pretty simple. If you’re looking to pay off the balloon at the end meaning you’ve liked the car so much to the point you want to keep the car, you would have been better off getting a hire purchase from the start vs pcp.
Although with HP you’d probably be looking at a bigger initial deposit plus your monthly payments will be higher than pcp but if you look at the final figure between the two (that’s assuming you want to keep the car) HP will work out much cheaper.
Pcp is designed for those who want a relatively small deposit to begin with, slightly lower monthly repayments and at the end, you have a multiple of choices ie usually pcp customers like to change their cars every 2-3 yrs/ hence they part x it and repeat the process again.
Thanks for your input on this, and I entirely agree.
My concern is that the sheer volume of people taking PCP's on cars they normally wouldn't be able to afford is going to cause a financial meltdown for the car industry (I'm not in that industry by the way).
As I write the UK is now entering a serious recession - and I can't help but think that all those cars on PCP deals are about to be put to the test. And what will car dealers do with all those unwanted returned cars?
Johnny S
It’s interesting you say that because I was just dealing with a customer earlier who owns a cake business but is out of business due to covid (cancelled weddings, parties etc)
They wanted to return the car- can’t afford repayments. But yes, it’ll depend on the finance agreement one initially takes out
Let’s use HP as an example, providing they have paid up to 50% of the repayment figure, they can simply ‘voluntary terminate’ the agreement. If they haven’t then technically they’ll have to pay up to 50%
Now on something like a contract hire that’s going to be a lot trickier to get out of since it’s leased
@@johnny-S completely agree.... There will certainly be an abundance of cheap used cars. Music to my ears as im looking for a new car soon. Unfortunately im unlikely to buy new due to the reasons of PCP dominance now, which has helped to artificially hike true sticker prices, so ill plump for a nearly new car instead, or pre reg. PCP was a fabulous invention for the motor trader, giving them a guarantee of each customer returning after 2-3yrs, very similar to the way people buy a mobile phone contract, then return for a new handset. If people had to buy outright sales would be lower.
PCP’s are great if you want to have a car you couldn’t afford to buy, change it for a new one every three years, and can live with the monthly payment. Yes, you are paying the depreciation, yes if you want to own the car outright it’s not good, but I have had a PCP for the last 6 years and I like it. If I was to loan the money to buy the car I have from the bank, I could not afford the repayments. It’s horses for courses.
Sadly you are comparing PCP with a cash purchase here, but the issue really is, can you finance the car through a loan as most people don’t have 70k in cash sloshing about.
If you compare a straightforward loan with PCP it gets a bit closer to the truth.
Effectively it means do you want to stump up a big deposit with no balloon payment, or would you rather pay a bit more, but not have to find the upfront deposit and settle that question at the end of the lease.
The real aim I think, is to handcuff you to the dealer so you are a perpetual customer because when the music stops you can’t afford to get off.
Brilliant :-)
Where I work the car park is full of new cars "owned" by 20-to-30 year olds, most of whom seem to be living with mum and dad. Some of them have even splashed out on "wanker plates" (personal number plates) too!
And your point is ?
It is indeed worrying how much people are spending on these cars at the expense of having nothing left to pay towards getting a house....
This is a great con job and will eventually be regulated against. There is a place for PCP but most people should avoid unless for instance you have the cash but it is tied up in investments and they will make you more than the interest they are charging you. This is the kind of thing the great crash of 2008 was caused by. Giving large loans to sub-prime borrowers, but at least then it was property whereby oftentimes it was an appreciating asset. 99% of cars are depreciating assets so it's only a matter of time before this kind of thing blows up.
Obviously though - PCP works for many people. Works for us as a family as we keep a lot of our own cash in the bank as a safety net. Yes we have to pay a bit over the top for the car and over a number of years but when all is said and done, we don’t want to own them at the end, we go trade in and get another
I have just brought a type r on pcp
The car was 36000I got it for 32000 ,I got 4000 cash back on px
Ballon payment 17000 ,I done my homework and these go for around 25000 3 years olds
Don’t forget you can sell this private
So final payment is 17500 , if I sell it and get 25000 I get 7500 in the bank plus the 4000 cash back is 11500
The total payment is 36000 which is what it would have cost me if I had not done my homework so all I have lost is depreciation of the car , which is what you would have lost if you pay cash , I plan to pay it off anyway at the end ,how I here you ask , well I don’t pay for any repair any mot ,worry free driving .plus the dealer paid for the road tax which was for the 1st year 850 including reg fees .
Just don’t trade it in ,sell it privately.do it
As my parents drilled into me as a young lad, "a fool and his money are soon parted".
It is ALWAYS considerably more expensive to buy on pcp than cash.
The dealer has you by the b@lls with a pcb and they are laughing all the way to the bank....WITH YOUR MONEY.
far better to buy a pre-owned car less than 12 months old with low mileage for cash when someone else has payed the depreciation for you.
If you need a pcp it means that you can't afford it and you will pay dearly for living beyond your means.
Do you shouldn’t buy a house with a mortgage?
Right well, lots of automakers offer 0% fixed rate PCP. How is that ‘considerably’ more expensive? It’s actually better for you considering the money you’d make out of interest keeping it in the bank.
@@greendegenerationx You'll still have to pay rent to live somewhere, if you don't buy a house on a mortgage. Depending on where you live, the cost of rent is roughly the same per month as the cost of a mortgage. At the end of a 25 year mortgage, you own a house. At the end of a 25 year rental, you own nothing. Virtually no-one can buy a house outright when they start out, so a mortgage is the only option. Cars are different because they're so much cheaper than housing. A lot of people can and should save up and buy cars with cash. Also, a car is a depreciating asset (in most cases), whereas a house is an appreciating asset. So using credit to buy a house is sensible, but using credit to buy a car isn't (in most cases).
I've just taken out a PCP deal on a new car that I could have bought outright.
Got 0% interest, so only pay the window price.
The balance is in my bank account offsetting my mortgage payments, effectively saving me a few grand over the PCP period compared to if I'd handed the whole lot over, and the balloon payment has already been put to one side ready for when its needed.
If I didn't have the cash I wouldn't have done it.
Looking at the numbers, large deposits will only reduce the monthly payment, the final payment seems to be largely fixed.
Where did you find a 0% interest finance deal?
PCP, loans or any kind of finance deal - it's all about showing the end user a small monthly payment. Most times they don't want to know the total cost even it was given to them. Such people just live for now and if someone is offering them something they believe they're being responsible in taking it. When they're struggling in debt it's then everyone else's fault.
Look for a low priced car with a good future value so you pay little depreciation. Then make sure the APR is under 5%. If you can find the right deal then it’s a good idea, they are rare but they exist.
Cash or a low cost loan,zopa etc, is best. The finance guys will always get a cut somehow, and try and disguise it best they can.
OK I am lucky I have the cash, but maybe not luck, just good decisions over many years and avoiding finance deals. Save up first.
Thanks for the detailed discussion.
yer OK very interesting video, but you have not factored in dealer contributions. Bought a BMW on finance 48k was the cost with options but the dealer got me a 8k contribution
PCP works is you see it as renting a high end car for three to four years . Then you can walk away , buy it or start again on a new car PCP. Cars costs big money and are a luxury item . So if the cost is not worth the enjoyment of the car then walk away .buy a three year-4 year old car on HP . Dont be buying high end though as any repair cost will be massive . So you either buy sensible boring cars or spend money lol
£599 interest cost is very competitive for a £19500 loan of this sort. What's the problem? Yes of course there's a balloon payment but that is optional depending on whether you wish to keep the car or not.
It may well be 16% more than the cash price but you didn't pay in cash and if you had the cash you might have other uses for it or if you didn't you might have to borrow a very high proportion at a higher interest rates with capital repayment included in the monthly payment. Yes, paying cash is cheaper if you save up the cash rather than borrow it. Also it is way cheaper to buy and run a car for ten years or longer before changing it. Buy a three year old car and run it for another ten and you will be quids in.
Handing it back only costs the depreciation over the years plus interest, so if buying new it should cost no more than buying it and reselling. Buying cars is expensive.
Good video. A dealer might also argue opportunity cost; essentially if you chose pcp, you also chose not to sacrifice a lump sum on the car, and that lump sum could be invested elsewhere and potentially make you money. However, in the real word you’d probably blow that lump sum on some other depreciating asset, like ... another car!
It’s a big eye-opener
What's worrying is that too many people aren't opening their eyes to it! Thanks for watching.
Many years ago the joke was that General Electric (GE) was a consumer credit company with a subsidiary global power and engineering conglomerate as a sideline. I think you could make the same comment about car companies, it's all about the finance.
PCP can make sense if you have little intention of owning the car outright and change cars every 3 or 4 years, if the interest rate is low and if you will keep the car for the term.
However, remember you are paying interest on the full loan amount, at 5 - 6% APR that will be a lot of interest. Dealers offering PCP on pre-registered and used cars often charge 10-15%, meaning that it can end up costing more than new and hideously more expensive than a simple bank loan (3% APR at the moment). And it can be very expensive to get out of a PCP early unless you have paid 50% (this is not the same as being halfway through the term, it's more like 3/4. And don't let a salesman tell you all that matters is the monthly payment, if you take £40k credit then you have a £40k regardless of how cheap the monthly payment is. That can be very important if things go wrong. And these days few cars will have much (if any) equity at the end of the term.
Check out the difference in cost to just buy outright. Often if you add a year to the term it doesn't cost much more to just get a bank loan to buy outright.
Very true. Too many people focus only on the monthly payments and forget that ultimately its the whole loan amount that matters! Thanks for watching.
All these figures are based on a maximum of 28 miles per day, 10,000 miles pa. Not exactly a daily driver, rather an extremely expensive weekend car. New and low mileage cars are now well beyond the reach of many lower and middle income households because of easy credit and inflated prices. We've been here before.
You paid an extra £500 over the period of a year (roughly £42pcm) for the luxury of being able to keep your monthly expenditure down should you need that money for emergencies. I would do that. And you don’t “have” to pay the guaranteed future minimum value payment - it’s there to protect you aim to give you equity moving into your next vehicle (should you wish to do that). If saving is the main aim then you can just pay cash.
PCP is not the best in you are buying a car cash or hire purchase is best on a £15000 car on pcp at apr 9.9% over 48 months the interest charges will be over £4500 buy on hire purchase with apr say 2.9% the difference is a saving of over £3500 in charges and you own the car no final payment plus you can settle the finance any time during the agreement then you have a much larger deposit to put towards the next car or simply keep it.
Nicely explained!
The point of PCP is you pay for the depreciation of the car + interest. So the thing to really focus on is cars with lower depreciation... the point is, of course, it's always cheaper to buy the car for cash. However, if you really want a brand new car and want one you can't really afford, then you may be able to get a more expensive car which depreciates less vs a slightly cheaper one that depreciates more, so effectively a better car for lower total outlay.
Also, the video assumes you pay sticker price. If you look at something like CarWow (there are others now), you can get much larger discounts as well as potentially large 'deposit contributions' (basically just another discount) when you take out PCP. You'll still be poorer for the interest, but again you may be able to drive a nicer car for the same total outlay. Just to illustrate those facts... I specced-out a new 7 series on CarWow. RRP £88k Best deal was £71k cash, or £61k for the PCP... that £10k dif. won't cover all my interest over the period, but it may help some. Real question is.. what will the car depreciate by in that time...???!!!
The cash buyer simply takes the PCP, cancels after the first day, keeps the PCP sweetener.
Always remember PCP finance and the value of that new car goes on your credit file as it’s in your name. Lots of people, especially those trying for their first time mortgage are getting caught out being in PCP finance, as mortgage lenders don’t like an individual having a depreciating risk when assessing them for a mortgage. The answer for a new car is to lease every 2-3 years, it will work out cheaper monthly in most cases and as the car isn’t in your name, the value of the asset can’t be on your credit file ! It just shows as a monthly outgoing bill. I’ve advised dozens of 20-35 year olds on this over the years, who have struggled with getting a mortgage. As soon as they have ditched the PCP and leased. They then go on to get a mortgage a lot easier
We had PCP and couldn’t be happier. They told us at the beginning what the car would cost and the monthly payments + the first down payment. After the 4yrs we bought the car as we had 12,000 to pay and the car was worth 16,000 as low mileage. It was all straight forward. There’s no way we could have bought a new car so it was a good compromise. If you can handle the monthly payments then why not?
i had my car 2014 corsa limited edition( bought feb 2019 ) cost £5995 i put in £250 deposit( old civic ) £111.00 mth , on pcp i had it for 18 months it got shunted in the rear no gap insurance ( another con ) , it was a right off did not look it my gf was worried about the final payment after 4 tears that was going to be £1710. luckily for me the insurance valued the car more than what was the early settlement fee was, so that got sorted and got a few extra hundred £ in my pocket, i payed just over £2000 in the 18 months i had the car including the deposit, so payed that money for the pleasure have having a newish car for less than 2 years, never get pcp again, thats why so many young people are driving £20k cars they are on pcp, so i was out of pocket and iam still looking to get another car 7 weeks down the line, not sure to get a car for £2500 or get a bank loan , its a piss about
Thats what you get for paying monthly for something you dont own. Fuck the banks. Fuck the dealers. Buy a used car.
You can buy a year old Bentley Mulsanne for half of the new price now with around 2000 miles on it. Madness. Imagine if you’d bought a new one.
I paid a large deposit for my Lexus under pcp remaining
I guess I'll keeping it for a long long while. I checked how much the car is worth online I could easily sell privately for £10,000
It's best to keep it for as long as you can, that way the depreciation is spread over a longer time frame and has less impact when you do come to sell it. Thanks for watching.
What happens if you or somebody else crashes into the car and it’s then a cat write off but repairable.. so you’re left with a car worth way less? Is thrrr some sort of insurance or something for this?
Just wanted to say there are some good 0% pcp deals around at the moment. Take it out over as long as you can if want to maximise the free borrowing. Now to watch the video.
Fair point - borrowing rates as the lowest they've ever been currently - but there's a reason for that: the economy is in a mess and people may not be able to repay them! Thanks for watching.
What if you get zero percent interest?, great video by the way
What was your trade-in to pay only 60 quid a month? You must have paid a sizeable deposit for a credit length of only 12 months and 60 quid pm.. Anyway most PCPs are over 3 or 4 years. It's a very good way to buy a new or used car and either hand it back at the end of the term contract or use the balloon / guaranteed final value as a trade-in for an alternative car, obvs minus the charge if you have over run the mileage. Anyway Who buys a car over 12 months ???
The trade in was a Lotus Exige that I owned outright, which covered over 50% of the prince of the Cayman. Thanks for watching.
Now i understand more about PCPs, thanks
With Lexus the balloon payment is also the value of the car in three years
That's the idea with all PCP deals....... No dealer wants to over estimate and few will underestimate as it means the monthlies go up
I’ve read some of the comments and think that their tone is inappropriate. I have no reason to believe that Johnny S is being disingenuous. I do think that more clarity is required to fully understand the financial argument.
The cost of PCP with a balloon option relies on these factors:
- balance of purchase price less and p/x. For instance, the new car is £40,000 but my existing car is sold to the dealer for £15,000. Of course, the price paid for the new car may well be lower if I didn’t p/x but that is the same for PCP or outright purchase or whatever.
- the size of the optional balloon payment. The finance house might say that the new car will be worth £10,000 in 3 years time. The value of second hand cars fluctuates very regularly and so I am sure that most finance houses would put in a margin to protect them against severe falls in value
- the rate of interest on the amount being borrowed. Clearly the BoE rate is known but the finance house rate will be much higher than that
- so, if my rudimentary maths are correct and use those examples above, I am borrowing £15,000 for 3 years but the finance house gets £10,000 back at the end of the term. I appreciate the effect of compound interest and depreciation of money but, for the sake of simplicity, am I not correct in saying that the net effect is that I am borrowing £5,000?
Again, I stress that is too simplistic calculation and I’m sure the finance houses use complicated formula to work out the cost of borrowing £15,000 and then getting a potential £10,000 back.
In the case of Johnny S, we don’t know the net sum borrowed. It could be that the new car less p/x left a net loan of £2,000; or £20,000; or £50,000. We don’t know the size of the balloon payment agreed; there is a huge difference in a final payment of £5,000 or £20,000. We don’t know the interest rate although this is likely to be a prevailing commercial rate.
Therefore, for us to understand the value of the argument being put forward (a Porsche Cayman for £60 per month), we certainly need to know the answers to the first two points.
I’m sure the man will provide those in order to allow us to understand his view
But how much was your car you traded in?
Interesting vid 👍
Car dealers have over inflated prices because the majority of people now purchase via pcp. Cars are not worth the price they are advertised as they know 99% of the time no one will ever pay the balloon payment and own the car, keeping the customer on the monthly payment loop for years.
Is pcp good for part time uber for 2 years?
Or hp still better?
I will want to get rid if the car after 2 years tbh or exchange it..
Any advice would be great?
thanks for the clarity info
pcp seems a clever way of making people think they are wealthier than they actually are, when in reality they are even more poor than they were with their cash.
i have always saved and paid cash for cars and only bought what i can afford, anything else is delusional.
however on the downside i will never drive a porsche but i would only want one if i could buy it and own it