To think car payments and pcp’s will be the next crisis to hit the U.K. and the world

[Lardlizard]

Yes or no

I’ve just got a loan out to buy a run around for now I wish I had looked at PCP. It’s hard trying to find a cheap reliable automatic which I think will last me more than 6 months. I do mot background checks, terrible absolutely terrible. For £14 extra a month, I could have rented a reliable hybrid car.

Dh is motor trade so I always have a pcp, I’ve never been charged for damage because if I need a repair I go through an approved repairer who do a good job.

Dh assesses pcp cars being returned. Recently he’s had;

A car with every panel damaged incl the roof, all alloys chipped.
A backseat eaten by the dog, also the parcel shelf.
A driver who though the pcp incl tax, insurance, servicing, mot so hadn’t bothered doing any of it.
A car so badly repaired it looked like they had used a paint roller on it, they tried to bribe Dh into saying it was ok. Also they had clocked it at some point & thought they wouldn’t be able to tell.

In all cases the drivers are furious that the finance company are going to charge them for it.

I have had PCPs for years. No intention of ever owning outright a depreciating and degrading asset.

Do you really think that the credit crunch taught the finance industry no lesson at all?
It taught them they can do what the fuck they like and the rest of us will always end up paying for it.

Is pcp the same as leasing a car?
No

You see you pay for a depreciating asset at far bigger a loss. The money wasted is massive.

I had a second hand car (a good one, not a rust bucket, 4 years old when I bought it and £17,000) that I kept for 2 years. I know that's not a long time to keep it to get the best value for money, but when I sold it on I worked out that the depreciation had cost me about £300 per month. I could have had a pretty decent car on PCP or lease for that amount, and the second hand car was no end of hassle to get repaired, serviced, mot'd, bought, sold etc. After that I decided not to bother owning my own car again.

PCPs are fine whilst you have the income and credit rating to sustain them.

A sudden change in circumstances though and you're in big trouble. I agree with the OP - it's a problem waiting to happen and I personally would never take out such a contract.

Interesting DD who is a management accountant also always buys 3 year old ex lease cars outright.

We did similar number crunching on our previous used cars darceybussell and like you, it wasn't working out.

I was actually looking at this for my MIL recently - she bought her current car second hand , it's now about 13 years old (she's had it for about 10) and is getting bloody expensive on repair bills. She'd like another one.

When I looked at what it would cost her to buy a 3 year old again (she could afford to do it outright), assume similar longevity as this one, similar repair bills etc, and account for the lost interest on the upfront cost - it worked out almost the same as a good PCP/lease deal I found. Effectively she could spend the same amount monthly and drive a new car or an ageing second hand one.

It doesn't always work out like that but it was interesting that even someone who keeps her cars for a long time wasn't coming out better on the upfront purchase.

It'll be different for everyone - the important thing is being able to actually understand and assess the choices. There are undoubtedly people who don't/can't and buy cars well outside their financial capabilities (I used to talk to lots of them) but often they were people up to their necks in debt. It can be a sensible decision or a stupid one

You see you pay for a depreciating asset at far bigger a loss. The money wasted is massive.
Jesus. Why does everyone talk like fuckin Alan Sugar’s fucking accountant. I own cars outright but save by keeping them a long time and not spending much in the first place. My costs are way lower than almost any pcp would be - certainly the pcp for an equivalent size/type of car.

I bought a new year last year. A hybrid BMW that I was paying for from savings. The pressure from the dealership to take out PCP was immense. At one stage, I was sitting in a dark office with a guy from the dealership of approximately 21 who was telling me how he had the model above mine because he PCPed it and I was mad to not consider it.

I’m an old cynic and have been burned before so work off the basis that if a car salesman really wants you to do something involving your money, do the exact opposite.

I think a lot of people don’t realise that their car may be in negative equity at the end of a PCP term and so can’t be used as a deposit towards the next car. Given the amount of second hand cars that must flood the market due to PCP, I think there’s a bubble waiting to pop and would agree with a previous poster who said that cars are being scrapped by manufacturers rather than being sold second hand. That’s fine when dealerships and the finance backers providing their PCPs are liquid, but if a provider closes down, and starts calling in those agreements, that could change very quickly.

@Wh0leCl0ves
I get a nice clean, reliable new car with breakdown cover and warranty from the manufacturer for a monthly sum I am more than comfortable with. I then offload it before I have to bother with MoTs and expensive wear and tear issues starting to kick in as the car ages.
I will decide whether I think this package is a waste of my money.

I have a lease car now but will move to a PCP one at the end as it makes more sense financially for me.

I could go and buy a car outright with money but I don't want to. It doesn't make sense for me to do that.

I don't care if others think it's daft and think we should all buy a car and keep it for 10 years etc. I don't want to do that.

Mumsnet is weird about PCP's! These threads are always the same. In certain posters mind the only "correct" course of action is to save up and buy a cheap secondhand car outright. This car will last for 10 years with no major breakdowns and be cheap as chips (apparently!)

I don't think PCP's will cause a financial crisis no. They've been around for ages and the actual cost of a car is quite low in the grand scheme of things. You're essentially paying for the depreciation so the asset is still available to be recovered by the finance company in the event of non payment.

If you take out a loan to buy a car you still have to pay for it if you have a change in circumstances and pay interest so that doesn't go away.

Some cars do breakdown and are money pits. Some will run for a decade with only servicing costs. Unfortunately, you just don't know what you're going get before you buy it when going secondhand. There was a post not long ago by a poster who had spent £5k buying a secondhand Audi (having saved for years) which had done nothing but breakdown and she couldn't afford to fix it. The car wasn't worth what she paid for it and she was stuck. It does happen to people.

It's perfectly normal to pay more for something to have an easier life. I pay extra to have my shopping delivered because it's more convenient. I pay extra to have my car serviced by the local dealer because they will collect it and drop it off. I know I could get it done cheaper but I don't want to.

As with anything in life some people will get themselves on bother by biting off more than they can chew. Lots of people are merrily paying their payments and driving their cars without incident and will continue to do so.

If you don't like the idea of PCP then don't enter into one, no one will force you!

Not sure how you can compare subprime mortgages to car loans/PCP deals. Cars depreciate with certainty (unless rare models etc) and the mortgage market relies on the value of houses increasing overtime. A huge defaulted mortgage could see people bankrupted, but a car loan can surely be refinanced or debt managed if needed?

YABU OP.

A lot of posts here show that people don’t understand PCP at all. It’s no more or less likely to cause a crisis than any other type of lending.

Totally agree with @Youseethethingis. Why would you sink your cash today into a depreciating asset which devalues the second you leave the forecourt. If you use ( and understand) PCP correctly, it’s a cleverer use of finance than sinking cash upfront.

I’d rather pay the car loan then own it and run it for free for a few years after the loan has been paid.

Then I don’t have to worry about high mileage or small dents.

I’ve had no reliability issues with old jap cars.

VivaLeBeaver - There may well be 3 year old cars out there... but not in the numbers and not at the prices they should be given the proliferation of PCP etc.

As I've already said, the price of used cars has actually increased, which doesn't make sense given the vast majority of new cars are now PCP'd or leased etc and a large proportion of those are handed back after 3 years... there should be a huge number of 3 year old cars on the used car market.

Haven't read the full thread but I've been doing PCP for last few years and it works really well for me. Free servicing thrown in and no MOTs. You don't have to have a new car either. I've just changed to a lovely 2018 plate, only 6000 miles on clock. I got 5 grand off what it would have cost new and dealership also gave me a £1000 deposit contribution. I pay a monthly payment of under £200 and it suits me just fine.

@oldgrinch same here

My pcp payments work out over the year cheaper than my previous owner outright car as I was always paying for servicing, brake fluid changes, mots, repairs etc

I have had PCPs for years. No intention of ever owning outright a depreciating and degrading asset.

You're not in avoiding those costs. In fact to the extent you are on average in newer vehicles as a consequence of taking the PCP route, you are spending more money on depreciation.

Depreciation and maintenance is a cost of running a car, all costs must ultimately be paid by the person who gets the benefit of the car, there is no magic trick that any form of financing can perform to load those costs onto someone else.

You are actually paying for the depreciation. But it's all part of the financial system. It's just another form of hp let's say you can afford a £5k car over 36 months, it's going to cost£150 approx plus servicing plus depreciation. For that you could have new car. Colleague of mine buys his cars and motorbikes on pc. He changes regularly and he knows what he is paying out.

I always buy nearly new and pay cash, which I think is more sensible than buying new.

I agree with @Youseethethingis though about this

@PettyContractor
Difference is I’m paying a fixed monthly cost which is accounted for in my family budget for the next 3 years. No nasty surprises and no being left without a car because the xyz decided to chuck it.
My parents run old cars by choice (don’t like modern cars and all their buttons ) and it works for them because they are retired and take life at their own pace and in their own time. When one of the cars is off road with the latest problem, they have access to another vehicle and it’s fine. No work, no kids, it’s all very annoying but not a disaster.
We are a one car, 2 full time working adult, 2 child village household. I don’t want to piss about with old cars.🤷‍♀️

These schemes have been reamed up to prop up the failing motor industry and declining sales in the same way as bent schemes like shared ownership and help to buy have been used to prop up the failed and broken housing market. Sooner or later the chickens come home to roost......