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

[Lardlizard]

Yes or no

Why would you scrap it Missillysioned? When you want to buy another, you trade it in. Often cheaper than renting it.

I have an interest-free pcp. Nobody has been able to explain why this is so bad. Effectively I have three years to pay for it—including the balloon payment at the end.

Abraid...so when you've paid for it, is it yours? Or do you have to give it back?

You either give it back at the end of the three years and are free to start a PCP on another new one, or you refinance the balloon sum and pay that off (generally a much lower amount after which you own the car).

The only bad decision for a PCP or lease is one where the person hasn't understood the contract. Unfortunately you get that with anything, not just car deals.

What is annoying is people saying it's daft to do it when they have no idea of other people's financial circumstances and preferences.

I don't have a flash car but I wouldn't be able to afford to save for it and HP was too expensive. I have my car on PCP and I'm happy to trade it in at the end as I don't particularly want to own it once the warranty has finished. I know it's history, I've got a full 5 year warranty and I like driving it.

Threads about PCP and car buying always bring out the holier than thou types who don't realise different things suit different people.

I always buy nearly new cars from a car supermarket. Two years old and half the price of a new one with about 11000 miles on the clock. Have had my current car for more than 8 years and it's still reliable. Rather than a finance deal from the car sellers you are better off looking for a cheap loan from a bank and buying outright.

we have somewhat bigger problems OP...

I just prefer a new one every few years. I used to repair stone chips, machine polish out the swirls every couple years etc, but now I just replace the car.

The economist made this prediction a year or two ago. Definitely wouldn’t surprise me if a lot of overstretches middle class families collapsed financially over their pcped cars. They will let you borrow a stupid amount and many people do.

PCPs are fine IF you understand them. Me and DP both have them as we understand at the end if we want to keep the car we need to pay and already saved the money. We also can afford it monthly.. DPs brother has one, doesnt realise he doesn't own the car, has no way to pay it off and can hardly afford it each month. It's people in his situation at risk!

@Abraid2 the problem isn’t the borrowing it’s the way they do their lending. They don’t have to consider the real affordability of the repayments for the person they’re lending to. Obviously it’s all well and good while it’s being paid off but if someone over does it (as many people tend to do) then that’s where the problem arises. I’m not against pcp in principle (I don’t see the point in owning cars in cash, we’ve done both and you end up paying roughly the same if you get rid of it once the warranty is gone) but it’s more that if you have irresponsible personal borrowing on a large scale it can cause big problems, in particular where minor economic triggers a major economic crisis.

I have a PCP - the car was several years old when I got it (someone traded it in for a new one no doubt) but it is direct from the dealer with warranty for the period of the PCP. The car had already depreciated substantially so I am only having to pay depreciation for the 4yr period of the PCP to cover the drop in value from it being a 3yo to 7yo car - For me it works out better than the risk of buying outright, paying repair bills and unknown depreciation - been there and done that. I have a nice car and stress free driving.

If you can afford the monthly payments, then absolutely do it.

Most cars on PCP agreements come with warranties and other protection agreements, and it also gives you the option to change your vehicle whenever you like (again, given that you can afford it.)

It's only a "con" because people often forget about the balloon payment at the end - and yes I know there are some car salesmen that don't tell customers about the payment, that's what the Financial Ombudsman is for.

But as PP mentioned, people are literally dying. It's only a "crisis" if you can't afford the payments.

"You either give it back at the end of the three years and are free to start a PCP on another new one"
So you've just hired the car in this instance?

"Or you refinance the balloon sum and pay that off (generally a much lower amount after which you own the car)."
Is the balloon sum the amount you havent paid yet, which you then still have to pay?
Have you not overall paid over and above for a car?

The trouble is you can have do many issues if you have the slightest dent/scratches which mskes people more car precious which causes prople unnecessary rage and increasing insurance claims.

@TabbyMumz yes, a PCP is essentially a long term rental arrangement for many which is fine. PCP's may not be the absolute cheapest way to run a car but they have benefits which people value (car is usually under warranty at all times, no unexpected repair bills, ability to drive a new or nearly new car all the time) and it's a package many people are happy with.

Not everyone is the same.

@TabbyMumz if it's a very old car with a fault that will cost to repair you'll only get scrap value on trade in. Obviously a newer car would be worth trading.

However the point is that a middle aged car can cost you a lot more than the initial cost over the time you have it. So the initial payment isn't the true cost of the car when comparing with a lease from new. And you have no way of knowing what that true cost will be. With an old car the true cost is upfront because you probably won't pay to repair it if expensive.

So I would either get cars very new on lease or very old for a small amount of cash if I want to guarantee the amount I'm going to spend. Saving up to buy isn't necessarily the prudent choice as it traps your money in a depreciating asset.

I’ve always bought my cars outright using finance and my old car as part exchange. I do it over 3 years and then continue to run the car ‘for free’ for another few years and pay what I would have paid for the car either off the mortgage or save it.

Can someone explain to me about PCP, when it finishes you either hand the car back or pay the balloon payment? So where does the deposit for the next car come from? Is this something you save up alongside the monthly payments?

When the contract finishes, you hand the car back and it’s the deposit for the new one.

I dislike PCP as I prefer not to own the car, as if it goes wrong I am liable for the repair. But it's a valid choice for some people, especially those who get regular cash for car payments from work, especially if the manufacturer warranty is good.

Some people sign finance agreements they don't understand, that is the issue.

^Is the balloon sum the amount you havent paid yet, which you then still have to pay?
Have you not overall paid over and above for a car?^

I view it like this:

'Buy' a car and will have to put down a deposit, make monthly payments, and then sell it at the end.

PCP a car and you will have to put down a deposit, make monthly payments, but can then give it back after the agreed period if you don't want to pay the outstanding balloon payment - no hassle of selling it.

With a cheap car I'd just buy it outright, but people typically use PCP for new or nearly new cars.

The trouble is people are using it to get a shiny new car when they do not have a deposit due to low pay. Now if you cannot get the deposit, you are unlikely to earn enough to pay the balloon at the end. This means you get stuck in a continual 'renting' situation plus you may get additional charges for slight dents and scratches or extra mileage, which they may also ill afford.

When the contract finishes, you hand the car back and it’s the deposit for the new one.

But surely you still owe money on the car?
Is the deposit less than if I was part exchanging the exact same car but owned outright?

I’m curious because I think the next car I will buy will be electric and I’d sooner have that on PCP than own it outright.

I’m on my third pcp contract. For both the second and current cars I’ve handed the old car back and started a new - no deposit - contract. The payments on the new contract are based on the value of the car you return. In my case they were both well under the contracted mileage so the new deals were excellent.