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

[Lardlizard]

Yes or no

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.

But the balloon can usually be refinanced and is typically a lot cheaper than the original monthly payment as you're spreading the remaining value of the car over another contract term. So if you could afford the original monthly payments you're now actually better off as you'll pay less per month and the car will still only be a few years old (and you've had it since new so know you're not getting sold one with hidden problems).

^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?^

You don't owe money because you only agreed to pay for the contract term. They just sell the car on afterwards.

Then deposit is usually say 3-6 months payment up front (the more you pay up for t the lower the monthly payments generally).

An increasingly common thing in the US is 'lease swapping' where you take on an existing lease. Somebody might have a child and need a bigger car, or get offered an overseas job. They want to get out of last year of contract and maybe you just want a car for a year. You take on the monthly payments but also benefit from them having put down the deposit (hopefully large enough to have reduced the monthly payments, but in any case saving you from paying the deposit).

But surely you still owe money on the car?

It depends. Usually you don't, but sometimes as pps have said, you can end up having to pay thousands.

There has been schemes like this though since credit became available, it's nothing new.
I'm from the old school of saving for everything and having nothing on credit.
Being raised to think of it as shameful, you wouldn't admit to it when I was younger. It's what you had if you couldn't afford to buy.

To me the only problem is responsibility for the sale, is the onus on seller to educate the buyer or the buyer to do their homework.
Most people have credit these days and if used correctly can save people money, they aren't all a rip off, or more expensive.

I’d be terrified of getting charged for the wear the kids make in the car, small dents I dont care about, and mileage charges.

If you’re signing a new contract or making the balloon payment they don’t care about the condition of the car and you sign up for 5k Miles a year more than you think you’re ever going to drive. I’ve returned two cars in less than perfect condition and haven’t paid a penny.

And the 'victims' will blame everyone else for their own naivity and expect the banks to bail them out, ie we customers. It's about time that people took responsibility for their own mistakes.

I've seen a few people mention that they wouldnt buy a new car as its a depreciating asset but would sign up to a PCP.

Is there much difference? Sure i wouldnt buy a brand new car either. That seems to me to be a bad financial choice unless your loaded and dont mind the capital loss.

Bu to buy a reliable used car ( Jap?) and keep it a decent length of time, on a low interest loan? That seems like a better choice. Even better if you can do routine servicing yourself and its a reliable brand that doesnt go wrong often.

The used car buyer seems to be in a good position as we have a glut of PCP cars entering the used market but wait...who wants them? isnt everyone buying new cars on PCP? So surely this depresses the used car value also so buyers in that market get better value?

What happens if PCP buyers of new cars just decide to hand it back and pay nothing? How does the car dealer then get back the residual capital value of that car in a used car market thats depressed? He could end up losing money.

Maybe thats why they try and get you on another PCP deal to kick that can down the road so they dont have to deal with it.

This looks like another runaway train that will eventually crash.

Only today we see that new car sales have gone down a fair bit in this past year.

Maybe cars are more reliable, people are keeping them longer . My own car is now coming on 11 years old. It rarely fails and drives well and is reliable. Its a Jap. Im not minded to sell it. What would i get for it ? maybe £2000 ? I'm maxing my economic utility of my purchase.

If it depreciates - rent it

If it appreciates - buy it

I voted no. Car debt will not cause a financial crisis.

However, it is possible that all consumer debt may cause a financial crisis and car debt is a small chunk of that.

I'd never ever buy a new car. I'd only ever buy well serviced/maintained second hand cars, with about 40-60k on the clock, for about £3k. Long enough for the wear and tear to show and for any recalls by the manufacturers and with long enough left on the belt for me to hopefully not have to fork out for more than shock absorbers and brake pads over the next ten years.

If it depreciates - rent it. If it appreciates - buy it

Is a bit too simplistic. For example it makes no financial sense to rent furniture, appliances, TVs, etc because you end up paying more than you would if you bought it. The same can apply to cars.

Cars do depreciate but if you buy nearly new rather than new you avoid the steepest part of the depreciation. I don't like debt and can't really get my head around renting a car instead of owning it. However I can see that if you eg buy a car for £8000 outright and trade it in 10 years later for £1000 (which was what I did last year), you've spent £7000 over the 10 years. That still feels like a lot less than paying monthly for something.

I also prefer to buy outright because then I have the car if I fall on hard times and don't have to give it back. I might choose to sell it and buy a cheaper one, but if I were spending say £300 a month on a car (PCP or loan) I'd be stuffed if I have no work.

Overall I prefer buying things myself rather than having them on tick or renting them.

I also think people do PCP because they can have a much more flash car to impress the neighbours with.

Oh I’d never heard of a PCP before!

It's much more cost effective than my original plan to buy new and replace every three years.

But not as cost-effective as the more sensible plan of buying a good reliable car new and replacing at around 10 years.

But not as cost-effective as the more sensible plan of buying a good reliable car new and replacing at around 10 years.

You would only know that the car is good and reliable after you have bought it. Also lots of us on here have said one of the reasons is we don't want to keep the same car for 10 years or more.

I think given the changes with car incentives (e.g. diesels were good now they are bad and now the eventual move towards hybrid and electric) keeping the same car for 10 years or more doesn't sound that attractive.

In my opinion there is no cost effective or cheap way of buying a car, so you might as well choose whatever is the least egregious option for you!

Just the benefit of not having the ball-ache of advertising a private car sale on Gum Tree and having to sift out the time-wasters / heavy breathers from the genuinely interested purchasers, is good enough for me

Spent NYE with a couple of who at a car dealership and they said that about 70% of people who buy new cars now use PCP as funding, it’s what any dealer will try to sell you in the disguise it’s what everyone does and is cheapest and best ..... it ain’t it’s only good for the dealer

You get a new car for a healthy deposit, you pay month after month after month but unless after 3 or 4 years you’ve got a huge chunk of cash to buy the rest of the car it’ll never be yours

I like new cars often (every two years) and I did PCP in 2016 for the first time. I really felt bullied by the dealer who as good as would not let me leave until I’d signed on the dotted line. In hindsight I was foolish and I had to find £395 a month to pay it off. After almost three years I got rid by PX’ing but a £27000 car cost me about £34,000

I now have a small HP deal with my current car and when it ends the car is mine

I really hope this comes back and bites them hard.

I can't understand why anyone would spend more than the bare minimum on a car

Personal preference, like almost any other purchase.
Why does anyone spend a lot of money, or even anything more than the bar minimum, on a house, clothes, furniture, jewellery, watch, handbags, holidays, etc?

We have leased cars and had no issues when handing them back. We always work out a realistic mileage which we are unlikely to go over, and we always keep an eye on mileage and know what extra charges might be possible. We look at the terms and conditions carefully when signing up, so we know what we are paying for and any extras.

Sometimes we have a lease, sometimes we have a loan. We can afford either option. We never pay more out per month than we can comfortably afford. We look at the options each time and work out which will work best for us at the time. It charges depending on the cars we go as the costs vary accordingly. We get a new car every 3-4 years, something we enjoy personally. I have no desire particularly to own a car for longer.

We treat a lease like we would if we used other types of transport. Its a cost of travelling in a vehicle we want to use personally.

I have an electric car and I lease it. DH's next car will also be electric so is very much likely to be a lease too. As the battery technology is still developing I wanted to be able to hand it back after 2 or 3 years. I don't want to be working out how to deal with an old battery, paying for a new one, etc. Lease made more sense, especially at this stage with EVs.

Never had PCP, there are so many better alternatives that can work as well. Caveat being you have to have access to a good credit. So last few cars, we have paid for in cash with bank loan at 3.5%. Offset the deposit by trading in old car, get an ex demo of 6 months to a year old, making sure it still has 5 years free servicing. The monthly payments are low, you are in control, you can overpay, you don't pay for servicing, and then when the free servicing runs out, trade it in for the next one. Oh, and always buy on March 31st, to get the best deals.

I don't think car payments have been sold with such underhand tactics as the card protection schemes. The latter were applied to people who had not requested them, or were told that they wouldn't be given a credit card if they didn't pay it. With a car, there's always been the option to buy second hand (or not buy at all)

I've never understood buying a car on tick.

My good friend does this: she takes out a finance option, treasures the new car she gets every 5 years.... and only ever drives it to work and back, complains about the price of parking and also complains she has no money to have an actual life to drive her car to and don't ever ask her to drive in the dark!

Seriously, what is the heckin point? So much for independence!

I’ve had a few PCPs and you always have to be saving up for your next deposit or saving up to buy out right at the end of the pcp ON TOP of meeting your expensive monthly payments.
Is a very expensive way to get from A to B but if you’re into cars and/or have a good income then it’s ok.
Also, check your contract re.agreed mileage - twice stayed one figure at point of purchase and it’s been decreased on contract so big extra expense at the end if you don’t keep the car.

PCP= con
If you can't afford to buy via saving or HP just rent.
Car Salesmen love it as its a constant revenue stream with no let up.

World crisis. No
Great Big Con. Yes