To ask about PCP in buying a car?

[PinkPonyTail]

I know it’s very much hated on MN!!

So you pay deposit a and then a monthly fee for the car,

At the end you can hand it back or keep it.

So my question is when you have the car do you have to also be saving for for the next deposit or the payment to keep the car?

Otherwise the term would end and you’d be left with no car?

Have I got that right?

Absolutely you need to think about the end of the lease. You either need to pay the balloon payment to keep it, or hand it back. If (and it's a big if) there is any equity in the car at the end (ie if the value of the car is more than the 'guaranteed minimum value' they give you as part of the agreement) then you can use that as a deposit towards the next car. If there's no equity then you'll basically be starting again at the end of the term.

Think very carefully before you take out a PCP agreement. They make it sound better than it is! To get even a reasonable monthly payment you have to put down a sizeable deposit, which you will kiss goodbye if you hand the car back at the end. Also, there is rarely any ‘equity’ at the end, so you’ll have nothing to put down on your next car. We learned this lesson the hard way, our car wasn’t worth more than the finance (funnily enough!) despite it only having 10,000 miles on the clock after 3 years and being in immaculate condition. We’ll never do PCP again, it’s a rip off.

Martin Lewis MSE has a good link www.moneysavingexpert.com/car-finance/personal-contract-purchase/

You can buy at the end if you really want, but I'd say PCP is aimed at people who want a new car every two or three years. (Longer terms are sometimes available but less common). The low monthly payments for a naice car lure you in, but you'll basically be paying that perpetually - when the term ends on one car you get another. If that's a luxury you can afford then fine, but if you're happy to go longer between purchases other options are likely to be better value. And if you're a high or unpredictable mileage driver or seem to get paintwork damage on your cars (guilty as charged), PCP is likely to not be well suited.

Exactly. I would advise you take out a car loan, buy used- rates are so low at the moment, and then at least it’s on your terms and you own it at the end.

Ex car dealer here. It is basically a long term rental. Very occasionally you build equity but you shouldn’t bank on it. Never put in a huge deposit. If you go ahead with any form of PCP be sure that there is a guaranteed future value at the end rather than just a ‘balloon payment’. That way if the bottom falls out of the market you can still hand the car back at the end of the term and walk away (providing you are within agreed mileage and no damage). Always ensure mileage is a realistic one for your usual use - no point accepting a cheap monthly payment deal for 6k miles pa when you usually do 12k pa as you will have to pay a cost per mile at the end. This can be expensive. Also expensive is the finance company assessment of ‘wear and tear’ after 24/36/48 months so be sure to check the exact terms of that before signing. Other pitfalls - always take an all inclusive service plan transferable to other dealer groups if offered - it usually works out cheaper in the long run and also GAP insurance. This is usually the one financial product worth taking as if you have a serious accident or your car is stolen it will pay the difference between the car’s insurance value and the amount you owe on finance. This can be quite significant. HTH, good luck!

@PinkPonyTail

I know it’s very much hated on MN!!

So you pay deposit a and then a monthly fee for the car,

At the end you can hand it back or keep it.

So my question is when you have the car do you have to also be saving for for the next deposit or the payment to keep the car?

Otherwise the term would end and you’d be left with no car?

Have I got that right?

There a balloon payment at the end and various milage/serving agreements/rules that often make it a bad deal.

It's one of those things that exists so people without good enough credit can buy something way beyond their means. And like all products is risky to them so expensive.

Rough cost list

Cheap
0% credit card with high limit and time
Mortgage
Personal loan
Literally anything described as any other way for paying for something not upfront.

Expensive :p

It totally depends on the deal and what you want out of it. If you want a brand new car every 3 years you’re going to be paying for the depreciation whichever way you buy it. If you can get a 0% PCP deal then you can keep your capital of course. This pattern is never going to be the cheapest as you’re continually in the high depreciation zone but you keep getting new cars. Over say a 6 year period its cheaper to buy a 1 year old car with a low rate loan and keep it for that 6 years but you end up with a 7 year old car which may have cost money in repairs and unreliability.

Any question about funding a car boils down to one single problem: how do I go about funding the depreciation on this vehicle?

There are a number of different answers, and there are no absolutes. If you've got, for example, £400 per month to fund a car that will enable you to borrow £16000 roughly over four years on hire purchase, build roughly a 20k replacement pot in a savings account or to fund a shiny new BMW or Audi etc on a PCP.

There are pros and cons to each, but no right or wrong, it's what suits your pocket and your mindset!

Probably the cheapest way to run a car is to spend £5k on a petrol Honda or Toyota, maintain it well and you’ll get years of trouble free motoring.

@Elai1978

I have to say I agree. I paid £3.5k for a 2003 Honda in 2013. It’s still going strong. It will die soon and I’ll be getting another Honda for sure.

It’s nice to drive but entirely unflashy which is exactly what I’m after.

Also look at the yearly mileage allowance, many are way below average mileage and you have to pay for every mile over