AIBU to get this car on PCP?

[Yummyy]

It costs £17000… we have a deposit of around £5000 and pcp payments would be around £200 per month for 4 years. Then £5000 to pay if we want to keep it. We are very likely to be in a better financial position in 4 years time (due to not having to pay childcare anymore and potential pay rises) and will probably just go for a different car.

What are the pros and cons of PCP?

@Valeriane

Its debt and its not smart debt. By a second hand car outright.

You clearly haven't bought a car for quite a while

Car stocks are at an all time low due to brexit and covid hence putting the price of what's available (mostly old dogs!) Up massively. Therefore you'd end up spending way over your ideal budget for a car that's not really worth it, with limited warranty and all the costs involved in servicing, MOT etc on something that's likely to cost £££ in repairs etc going forward as it'll be a bit of an old over priced dog in the first place.

OP go for it.

I have had both PCP and Personal Lease and I have to say getting a new car every 3 years is fab. I do about 12-15,000 miles per year but do look after my cars. I had company cars for years and also in the old days much older cars. I love the fact that you dont need to worry about them.

I think the people who say they have a 20 year old car, nothing wrong with it etc are often handy around any repairs or know people who can patch them up cheaply. I agree with others. The cost of second hand cars is shocking and you dont have the comfort of knowing its band new.

@inmyslippers

It's debt on an item that will depreciate in value. If I can't afford it in cash, then I can't afford it. No such thing as good debt

This.

I wouldn't do it.

No one needs a £17,000 car. If you can't afford it, get something cheaper.

@inmyslippers

It's debt on an item that will depreciate in value. If I can't afford it in cash, then I can't afford it. No such thing as good debt

So you've never had a mortgage? Or used 0% finance and kept your money in savings therefore actually earning money on the debt? There's loads of ways to use debt in a "good" way.

If you have £5000 now, you can get a perfectly decent car without taking out any loan whatsoever.

If you did this, and saved the money you would otherwise have used on this car, in four years time you will have £12,000 in the bank. Yes some of it will go on repairs, but it won't be £12,000.

Sorry but I think you are bonkers to consider what you are proposing over this.

The naysayers seem to be those who still think £2000 will get you an amazing solid and reliable car that will run for years. Even £10k won't get you that at the moment.

"If you can't afford it, get something cheaper."

Which is great and all, but 2nd hand cars are silly money at the moment, meaning that when things settle down again there depreciation is going to bite people in the arse even on 2-3 year old cars.

With a bit of shopping around PCP/leasing makes a great deal of financial sense at the moment.

Up until a few years ago I shuddered at the thought of PCP and always purchased my cars outright for cash. I had been in a lot of debt when much younger (irresponsible with store and credit cards) and vowed never to get into any debt ever again apart from my mortgage.

However, I started a new job about 4 years ago with a large commute and not able to be done by public transport. My old car was now coming up to 10 years old and the bills were getting higher and higher every time it went in for a service and major things were starting to go wrong with it. I talked to a friend at the time and they explained it as renting the depreciation of a new car.

I added up the purchase value of my old car I paid cash for, then added in every repair (but not servicing and tyres as you pay those regardless of own versus pcp) I had spent over the years I had the car. One was a new clutch after 12mths of owning it which cost 2k. Then I divided it by the months I owned the car, the total value was about the same as the monthly PCP. For that I had a brand new car every 3 years or the ability to buy it or hand it back. It was a no brainer for me and whilst I am still financially able to and working it is the way forward for me.

I actually ended up being very fortunate, when mine last pcp was due to go back after 3 years (this year) they were gagging for second hand cars and paid me well over the odds of the remaining balance.

@inmyslippers that's the whole point of a PCP. You don't suffer the depreciation because you hand it back at the end having only paid what you would have lost in depreciation anyway (on a new car). What doesn't make sense here is why the deposit is so high, there are much better deals to be had.

@TotallySuper

The naysayers seem to be those who still think £2000 will get you an amazing solid and reliable car that will run for years. Even £10k won't get you that at the moment.

£5000 can get you something respectable and you would not spend £12,000 on repairs for it over a four year period unless you were extremely unlucky. Therefore that would be the better decision financially.

If people want shiny new cars they can't afford because it makes them happy, there's nothing wrong with that, but don't pretend it's a good financial decision because it's simply not.

Depends what you mean by respectable for 5k
I’ve just looked on the AA website and for that price your looking at a car that’s about 8 years old and has done about 70k miles
Obviously there’s some outliers but unless you know loads about cars that kind of car is a risk to buy. You could easily spend that 5k and then in a years time the car completely clap out and you have to buy a new one.

I've just searched for cars on autotrader within 100 miles of where I am, and actually 5k really doesn't get you very much apart from little city cars with >60k on the clock or just complete bangers.

I'll say it again -> used car prices are MENTAL at the moment. If I go on WBAC I am being offered 8k for a 5 year old astra with 40k on the clock.

Which, frankly, is extremely tempting.

If you plan on keeping the car PCP probably isn't the best option. And if it does work out cheapest, be sure to set aside the money for the balloon payment.

There is no guarantee a new car will be trouble-free or that the repairs will be paid for! The only time I've been stuck on the side of the motorway was in a family member's new on-finance German luxury car, and the dealership blamed them for the fault and they had to pay for the repair. Never had any trouble with my own old Japanese city car.

@SusieBob

I've just searched for cars on autotrader within 100 miles of where I am, and actually 5k really doesn't get you very much apart from little city cars with >60k on the clock or just complete bangers.

I'll say it again -> used car prices are MENTAL at the moment. If I go on WBAC I am being offered 8k for a 5 year old astra with 40k on the clock.

Which, frankly, is extremely tempting.

Yeah I don't think people are realising prices My VW polo which is 7 years old with 45k could easily go for 7k, the dealer wants me to sell it back to them but they can't get me a new one!

But with hire purchase you have to borrow the amount for the whole car price and you have to pay that back whatever you do with the car.

With pcp you are only borrowing the amount the car is depreciating in value.

So my car was 14k new with pcp I put down a 2k deposit; I pay £200 a month for 3 years and can pay 4K to keep the car if I want.
If the car is worth more than 4K at that point I can pay the 4K and sell it privately making a profit, and if it’s worth less I can just hand it back.
The garage gave me 1k towards my deposit which offset any interest I had to pay.

So instead of paying out 14k I paid out 2k and have the money I need for my monthly payments for the year in premium bonds and have the rest sitting in a stocks and shares isa.

If I’d got a loan I’d have had to pay out the 14k upfront and then paid interest on top of that, and I’d be losing any gains from the money in the ISA (and the millions I’m obviously going to win on the premium bonds )

I'd shop around a bit as doesn't seem like a great deal, but on the whole I don't think pcp is bad if you aren't sure whether you want to trade for a new car after the term or buy the car. When I drove a lot for work I had a car on pcp, loved it, I was paying about £110 a month for a brand new car, no need to worry about MOT, services were included as was recovery and maintenance (check the small print though as this differs). Ended up handing it back at the half way point in the end as I changed jobs and a smaller car was fine, but I'd do it again. Check the milage allowance and the reasonable wear and tear policies though. I was within miles and only had to pay around £40 when I handed it back.

My VW polo which is 7 years old with 45k could easily go for 7k, the dealer wants me to sell it back to them but they can't get me a new one

Exactly this: ‘buy a two year old second hand car and run it into the ground’ is starting to sound like ‘I bought my first house by cutting back on luxuries’

And pcp isn’t just for huge expensive cars, my car is a pretty standard city car.

@Daddydog
Often with leasing you can beat the depreciation
What does this mean?

With pcp you are only borrowing the amount the car is depreciating in value.

No you aren't, you borrow the whole amount but the final payment is offset by the guaranteed future value of the car. But you are still borrowing the full amount.

I got a car on PCP in Jan 2017, it was only just over a year old and a small town car (DH has a bigger car which we use for longer journeys), my payments were £101 per month and I paid the balance owed with my savings in Dec 2019 so I own the car now, my mileage is only 23k so I'm expecting to get a few more years out of it yet. PCP worked very well for me but it depends on personal circumstances really.

No I wouldn't spend £14600 on a car that I'd only own for four years then hand back.

Can you get a loan for the 12k over 4 years then it's similar payments but you own outright and could sell on when you're ready?

If I can't afford it in cash, then I can't afford it. No such thing as good debt

Of course there is. Bought my wife a new £40k car, offered us 0% finance. Alternatively I could’ve taken £40k out of a stocks and shares ISA which has been growing at around 15%. Only a complete fucking idiot would’ve paid cash in that situation and cost themselves £20k over 3 years.

There's nothing specifically good or bad about PCP Vs any other way of financing depreciation, it usually all works out about the same in the end. The question is really do you want to pay the depreciation on a new car?

Until COVID the sensible answer was always no but the used market is so inflated at the moment due to supply constraints that many brand new cars are cheaper than nearly new. Once upon a time you lost thousands the moment you left the forecourt, right now the depreciation from new is incredibly low, in some cases even negative. The flip side to this is lead times, for most cars you are looking at between 6 months and a year for new orders to be delivered.

So in my opinion only you can answer whether it's worth it to you but if you can stomach the wait there has never been a better time to order new over used. I have recently ordered my first ever new car for this reason.