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Original poster

PCP for car even if we have cash?

18 replies

Clusterduck · 02/05/2022 00:02

After much research, we have finally found a car we agree on and like… Problem is, it’s a year old and very pricey (over 35k!). It’s not a premium brand but is top spec and hybrid and has a lot of extras compared to other brands at that price. Due to supply issues, it’s not much cheaper than new. We are probably paying over the odds (in a normal market) but the dealer won’t haggle (as it’s not a normal market). No dealer has that we have seen recently. We have put off replacing old banger but it’s costing us in ULEZ fees and will clap out soon. We more or less have the cash to buy one year old car outright as we have are in credit on our very low interest offset mortgage. But if we change the car within five years, does it make sense to put up all this money?Should we just use a PCP? I’m a bit worried as I am not the best driver and we don’t have offset parking so would hate to be stung for wear and tear when we return the car. Which option makes the most financial sense if we can afford to own outright but the car will depreciate substantially within a few years? We have run our last one into the ground but due to likely tech changes, think we will swap this one far sooner.

OP posts:

BarbaraofSeville · 02/05/2022 05:55

I think the risk is that you will lose money if car prices stabilise in a few years time as you'll be buying at a high price and selling at a low price.

Why do you need such an expensive car, especially as you're planning to change it in a few years time? Surely you could get something suitable for £15-20k that's about 3 years old? The risk of losing a lot of money wouldn't be as great then. Have a look at the car supermarkets, they have cars ready to drive away, I got a 2 YO small car for £8k, although prices have risen a little since then.

On the matter of PCP, the odd light scratch is covered in the fair wear and tear policy, have a look for this on the BVLRA website. I sent a car back that I thought was quite tatty with lots of little nicks and scrapes and I thought I'd get a bill for hundreds but the man said just about all of it would polish out and I got a bill for £60! PCP might be a good idea if you're not planning to keep the car long term, or a lease, but then you have to find something that's available.

Original poster

Clusterduck · 02/05/2022 08:26

You would think we could get a car that’s big enough, auto, hybrid etc for 15-20k but sadly the makes we want, model and spec we are after (there were about six we considered - only two of them European by the way) are just not available at that price point. I’ve scoured all the online supermarkets and we have done lots of test drives. I think ALL cars are ultimately a waste of money but the difference in performance within the same make and model of even two years ago is enormous - but there’s about a 10k difference.

OP posts:

D0lphine · 02/05/2022 10:40

Buying a car you can't afford is a terrible idea.

Why don't you use a budget to work out what you can afford and then see what is in your price range and then work out the best option.

You've worked out what you want and are now trying to finance it- wrong way around.

HolyMoly22 · 02/05/2022 11:19

We lease our cars and have done so for the past 6 years.
We aren't bothered about owning out right and like to have new every few year.
We've had no issues, maintenance is included so there's never a worry about paying for repairs etc.

We have owned out right in the past and there was a problem with every car which cost us money.

Original poster

Clusterduck · 02/05/2022 11:25

Thanks for all the replies. Sorry I should have been clearer, we can afford it. We are very very lucky and both earn high salaries, have paid off our mortgage and have other assets. It’s more a case of working out if it ever makes financial sense to take out a pcp or if you should always pay off the car upfront.

OP posts:

Paq · 02/05/2022 11:27

It's up to you how you spend your money but don't pretend to yourself that buying a £35k second hand car is anything but a money sink. If you are high earners then go ahead and buy the car you want.

D0lphine · 02/05/2022 11:34

Clusterduck · 02/05/2022 11:25

I'd just buy it then.

HidingFromDD · 02/05/2022 11:35

PCP might actually work
IF they guarantee the buy back price and the rate is v low. Make sure you absolutely fix the mileage as at least what you’re likely to drive (ignore the last two years as will be artificially low), and make sure you keep the balance payment ring fenced in case it makes more sense to pay it off and sell at the end. Check the small print for the end value. If it’s an estimate based on current values then you’ll get stung at the end and may end up returning the car and having to pay the difference in its market value.
and don’t take the salesman’s word for it, or any caveats like ‘that’s never happened’. If it’s not in the contract it’s not a given

Original poster

Clusterduck · 02/05/2022 13:13

I also agree cars are generally a waste of money! Oh well we must have taken leave of our senses as we are buying it after I negotiated a bit more for ours and a bit off the newish one… Will fund it from savings, offset account and hopefully an interest free credit card…

OP posts:

LondonQueen · 02/05/2022 16:25

The problem with PCP is you will be paying higher prices and selling low when the market stabilises. Do you really need a new car or can you wait maybe 6 months til the prices come back down? I'm keeping my current car a little longer than normal.

Ilikewinter · 02/05/2022 16:30

an interest free credit card…

just check that they will accept and the limit for a credit card payment, when I got my last car the dealership would only accept £3k max on a card, it through a spanner in the works because I was aiming for 0% cc like you but had to do some juggling!

catsandquails · 02/05/2022 16:40

We are getting brand new a car on PCP because second hand car prices are ridiculous at the moment. For the exact same model, spec etc but 1 year old and around 6k miles, it would've cost us around 1k more to buy. It's a 0% finance deal for brand new, and as second hand prices are through the roof they've offered us a really good price to part exchange our current car. So, brand new makes sense for us at the moment. We don't plan on paying the ballon payment at the end and will just find a new deal on another car.

Jdiosmio94 · 02/05/2022 17:26

I would try to negotiate the price based on you taking a PCP deal and then look to pay it off in full as soon as the contract allows. My past 4 cars I have done this from new, you normally get a deposit contribution and other incentives to take out the finance versus buying outright. I then ride out the cooling off period and pay it off in full, practically 0 interest

Original poster

Clusterduck · 02/05/2022 22:57

Thank you for all the advice. Good point re the credit card. They don’t accept them for large amounts! We will probably use our low rate offset for much of it. Or perhaps check out their PCP deals again. Sadly new ones were more than the one year car and there is a ten month wait (I checked with rival dealers to verify) for new ones with the same spec. Sigh. Our old car is just shy of needing a very expensive service and we pay £12.50 each time we move it as it is an old diesel so we do need to replace it. Sadly the deposit contributions for the PCP deals only apply to the new models.

OP posts:

TheTeddyBears · 03/05/2022 08:46

Lease is cheaper than pcp and they pay the car tax. I'd do that don't buy at an inflated price when u want to sell a few yrs down the line.

I'm not interested in owning a car as I change it too often, I get a new car every 3 yrs. one went bk in January and I was expecting a bill of around £6-700. It was zero! There were quite a lot of chips (never known a car to chip so bad) they were bigger than fair wear and tear, someone had also scuffed the corner of bumper and I had scratched one of the alloys (bigger than fair wear and tear). Overall the car was in really good condition though and mileage was £7K lower than I was allowed.

Lunar27 · 03/05/2022 09:28

IMO PCP is only ever worth it on new cars, or if the interest rate is low on a used car. Often the rates on a new car will be lower than used by a large margin. For instance, last time a took out PCP on a BMW (pre pandemic), the rate on a new car was 1.9%. A year old model had a cheaper forecourt price but the interest rate was 10.9%. This far outweighed the saving on a used car so we bought new. It's worth checking.

Personally, if you're looking to keep some liquidity and finance, I'd get a bank loan. Rates are much cheaper and you'll own the car from day one so won't have to worry about the odd scratch. Sure the monthly payments will be higher but you'll have no balloon either. You'll also have an asset, that may have depreciated but will have trade in value.

Given currently supply issues, you may find depreciation to be less of an issue downstream. Whereas you could lose out if you take out PCP and hand the car back later. It's true that you can sell the car and clear the PCP but personally I think it's preferable to just get a loan.

BarbaraofSeville · 03/05/2022 09:40

You have this the wrong way round. If the OP takes out PCP, the contract will include a stated future value for the car, so she won't have any nasty surprises later. She will know she can just hand the car back, and not pay any more than the agreed PCP payments.

If she buys the car, whether with a personal loan, or money she already has now, she's relying on the used car market not reverting back to it's previous normal when she wants to sell the car. If we're back to a buyer's market position, she will potentially lose thousands of pounds in extra depreciation, because she'll overpay now, but her buyer won't overpay when she sells the car.

I'm not sure that lease is necessarily cheaper than a PCP. I've done both and IME, PCP has been cheaper.

Lunar27 · 03/05/2022 10:05

Not at all. The optional final payment is not a future value. It used to be known as the guaranteed future value, GFV, but the variability of used prices meant that some people lost out so they had to change it to the lowest forecasted value that the car could be after the term. Therefore it's often lower than the market value and typically around the trade in value. This is really convenient for the dealership as most people hand the car back without question. In fact, most people don't even consider selling the car and clearing the finance.

For instance, I purchased a car through my business 3 years ago. The optional final payment was £14k. It's currently worth £23k but many people would just hand it back and lose £9k in the process. I decided to buy it outright but could've sold it, cleared the finance and pocketed the difference. This is what I mean by losing out. Dealerships and finance companies know this all too well, which is why they push it so hard with discounts and incentives. They make billions off customers who don't always know they're losing out, both in payments/interest and future values.

Whether you PCP or buy outright, the future value is always an unknown. However, given the current climate, with waiting lists of up to 18 months, it's a strong indicator that used prices will remain solid for the foreseeable future.

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