PCP questions | Mumsnet

Grapejam · 2024-02-26T10:25:27+00:00

Hi there all I am looking to buy another second hand car and i have always purchased my cars thru cash, have been luckly enough to be able to save for several years and then trade in curent car etc. Its been 5 years since i last purchased and obv the second hand car market is completely diff now. So i am wondering about PCP as i have never used so dont really understand it if in honest. Ive attached a run down for a car similar value to what i would be buying just from a website ive used in past etc to purchase cars . The optional final payment value of £3846.25 is this what they are saying the car would deffo be worth at the end of it ?? So if i didnt want to buy it outright and handed it back how do i know what the value would be. Seeing as i would be putting down 5k deposit i would hope that the car would still have equity at the end of it. But if it does im guessing you would have to buy another one etc . Also with regard to services mot etc are they part of the deal. Would i have to take it to the garage i bought it from or can you take it to any garage as long as its the same dealer ie evana halshaw arnold clark etc ? Sorry for it being so long i have so many questions ?🤔 Thanks

TheTripThatWasnt · 26/02/2024 10:32

There's no guarantee of equity in the car at the end. The end payment is what you can pay to own the car outright. When the agreement comes to an end, 3 things can happen:
1 - you pay the end payment and own the car
2 - the car is valued, there is equity in it, you can put that towards a new car
3 - the car is valued, there is no equity in it, you just hand it back

Servicing and MOT aren't included in the standard PCP - I have bought a service plan before (but I think that only included the first 2 years' servicing, and it was brand new so no MOT needed before the end of the 3 year agreement).

Original poster

Grapejam · 26/02/2024 10:44

Thank so much for replying can i ask then if its worth putting such a large deposit down then ?
I understand if i put a larger deposit it would mean lower monthly payments. But would it be worth just putting the min deposit down and then at least i would still have some money from my original car? Also if i was to put down the min deposit and then i hadnt it back at end of 3 years what is the likelyhood of generating any equity in the car ?

OP posts:

BoredWithLife · 26/02/2024 10:53

As @TheTripThatWasnt has said, forget about any equity left in the car at the end. If you lower the deposit, they will simply up the monthly payments so they extract the same amount of cash from you over the period, likely more as the technical loan is larger so the interest will be slightly more.

As for getting equity at the end, it's all a bit of a gamble as to what you think will happen to used car prices and what you think it'll be worth at the end. If you think it'll be more than the GFV then you'll have equity, if you're wrong, you wont. Who is better at predicting the future car markets, the finance company who have done this every day for the last few decades, or a random custom who is buying a car.

Bromptotoo · 26/02/2024 10:56

One way of looking at PCP is that you borrow money to cover depreciation over the (usually) 3 year lease term.

On your example you pay a down payment of £5,000 and then 36 instalments of around £140/month. All you get for that, unless the dealer is bundling a service contract, is the car. Every other cost of running is yours.

At the end of three years you can pay the final sum, often called the balloon payment and if you do so you own the car. Or you can return it and if you're fortunate there will be enough equity to cover the deposit on a replacement.

You don't own the car unless/until you make the final payment.

One point to think about is that dealers prefer PCP to cash and heavily incentivise these deals with dealer contributions, low interest etc. Some people are better off taking the finance/PCP and settling it immediately/

Original poster

Grapejam · 26/02/2024 11:08

BoredWithLife · 26/02/2024 10:53

As @TheTripThatWasnt has said, forget about any equity left in the car at the end. If you lower the deposit, they will simply up the monthly payments so they extract the same amount of cash from you over the period, likely more as the technical loan is larger so the interest will be slightly more.

As for getting equity at the end, it's all a bit of a gamble as to what you think will happen to used car prices and what you think it'll be worth at the end. If you think it'll be more than the GFV then you'll have equity, if you're wrong, you wont. Who is better at predicting the future car markets, the finance company who have done this every day for the last few decades, or a random custom who is buying a car.

Hi
Yes sorry im not trying to say i know more than the garage. I think becos i have always purchased in cash before and i always knew i had equity in the car i was trading in. Its hard for me to think well i might have no value in the car at the end of it... but i just need to change my mindset and realise that.
And yes its been a longggg time since cash was king in any garage !

OP posts:

Original poster

Grapejam · 26/02/2024 11:17

Bromptotoo · 26/02/2024 10:56

One way of looking at PCP is that you borrow money to cover depreciation over the (usually) 3 year lease term.

On your example you pay a down payment of £5,000 and then 36 instalments of around £140/month. All you get for that, unless the dealer is bundling a service contract, is the car. Every other cost of running is yours.

At the end of three years you can pay the final sum, often called the balloon payment and if you do so you own the car. Or you can return it and if you're fortunate there will be enough equity to cover the deposit on a replacement.

You don't own the car unless/until you make the final payment.

One point to think about is that dealers prefer PCP to cash and heavily incentivise these deals with dealer contributions, low interest etc. Some people are better off taking the finance/PCP and settling it immediately/

Hi thanks for replying
To be honest getting no extras etc suits me better as i have a fantastic local mechanic and i would prefer to take to him i just wanted to make sure that i wouldnt be tied up yo go to the garage i bought if from!
Also can i ask can you trade in the car even if the 36 months arent up. Just a few people i work with always seem to be changing there cars every like 9 months or 1 and half years and wondered if that is possible if still on finance

OP posts:

Bromptotoo · 26/02/2024 11:18

Personally, if I have the cash to buy outright it's likely I'd do that. If the best deal is to take a PCP and settle it early - I did this on my last but one car as the PCP included 2 years servicing MoT etc - then I'd do that without compunction.

Remember that when trading one car for another the key figure is 'cost to change'. In effect that's the cash you put in over and above the trade in offer.

Original poster

Grapejam · 26/02/2024 11:24

Bromptotoo · 26/02/2024 11:18

Personally, if I have the cash to buy outright it's likely I'd do that. If the best deal is to take a PCP and settle it early - I did this on my last but one car as the PCP included 2 years servicing MoT etc - then I'd do that without compunction.

Remember that when trading one car for another the key figure is 'cost to change'. In effect that's the cash you put in over and above the trade in offer.

Ahh rite so they would see a car they like and the garage would say rite this is the max we can give you for the car is X and then you have to pay extra which basically is you then paying back the finance early and them agreeing to like an early settlement fee

OP posts:

Marmight · 26/02/2024 15:01

Do you need 15k miles a year?
Thats quite high for a car on PCP.

TheTripThatWasnt · 26/02/2024 15:19

Much better to put a high mileage and not to get to a point where you're worried about excess miles. I do about 14K miles a year - 15k isn't that high. Depends on your commute and whether you travel for work etc.

Original poster

Grapejam · 26/02/2024 16:00

Marmight · 26/02/2024 15:01

Do you need 15k miles a year?
Thats quite high for a car on PCP.

Hi there
Yes i do i average 13-14k so want to make sure i dont go over!! to be honest i dont think that is high mileage but looking into pcp etc clearly it is 🤣

OP posts:

Whoknows101 · 26/02/2024 16:21

Bromptotoo · 26/02/2024 10:56

One way of looking at PCP is that you borrow money to cover depreciation over the (usually) 3 year lease term.

On your example you pay a down payment of £5,000 and then 36 instalments of around £140/month. All you get for that, unless the dealer is bundling a service contract, is the car. Every other cost of running is yours.

At the end of three years you can pay the final sum, often called the balloon payment and if you do so you own the car. Or you can return it and if you're fortunate there will be enough equity to cover the deposit on a replacement.

You don't own the car unless/until you make the final payment.

One point to think about is that dealers prefer PCP to cash and heavily incentivise these deals with dealer contributions, low interest etc. Some people are better off taking the finance/PCP and settling it immediately/

That is a sensible way of looking at it - although it's also worth a reminder that the actual amount borrowed is still the total cost of the car (minus any deposit).

This means that interest is charged on this amount & why they are such a huge money-spinner for the car finance companies.

There will usually be a penalty built in for "settling" the PCP finance that is worth exploring if that is the plan.

CloudySheep · 26/02/2024 18:05

I bought a Škoda Citigo on PCP in 2018. I paid £150 a month with the intention of handing it back. My balloon payment at the end of the 4 years was £2,500. I decided to buy it afterall because cars were all taking ages to arrive in 2022. I sold it for £7,500. So ignoring the service/MOT costs (no work ever needed), I paid £2200 to use a car for nearly 5 years.