Pcp's - Am I Missing Something?

[Grumpy Cabbie]

Historically I've always bought my cars by Hire Purchase, though sometimes I've traded the car in half way through the period when its value is more than the outstanding amount, allowing a good deposit for the next car.

Lately most manufacturers are pushing their PCP plans and I guess it's because the monthly payments are lower, allowing more people access to a new car. But, and this is the reason for this thread, I can't seem to get these to add up going forward after that first plan. Sure you get a great deal buying the car now, but what happens when you come to the end of the agreement? Example;

Deposit: £4,000

Monthly payment £169

Final Guaranteed value: £7,000

So one trades in ones old car for £4,000 say, pay £169 for 3 years and then at the end of the agreement (subject to condition and mileage) they guarantee to buy your old car for £7,000?

I get that part. But this final value is usually on the ball for what the car will potentially be worth in 3 years and leaves little in the way for a deposit to start again. So in 3 years time will I then be restricted in what I can have as a car? Example in 2017

Deposit £500 (as no value in previous car that was handed back)

Monthly payment £275

Final Guaranteed Value: £8,000

Or, as the thread asks, am I missing something here? Or in 3 years time will tens of thousands of people on a PCP suddenly get stung?

[Bibsy]

I think they try to pitch it so the final value is enough to leave you a bit of a deposit on the next car. But sure, pcp seems to me to be one of those "it seems attractive but" things.

For me, I used to do hp, but at some point saved like jiggery and bought outright (not new). Since then I've always saved and kept saving until there was enough to replace the car, and bought it for cash again. I suppose I change it every four or five years.

That way I now put aside about the same as a pcp each month but into my own bank account, giving me flexibility to miss a month or boost it as appropriate, the car is mine from day one, I don't have to worry about scratches or excess mileage reducing the final value, and I can change it as soon as I've saved enough to do so with a big deposit, if I choose.

I know a pcp would put me actually in a newer "better" car, but I prefer what I do. You have to pay for it in the end - at some point you will decide not to continue with the pcp arrangement, even if that's years away - and then you either have to hand over thousands to keep the car - or have no car.

[Grumpy Cabbie]

So with a PCP you're in a new car NOW but you'll always be chasing your tail?

Hmmm.

[timberwolf]

Erm, I am pretty sure the car is not your property at the end of the period (you have not paid anywhere near enough), if you want to keep it, you would have to pay the agreed final payment.

If you haven't treated the car well enough, and you don't want to keep it (by paying the agreed final payment), then your contract will have a clause that will allow the PCP to recover the difference between the cars worth and the agreed final payment.

[Grumpy Cabbie]

Erm, I am pretty sure the car is not your property at the end of the period (you have not paid anywhere near enough), if you want to keep it, you would have to pay the agreed final payment.

If you haven't treated the car well enough, and you don't want to keep it (by paying the agreed final payment), then your contract will have a clause that will allow the PCP to recover the difference between the cars worth and the agreed final payment.

What I meant and didn't make clear is that if the guaranteed final value is £7,000 and the car is actually worth £9,000, then you have a £2k deposit. (or you pay £7,000 to keep the car which just isn't going to happen).

But if the gfv is £7,000 and they offer £7,500, then you only have a £500 deposit - see my first post.

And reading your comment, if they say you've mistreated it or there was a dodgy repair or whatever other tenuous excuse not to offer you £7,000 for the car, then you could end up out of pocket with no car? Eeeek

[cootuk]

A lot of PCP are pushed with only a small deposit - say £1000 - for base cars.

Ling Cars will do a Prius on 3+47 for £300pm

[timberwolf]

Erm, I am pretty sure the car is not your property at the end of the period (you have not paid anywhere near enough), if you want to keep it, you would have to pay the agreed final payment.

If you haven't treated the car well enough, and you don't want to keep it (by paying the agreed final payment), then your contract will have a clause that will allow the PCP to recover the difference between the cars worth and the agreed final payment.

What I meant and didn't make clear is that if the guaranteed final value is £7,000 and the car is actually worth £9,000, then you have a £2k deposit. (or you pay £7,000 to keep the car which just isn't going to happen).

But if the gfv is £7,000 and they offer £7,500, then you only have a £500 deposit - see my first post.

And reading your comment, if they say you've mistreated it or there was a dodgy repair or whatever other tenuous excuse not to offer you £7,000 for the car, then you could end up out of pocket with no car? Eeeek

Thanks for the clarification. Are you sure it works that way?

I thought a PCP was more like a long term car rental with an option to buy a second-hand car at the end of the period and some penalties if you didn't look after their rental car.

Not sure why they would give you any money if the resale value of the car was worth more, it isn't your car is it? (Edit: probably too simplistic on my part - but if I was interested in such a scheme I would definitely investigate whether I owned the car at any point in the contract!)

[alan333]

It's a way of enticing you to buy a new car with cheap monthly payments. The car is not yours - it's effectively contract hired to you until you arrange to buy it at the end of the contract. Hp is the same - it's not yours until you pay the final payment or settle the finance.

You're correct that you're not building up any serious deposit for your next car, that's why it's cheaper per month.

[FROSTYBALLS]

We've never gone for a PCP as we never liked the idea of having to stump up an amount of cash for a deposit on the next car. We've used either HP or a personal loan.

The one thing about a personal loan is it isn't tied to the car.

Remember back in 1996 when we were looking to swap our current three year old Nissan Sunny for another similar sized car. All the Finance Manager of the local Nissan dealership was interested in talking about was PCP's. When we said we weren't going the PCP route, he instructed the salesperson that they couldn't give a part exchange value on our current car - effectively trying to force us into a PCP. We walked and bought a new Toyota Corolla from the same dealer group's local Toyota dealer - using a personal loan.

[Grumpy Cabbie]

It's a way of enticing you to buy a new car with cheap monthly payments. The car is not yours - it's effectively contract hired to you until you arrange to buy it at the end of the contract. Hp is the same - it's not yours until you pay the final payment or settle the finance.

You're correct that you're not building up any serious deposit for your next car, that's why it's cheaper per month.

So my original concerns seem founded. It's a smoke n mirrors way of getting you into a car, cheaply. But woe betide you when you come to want the next car, or so it appears.

I'll stick with my HP or personal loan or even savings. I can see a lot of people getting stung down the line with pcp. It's fine for a company car if you've got a monthly budget, but not really great for a private customer. My gut feelings appear correct. Thanks for the input.

[Duffryn]

When I wanted to p/x my Avensis for a Prius my local(ish) dealer was only interested in harping on about a PCP, even though I wanted to be a cash buyer. After 2 hours or so of earbashing I gave up and went home. An hour later he was on the phone still banging on about the benefits of damn PCPs. I eventually got the deal I wanted at a dealer 80 miles away......

As a point of interest though, with a PCP who is actually the registered owner of the car, driver or finance company? Who keeps what is called these days a logbook? And is there any impact on insurance/NCDs etc. by taking out a PCP? Didn't want to ask Mr.Salesman or I'd probably still be there now - 18 months later!

[johalareewi]

Another interesting gotcha with PCP and HP is that because you don't own the car (the loan company does), potentially, you don't have any sales of goods rights. It can get a bit sticky if you get a lemon.

[Grumpy Cabbie]

When I wanted to p/x my Avensis for a Prius my local(ish) dealer was only interested in harping on about a PCP, even though I wanted to be a cash buyer. After 2 hours or so of earbashing I gave up and went home. An hour later he was on the phone still banging on about the benefits of damn PCPs. I eventually got the deal I wanted at a dealer 80 miles away......

My pet hate is when you speak with a salesperson and the first thing they ask is "How much can you afford per month?". Erm no, you tell me your best deal and I'll tell you if it's close and we can negotiate from there.

I'm guessing PCP is a great way of giving a low monthly figure and an even better way for them getting the smoke and mirrors out regarding your trade in and the guaranteed final value.

[Parts-King]

You are not the owner of the car but the registered keeper with a PCP,

You would still be responsible for taxing and insuring the car, just like HP, so no difference with NCD etc

Another interesting gotcha with PCP and HP is that because you don't own the car (the loan company does), potentially, you don't have any sales of goods rights. It can get a bit sticky if you get a lemon.

Not really, the finance company do not want you defaulting on payments, it is not in their interest and will often intervene on your behalf.

There is a bit of "crystal ball" work on behalf of the manufacturer to set the balloon payment (The GFV) because if they get it wrong and it's a bit more, you will get a bit back

Of course, PCP is just another selling tool, just like HP was in the day, but it does help dealers keep customers in the brand. If you have had good service from a good car, it is just an easy switch to a new car at the end of term

[Grumpy Cabbie]

Parts King, Is there a temptation (not you obviously) to offer a higher GFV in order to offer lower monthly payments, possibly resulting in customer being stung at the end of the pcp?

It must be guess work. You want to leave the customer with enough for a deposit next time, but keep the monthly payments low enough to keep the customer this time round.

I'm still not convinced by it, though a pcp might be a good idea if you bought a Renault EV with their weird Battery rental.

[Bibsy]

I find dealers pretty good as long as I say:

"I'll tell you upfront I have no interest in pcp, tyre insurance, gap insurance, Supagard or anything else, so please accept you won't make money out of me on those things and price accordingly. I also have no interest in learning the trade in value you are offering me for my car. Just tell me one figure - the cost to change. We can then talk. In return, I won't agree a figure and then start asking for mats, a full tank of fuel or a special service plan."

Before I go, I have a good idea of what my trade in ought to be, a good idea of what I'd want to pay on the car I'm looking at, and therefore have a cost to change figure clear. When they come in at perhaps £500 over it, it's just a case of either agreeing, offering £500 less or splitting the difference, depending on my mood and how much I think he will budge. Within the constraints above all he can do is tart about with the purchase price and the trade in price to meet our agreed figure. I don't much care if he offers me £50 for my car, as long as the purchase price then comes down so that the cost to change figure I want is met.

I find this method stress and hassle free, and dealers are usually happy to do it as long as you are firm and clear right from the off (if not, then I walk). The whole thing is then over in 30 minutes flat.

[Parts-King]

Parts King, Is there a temptation (not you obviously) to offer a higher GFV in order to offer lower monthly payments, possibly resulting in customer being stung at the end of the pcp?

No. The finance company offer that figure, the figure is based on what they see the market being in the future. There would be no point in offering a higher GFV and the figures being adrift at the end of the deal. Those cars still have to be sold at the end of the term, if the figures are wrong, then the whole used car system comes crashing around your ears, then dealers would stop offering PCP

[IanIanIanIan]

As I understand life; a car is worth X when new and Y when older and used. The user will pay X-Y plus the profits of all involved in the transactions over that time and there is no way around that, although there are ways to minimise that cost.

My way is to limit the people involved and keep the other's hands out of my pockets. No add on insurances, options, extras, deals or finance companies. Just purchase what 'I' want with cash. It is always the cheapest.

[Parts-King]

Just purchase what 'I' want with cash. It is always the cheapest.

No it's not.........not always

Buy a car on 0% finance, leave your cash "in the bank" and earn albeit a miserly rate, and pay monthly over the term. You paid zero interest AND made money on the cash in hand

[IanIanIanIan]

Just purchase what 'I' want with cash. It is always the cheapest.

Buy a car on 0% finance,

Don't fool yourself, the finance company will have their cut. If not on the interest it will be built into the price. They are not in business to give you a loan without making a profit from it plus what it costs them in lost interest on the money they loaned you because it is not invested "in their bank". Without that they would not be in business.

[Parts-King]

Don't be silly, they cannot build it into the price, the cash price is the cash price, end of.

The way 0% interest works is the dealer and the manufacturer end up paying the fee between them. The manufacturer gets more sales and the finance house are paid, therefore making their profit

[cootuk]

Pistonheads has a PC deal thread, and some of the payments seem ludicrously low compared to taking out a loan for the full amount. I guess manufacturers have access to cheap finance, want to keep their production lines busy to lower unit costs, and can afford to sell at just over cost to keep up volumes.

Plenty of people don't want the hassle of MOTs and go for the idea of a new car every couple of years to look affluent.

[Grumpy Cabbie]

Plenty of people don't want the hassle of MOTs and go for the idea of a new car every couple of years to look affluent.

lol I live in Harrogate. Plenty of those around and I bet they're all on PCP's, stuggling to pay deposits on their credit cards.

I believe the phrase is fur coat and no knickers. Look good on the outside but too skint for anything else.

PCP's work in some cases I agree, but I don't think they're as good as made out for most.

[Parts-King]

Most business in dealers this day is PCP.............way more than HP, in fact some franchises see up to 80% of their retail business as PCP and is getting stronger every year

[IanIanIanIan]

Don't be silly, they cannot build it into the price, the cash price is the cash price, end of.

The way 0% interest works is the dealer and the manufacturer end up paying the fee between them. The manufacturer gets more sales and the finance house are paid, therefore making their profit

Of course it is built into the price! No company will give you free finance out of the good of their hearts, they will claw it back somehow. The cash price is what you pay not what is asked. I pay considerably less than the asking price as I won't tolerate add-ons. This latest scam of giving you £1,000 if you take their finance pushes up what you pay in overall interest by at least £1,200. That practice is actually illegal in the US.

If the finance house are taking money from the manufacturer that will, of course, be added to the asking price by the manufacturer.

There is NEVER owt for nowt. It has to be paid by someone and that always is the end user however the cake is sliced upstream. The fewer people with their fingers in that cake the less you will be paying,

It would be nice to be able to buy direct from the manufacturer like Tesla. No wonder car dealers in the US are creating a fuss. No fingers in the cake, ah so sad.