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General => General discussion => Topic started by: greencode on 12 March 2017, 09:27
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I'm very confused with why people think PCP is a good thing. I have £20k available to spend on a used GTI or R so am wondering whether it's best to buy with the cash I have or PCP or HP.
The PCP deals are usually 10.9%, with VW, so that's a lot of interest you'd be paying.
What I can't get my head around is why people think PCP is the best way of buying a car. They always say that they wouldn't want their money in something that only depreciates in value but surely buying on PCP also means it's depreciating in value and you're also paying the interest in the amount you've borrowed?
It might be a simple thing but I just can't get my head around it!
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My PCP on new is 5.4% and came with £2k deposit contribution that was only available if bought on PCP. At 6+% APR and without the deposit contribution, I wouldn't have bought on PCP (I intend on keeping the car, just in this instance PCP makes the most financial sense).
Using CarWow or similar, you are already pretty close to having the cash to buy new. You could easily HP/PCP £4k with VW on a new car at much lower APR, and the interest you would pay on £4k would be pretty minimal anyway.
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My PCP on new is 5.4% and came with £2k deposit contribution that was only available if bought on PCP. At 6+% APR and without the deposit contribution, I wouldn't have bought on PCP (I intend on keeping the car, just in this instance PCP makes the most financial sense).
Using CarWow or similar, you are already pretty close to having the cash to buy new. You could easily HP/PCP £4k with VW on a new car at much lower APR, and the interest you would pay on £4k would be pretty minimal anyway.
Interesting. How much did you buy new for, if you don't mind me asking? I've just specced out the car on the configurator and it comes in at £26,785 so even with £2k contribution it's still near on £25k.
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I specced a good few £k of options, so list price was c£33k. Purchase price after deposit contribution was less than £28k.
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What I can't get my head around is why people think PCP is the best way of buying a car. They always say that they wouldn't want their money in something that only depreciates in value but surely buying on PCP also means it's depreciating in value and you're also paying the interest in the amount you've borrowed?
People that say that generally don't have the available money to pay for the car outright, and it's the only way they can get a new/ish car to ride round in. There are obviously exceptions to this and business users are better off keeping their cash as working capital to earn them more money.
Cars depreciate and cost what they cost however you choose to finance them. What I don't understand how individuals can be comfortable with the amount of debt they're in over the term of the deal, then have to do the same thing all over again with essentially nothing to show for all there monthly payments.
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... then have to do the same thing all over again with essentially nothing to show for all their monthly payments.
They have had a new car to drive around in... that's what you're paying for.
I usually buy a car for about 2k, run it around, get bored, sell and buy another and often I get most of my money back (do my own work on cars generally so no costly garage bills). However, getting older and busier means I'll shortly be leasing a brand new motor that is someone else's problem if it goes wrong just to get rid of any potential stress ... also what you're paying for :)
Edit; just to comment on what the thread is all about - I think it's about making your money work for you, so if you can borrow cash at a good rate and use your capital to earn a better return then you are better off not buying out right - generally different for everyone based on their situation.
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What I don't understand how individuals can be comfortable with the amount of debt they're in over the term of the deal, then have to do the same thing all over again with essentially nothing to show for all there monthly payments.
I'm 40 (actually just remembered I'm 41!!!) and am lucky enough to be in a position where I can purchase a brand new car with my own cash and not having to go down the PCP route. It does seem to be quite a recent thing this i.e. younger drivers driving around in amazing cars. When I was younger I just purchased what I could afford at the time and never contemplated borrowing money to buy one. PCP is something that's been going in in the USA for years.
Even though I can afford £20k I'm still hesitant to do so. Ultimately I only do around 5k a year but just fancied a change. I'm quite fussy when it comes to cars and if there was another car for around £10k then I'd probably get that. Personally haven't really liked Golfs until this more meaner, angular MK7 (I did have a MK3 but that was pretty poor in GTI terms)
Edit; just to comment on what the thread is all about - I think it's about making your money work for you, so if you can borrow cash at a good rate and use your capital to earn a better return then you are better off not buying out right - generally different for everyone based on their situation.
Yeah, thanks for that. Always look at ways at getting as much as I can out of the money I have. Obviously buying a car is the worst possible thing in money terms but you can't always be thinking of saving and not having any fun in the meantime.
After looking at PCP it does appear I would be paying a hell of a lot of interest. With VW a new GTI is 6.2% interest and a used one is a whopping 10.9% interest. Yes, they try to entice you by saying they'll give you X amount towards the deposit etc but it'd still be more than buying outright. Unfortunately savings rates aren't what they used to be and even if you're savvy and put monies into different bank accounts you're still not going to get near the money lost in interest.
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It does seem to be quite a recent thing this i.e. younger drivers driving around in amazing cars. When I was younger I just purchased what I could afford at the time and never contemplated borrowing money to buy one. PCP is something that's been going in in the USA for years.
It's not all that new here, I just think it's taken a long time for it to catch on. I remember seeing Ford TV adds for 'Options', which must be at least 25 years ago.
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Cars depreciate and cost what they cost however you choose to finance them. What I don't understand how individuals can be comfortable with the amount of debt they're in over the term of the deal, then have to do the same thing all over again with essentially nothing to show for all there monthly payments.
How much debt are you ever realistically in? The cash amount is offset against an asset.
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How much debt are you ever realistically in? The cash amount is offset against an asset.
If you accept that you are renting a car, then I guess none, but if you consider it as a way of purchasing a car that you will eventually own, lots.
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How much debt are you ever realistically in? The cash amount is offset against an asset.
If you accept that you are renting a car, then I guess none, but if you consider it as a way of purchasing a car that you will eventually own, lots.
As opposed to buying it outright and watching it depreciate? With the offers that have been and are still available in terms of APR and dealer contributions, plus projected inflation for the next 3-5 years, I could make a very solid argument that it's cheaper to finance than it is to buy outright. That's without considering any gains that can be made on the capital that would have otherwise been outlaid - if the base rate rises then saving accounts should follow.
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As opposed to buying it outright and watching it depreciate? With the offers that have been and are still available in terms of APR and dealer contributions, plus projected inflation for the next 3-5 years, I could make a very solid argument that it's cheaper to finance than it is to buy outright. That's without considering any gains that can be made on the capital that would have otherwise been outlaid - if the base rate rises then saving accounts should follow.
How can it cheaper to finance than buying outright? APR is usually around 6.2% with VW and you might be lucky and get £1000 deposit contribution but you're still paying a hell of a lot in interest over that time.
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How can it cheaper to finance than buying outright? APR is usually around 6.2% with VW and you might be lucky and get £1000 deposit contribution but you're still paying a hell of a lot in interest over that time.
5.4% and £2k here.
Inflation likely to be hover around 2% per year, base rate (so associated savings rate) likely to rise within the next 3.5 years (when my agreement ends).
With the £2k deposit contribution that I had (that was only available on a PCP deal), the effective cost of finance for me is c£800 over 4 years. £25k in the bank even at an extremely modest 1% rate (Barclays currently have a 4 year bond at 3% AER gross - plus it's flexible and allows withdrawals should you need to access the cash) would yield over £1k in interest after year 4.
If you have £25k in cash and opt for 6.2% (with £1k contribution), you'll just about break even (interest out vs interest in) if you were to invest that £25k in one of the better 4 year fixed bonds currently available.
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How can it cheaper to finance than buying outright? APR is usually around 6.2% with VW and you might be lucky and get £1000 deposit contribution but you're still paying a hell of a lot in interest over that time.
5.4% and £2k here.
Inflation likely to be hover around 2% per year, base rate (so associated savings rate) likely to rise within the next 3.5 years (when my agreement ends).
With the £2k deposit contribution that I had (that was only available on a PCP deal), the effective cost of finance for me is c£800 over 4 years. £25k in the bank even at an extremely modest 1% rate (Barclays currently have a 4 year bond at 3% AER gross - plus it's flexible and allows withdrawals should you need to access the cash) would yield over £1k in interest after year 4.
If you have £25k in cash and opt for 6.2% (with £1k contribution), you'll just about break even (interest out vs interest in) if you were to invest that £25k in one of the better 4 year fixed bonds currently available.
Mmm, interesting. Do you mind me asking what dealer was offering that rate? Also, paying only £800 over 4 years, how much did the car cost, deposit etc as that seems extremely low. Sorry for so many questions.
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Mmm, interesting. Do you mind me asking what dealer was offering that rate? Also, paying only £800 over 4 years, how much did the car cost, deposit etc as that seems extremely low. Sorry for so many questions.
That was VW's rate on new cars ordered before Q3 of 2016. The £800 over 4 years is after the £2k contribution, so total interest is closer to £3k but is offset by the contribution.
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i don't understand why people say that dealer contributions make the pcp the cheaper option. you can still get dealer contributions and buy outright. You have a cooling off period for any finance, so just take out the pcp with all contributions made, then pay off the pcp within the cool off period without penalty. The loan amount to be paid off will be only what you have borrowed.
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i don't understand why people say that dealer contributions make the pcp the cheaper option. you can still get dealer contributions and buy outright. You have a cooling off period for any finance, so just take out the pcp with all contributions made, then pay off the pcp within the cool off period without penalty. The loan amount to be paid off will be only what you have borrowed.
Because in my particular instance, 5.4% was an acceptable rate, and the £2k deposit contribution (granted I could have still had this as you rightly said) meant that the "effective" APR was much, much lower to the point that it wasn't even worth contemplating buying outright (or re-financing elsewhere with what is traditionally a cheaper form of lending, e.g. bank loan). Of course, everyone else's mileage may vary.
A PCP also has the halfway get out clause should circumstances change within the length of an agreement - a security not offered with lease deals.
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I'm surprised no one has mentioned personal leasing on here. If I had £25K cash I would invest it cautiously in stocks and shares under an ISA wrapper perhaps and take out a personal lease for a Golf (as I am doing). Over two years I would hope my investment has grown to £26,500 plus any dividend income. In the meantime my lease would cost me around £7500 over the two years with very little else to pay on the car (tax being included in the lease, full warranty and breakdown cover).