PCP v Cash v HP Purchase

[greencode]

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!

[brettblade]

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.

[greencode]

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.

[brettblade]

I specced a good few £k of options, so list price was c£33k.  Purchase price after deposit contribution was less than £28k.

[dubber36]

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.

[Simeon]

... 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.

[greencode]

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.

[dubber36]

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.

[brettblade]

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.

[dubber36]

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.