Having read much about PCP's on the forums over the years I'd learnt much but never had one.
Recently with assisting/brainwashing my son and his first new car purchase I delved into the delights of PCP's.
I'd never done PCP in the past as I'm old and nobody bought new cars in my day unless they were given a Cortina/Sierra by their boss to use for work or they were wealthy. Unfortunately I am far from wealthy and always bought second hand cars until I could afford a new one. After two new ones I decided they were getting too expensive for the very low mileage I do and now buy second hand ones again.
So I always did it the old fashioned way and saved up, gradually traded up and took out bank loans when the jump was bigger than my savings.
I also tended to do it in small jumps with little and often changes as I just found it easier and I like to have a bit of a project on the go.
You can argue it either way. Keeping a car for years and years is cheaper as depreciation levels out significantly but repair bills grow if you're unlucky, as does the amount of time the car is actually off the road.
Buying new/newer cars and keeping them shorter times is just convenience and sums up modern living. Plus I'd not want to rely on the electrics of modern cars for very long.
Changing cars quite often gets you familiar with car sales guys and you remember the good ones, you pick up snippets from them and can learn a lot about how the market currently sits.
A year or so ago I was chatting to a BMW salesman and PCP's were discussed, he said he'd always advise customers to go for as low a deposit as possible and keep the monthlies as low as you could too, taking the finance over a longer period. He said it lessens the actual capital spent by the customer making the car seem more affordable, and then he recommended binning the car off and starting another deal as soon as it was financially viable within the PCP terms. He said it worked well and it kept the importers happy as they were turning over new cars and finance packages, the dealers were happy as they were turning over cars and finance packages and the customers were happy as they had affordable new cars at their disposal.
OK, you never got to own the car, and in effect were just playing the system but in all that time you had use of the car which at the end of the day it's that what matters to the average customer.
Mobile phone contracts are similar.
If you can afford to buy a £700 phone with cash up front then you'll have chance to be canny and pick one up with 15% off at some point when there's a promotion on. Then you have the choice of SIM only contracts, and there are always deals on those so over the 24 month term for reference you'd probably always save a fair chunk of cash over getting a contract.
Modern living is all about convenience though and a flashy advert, 24 monthly payments to budget for and maybe a chunk up front (just like a PCP deal) and that's it. Walk in and walk out with a shiny new phone and known costs.
It works for many.
As said elsewhere here, PCP's are ideal for new cars so long as you're going to turn them over regularly.
If you look at them in the starkness of the black and white printed proposal form then they're just huge loans with high interest rates.
If you are quite happy to accept that you're only paying for the use of the car for 3 or 4 years then you can just play the system a bit. The interest rates tend to be high which is cleverly offset by the lenders giving you discounts off the deposit, generally around £1500 on a Golf these days and £4000 currently on some of the dearer slower selling models. I think the deposit can only be about 30% anyway(?) so in effect they're giving you a deposit sweetener (the bit no interest applies to), you keep any capital for a part ex above the deposit threshold (assuming there is any) and you're just buying a huge loan.
Just like a mobile phone contract you've got to add up what it's going to cost you (gross amount) over the 36 or 48 month period rather than the deposit and monthlies alone as individual items. A clever salesman can tailor deposits, monthlies and GMFV's to suit a buyer, but as the BMW sales guy said to me, it's surprising how many people really don't get what the PCP actually is. All they're interested in is the here and now and can they afford to get behind the wheel so they can show off to their brother in law.
We all know the old jokes about the offside rule and women, well I think car sales guys have the same joke about PCP's and customers.
Like anything, buying new cars is all about the timing if you want to "save" money. Keep an eye on manufacturers promotions, seasonal sales dips and sounding out dealers willing to deal.
Having a part ex muddies the waters a bit so you might find that Broadspeed offer the best actual new price so you'd need to sell privately to make the best of that deal. That can be difficult for a recent model that's still worth quite a bit of money especially if it has a finance marker on it because you're still paying off a PCP/HP.
We Buy Any Car and all those type places make the most of those type purchases as they know sellers just want the convenience.
If you have a decent and desirable car then you'll find the cost to change might actually be quite similar if you part ex where a dealer can tailor finance, up front discounts and part ex prices to tempt you in. It'll still cost you more money but it'll be more convenient and convenience tends to cost. Once you're sucked into PCP deals it can be hard to get out of the vicious cycle unless you have a large sum of capital backed up somewhere, that's what keeps the industry ticking over, the money you owe on credit.
Knowing a realistic value of your car will help.
I just did a quick scan through VW used cars and the configurator.
As an example the list price of a Golf R manual is well north of £31k now, add a couple extra doors, metallic paint, DSG gearbox, nappa leather, Pretorias, upgraded nav, sunroof, a few gadgets and suddenly you're north of £40k.
£40k for the descendant of the humble Beetle!!
Fire up VW used cars or CAP guides to see what that car is worth to the dealer in 6 - 12 months and you'll suddenly realise that £40k Golf is actually worth around £26 - £28k to the dealer at the most. Yes, they'd try and sell it for much more but they wouldn't pay you that sort of money to buy it back unless you played golf with the MD.
That sort of depreciation to your hard cash is pretty painful so you can see why PCP's suddenly look so attractive.
PCP's are designed to keep turning over new cars to keep the industry wheels turning as fast as possible to placate the shareholders. You pay for the convenience and the PCP takes the risk away if the car goes badly out of fashion during the 48 months you have it and the resale value bombs.
Fancy buying a second hand non Euro 6 Diesel anyone? Suddenly the market has gone quiet on them second hand where as a few years ago a mk6 GTD would probably fetch better money than a GTI.
Deposit contributions sweeten the deal and that's what you're likely to lose by having a PCP on a second hand car, plus the rates are higher because the cars are older and potentially costly to shift on as the finance company owns the car at the end of the day.
I'd say if you were desperate to finance a second hand car on PCP then you'd be far better off going to a bank and seeing what rates they could do, a quick search shows Halifax at around 3.4% which is much lower than VW (but VW will throw in free services so that all adds up in the overall cost of the term, two services have got to be worth £350?).
In fact at 3.4% it's not too far off the best personal loans which are around 2.8%.
Again the actual size of the loan would then dictate whether there was a massive difference in the end of term overall cost between 2.8% personal loan and the 3.4% PCP/HP but with the PCP the monthlies might be lower due to the big balloon at the end.
