To PCP or not to PCP

[Clariman]

Since leaving a company car scheme about 15 years ago I have always bought cars outright from savings. Sometimes 1 year old, sometimes new.

In retirement, buying cars like this will gradually erode our savings. Arguably that's a perfectly reasonable thing to do, but I'd at least like to consider the PCP route. State pension ages aren't quite so far ahead now, so I was thinking of using some of that additional regular income for PCP car purchase.

Are PCPs a good option or are there drawbacks? Are they now much more expensive post-Truss?

Thanks
C

[AsleepInYorkshire]

Since leaving a company car scheme about 15 years ago I have always bought cars outright from savings. Sometimes 1 year old, sometimes new.

In retirement, buying cars like this will gradually erode our savings. Arguably that's a perfectly reasonable thing to do, but I'd at least like to consider the PCP route. State pension ages aren't quite so far ahead now, so I was thinking of using some of that additional regular income for PCP car purchase.

Are PCPs a good option or are there drawbacks? Are they now much more expensive post-Truss?

Thanks
C

Would you agree that PCP is a very posh way of saying debt? We bought two cars in 2016. A new one for me. I was travelling over 20K per year at the time. The other was a one year old for my good lady. We still own them. Mine has 105K on the clock and the other 45K. Both carry no debt. We will drive both cars until they are no longer viable.

And that's the cheapest way to buy a car in my humble [tight Yorkshireman] opinion.

Regardless of pro's and con's PCP is debt. Pay cash it's cheaper. You won't be the car salesmans favourite person as they make more money on PCP or HP and you will find certain "car dealerships" don't respond well to cash buyers. That's the business model they pursue. There are websites out there, such as Carwow where you can list the car you want and various new car dealers will send you quotations. Alternatively you can buy privately, but my advice get an RAC/AA inspection done prepurchase

Sorry I haven't answered your question

AiY(D)

[Clariman]

Thanks AiY. As I said I've always paid cash rather than taking on debt but wondered whether PCP might make sense in new circumstances when state pensions kick in.

[Alaric]

As I said I've always paid cash rather than taking on debt but wondered whether PCP might make sense in new circumstances when state pensions kick in.

There's also leasing where you hand the car back at the end of the lease period. This may have the advantage that the leasing company are taking the risk on the resale value.

I get the idea that if you want a new or nearly new car, they are a lot more expensive as a cash buying price than they were a few years back. There doesn't seem much available on the nearly new market these days compared with past experience.

My context is wondering whether and how I should replace a 15 plate Focus purchased as an ex-demo in Autumn 2015.

[AF62]

Are PCPs a good option or are there drawbacks?

PCP has always struck me as a ‘smoke and mirrors’ route for dealers to get people into cars they may or may not be able to afford - ‘smoke and mirrors’ because the deal usually requires a deposit and whether you could afford the next PCP car depends on the difference between the value of the car at the end and the final payment to own, and the variability of that is your risk not the dealers. Minimise that difference and the PCP monthlies are cheaper but then you have no deposit at the end for the next car.

Plus of course there is the interest you pay and whether it is more or less than that you could earn if invested.

Pay cash it's cheaper. You won't be the car salesmans favourite person as they make more money on PCP or HP and you will find certain "car dealerships" don't respond well to cash buyers. That's the business model they pursue.

My experience over the last couple of years is that the salespeople now seem completely disinterested in how you finance the car, and if you say it’s cash then that’s fine with them.

There's also leasing where you hand the car back at the end of the lease period. This may have the advantage that the leasing company are taking the risk on the resale value.

Absolutely correct about the depreciation.

However with leasing if your mileage guess is too wrong (too high or too low) then it can be an expensive mistake (too high leasing costs or excess mileage) and unlike PCP you don’t usually have option of buying the car (and not at the pre-determined final PCP payment) that you can use to mitigate those losses.

[scotview]

We use PCP.

I think it works if you are on a steady income like a DB pension. Psychologically, keeps your lump sum in the bank.

Generally, a new car on PCP will be cheaper with a manufacturers deal than a similar second hand model being sold by a garage on their PCP deal, check it out.

The risk is that the car gets damaged just at the time to return it.

Currently, we have significant equity on both our PCP cars.

[Sobraon]

OTOH 2xMOTs this month. BMW (6 years old, 50k miles). MOT says it needed a new 'shocker' (so did both) tie rod end adjuster seized so new tie rods and tracking. Tyre had 'advisory' cut so that needed changing, £700+MOT all in. Land Rover (5yrs old, 55k miles) 'advisory cuts' to one tyre so had to be replaced £300 (yes,1 tyre)+MOT.

Last autumn the Land Rover needed a new secondary battery £ 500 (batteries are not covered under warranty). In February the BMW camera threw an error which required a new part-loom to fix, £1200 ( luckily fixed under warranty).

Mileage this year under 6k miles per vehicle.

Lincolnshire is the poorest funded part of the poorest funded region (East Mids). Some roads are more pothole than road so tyres and suspension (and cameras) are being damaged ( I did read an article somewhere last week that said Covid was responsible for tyre damage - I kid you not).

I am starting to think that PCP/Lease may be the way to go when we change.

[Lanark]

My experience over the last couple of years is that the salespeople now seem completely disinterested in how you finance the car, and if you say it’s cash then that’s fine with them.

I think thats because the cash price includes some amount of hidden funding for the PCP deal.

[scotview]

I am starting to think that PCP/Lease may be the way to go when we change.

Interesting, honest post Sobraon, thanks.

Please be aware that our particular PCP has been for relatively low cost, new cars, a £25K VW ID3 BEV and a Dacia Duster ICE £16K.

I doubt that we would consider PCP for a Range Rover Vogue or a BMW 7 Series BEV.

Everything is relative but a new (modestly priced) car does remove additional cost angst.

Of course we now have the trilema, ICE, PHEV or BEV........which one will return maximum PCP equity in the next four years ?

[GrahamPlatt]

Got me wondering what my costs are.

VW Transporter. Diesel (obvs).
Bought @ 3 years old in 2013 with 45k on the clock for £10k.
Now has 134k (it only did 5k in the two lockdown years)
Always serviced by the book. Only extra cost has been one near-side driveshaft repair - and of course tyres & wipers. Passed its MOT without batting an eye 3 weeks ago. Consistently averaging 37mg (no change from ‘new’) and cost of refuelling has now passed the purchase price.

So back-of-a-fag-packet calcs, purchase price + fuel has been circa £200pcm and total cost is that + tax + insurance + service / repair costs. So call it £300pcm at worst.

Looking on Parkers, the resale value is circa £7.5k

I expect it to last at least another 5 years.

[scotview]

So back-of-a-fag-packet calcs, purchase price + fuel has been circa £200pcm and total cost is that + tax + insurance + service / repair costs. So call it £300pcm at worst.

Here's the thing Graham, our ID3 is £248/month, the Duster is £165/month.

If your engine blew up, it's basically a write off, if the Duster engine or ID3 electric drive train packs in, so what, apart from a courtesy car from the supplier.

I'd suggest that you're a thrill seeker at heart.

And we've got shiny new, no risk toys to play with.

[Dod101]

What is PCP? I assume it is some form of borrowing. Not usually a good idea. I would never borrow if I have the funds available.

Dod

[Howard]

Are PCPs a good option or are there drawbacks? Are they now much more expensive post-Truss?

Thanks
C

Clariman

I have leased cars for a number of years and am a convert. Not PCP but contract hire. Through a broker. I include a maintenance agreement as well. The first car leased for Mrs H was a BMW 330e. It was an excellent (personal) deal because the broker literally bought more than a thousand BMWs in a year, almost all for company fleets. So they were getting a very large discount from BMW on each car. As the car was a new variant I went to the local main dealer to check its spec and the sales manager offered me a PCP type arrangement which to my amazement was £80 a month more than the deal with the broker.

I checked out who the finance company was before agreeing the deal to make sure they were ok and to my surprise found that they were BMW's UK Leasing subsidiary so ideal!

This experience convinced me that leasing was a good option. You may not be able to buy the car at the end of the contract but sometimes you can. Generally, in my experience, the lowest leasing costs per month are for cars that have high residuals after, say 3 or 4 years. BMWs and VWs tend to hold their value well if they are relatively low mileage so the monthly costs are less than some other brands. Mrs H is currently driving a leased Kia BEV at cost very similar to a petrol Golf.

I'd recommend looking at Leasing.com to get an idea of the deals available. For example I just looked at the cost of leasing a Volkswagen Golf Hatchback 1.5 TSI 150 Life 5dr and the cost is £243 per month including VAT for a 6+35 contract. So that's 41 payments over three years. That doesn't include maintenance. Worth adding as it will cover punctures etc. Road tax is included. The only extra cost you have to pay is insurance (you have tell your insurer that the car is leased but there is no extra charge).

To be frank, leasing works best if you don't do too high a mileage and can accurately predict this over the term of the contract. Also you are expected to keep the car in reasonable condition. It will be inspected at the end of the contract and if the driver has abused it a charge will be made. The inspection at the end of the contract is very fair and the odd kerbed alloy and minor dent is not a chargeable issue. It's easy to find out the rules applied by leasing companies on end of term inspections and they are sensible.

I was very pleased with my current car at the end of the three year contract so I asked Arval, the finance company, if they would extend the lease for two more years and, to my surprise, they agreed and offered a significantly lower monthly charge. So these contracts can be flexible.

Hope this is helpful. Do have a look at Leasing.com if you are interested and play with a few different car options to see what's available.

Good luck with whatever car and financing option you choose.

Howard

[AsleepInYorkshire]

Are PCPs a good option or are there drawbacks? Are they now much more expensive post-Truss?

Thanks
C

I'd recommend looking at Leasing.com to get an idea of the deals available. For example I just looked at the cost of leasing a Volkswagen Golf Hatchback 1.5 TSI 150 Life 5dr and the cost is £243 per month including VAT for a 6+35 contract. So that's 41 payments over three years. That doesn't include maintenance. Worth adding as it will cover punctures etc. Road tax is included. The only extra cost you have to pay is insurance (you have tell your insurer that the car is leased but there is no extra charge).

To be frank, leasing works best if you don't do too high a mileage and can accurately predict this over the term of the contract. Also you are expected to keep the car in reasonable condition. It will be inspected at the end of the contract and if the driver has abused it a charge will be made. The inspection at the end of the contract is very fair and the odd kerbed alloy and minor dent is not a chargeable issue. It's easy to find out the rules applied by leasing companies on end of term inspections, and they are sensible.

I was very pleased with my current car at the end of the three-year contract so I asked Arval, the finance company, if they would extend the lease for two more years and, to my surprise, they agreed and offered a significantly lower monthly charge. So these contracts can be flexible.

Hope this is helpful. Do have a look at Leasing.com if you are interested and play with a few different car options to see what's available.

Good luck with whatever car and financing option you choose.

Howard

May I say a big thank you Howard for a great Foolish post. Before I reply may I say you are one of my favourite posters. My response isn't in argument but more augmentation or perhaps an alternative to your Foolish recommendations.

The last new car I purchased was in 2016. I bought a white. Long story, short version, I hope. I bought a pre-registered Vauxhall Insignia SE for £16K. I obtained Vauxhall Finance which brought the cost of the car over 5 years to £16.8K. Interest charges amounted to £14 a month. I repaid £281/mth. PCP deals were way more than that. I know the world scoffs at Vauxhall, but apart from fair wear & tear have never had to replace any part on this vehicle or the five before. They have served me well.

This is the way I look at my [white] vehicle.
Life of vehicle = 12 years (based on 20K per year over 12 years)
Capital purchase cost per month = £117
That’s less than half the price of the Golf quoted by Howard (sorry Howard I’m offering an alternative vehicle/route) and that may well be out of date.

The saving over a leased price of £243/month over a 12 year contract (comparing apples with apples) is £18,144.

That figure includes the interest I paid.

AiY(D)

[AF62]

The saving over a leased price of £243/month over a 12 year contract (comparing apples with apples) is £18,144.

That isn't comparing apples with apples though.

Nobody (including the leasing company) would take a lease over 12 years. Almost all leases are for a maximum of three years because people don't want the risk after the warranty has expired.

However if someone was daft enough to take a lease for 12 years then the monthly price would be a damn sight less than £243 - in fact it would likely be around the same amount as your car has cost you, because that's how leasing works!

The leasing cost is simply the depreciation plus the cost of the finance plus an admin fee for the broker divided by the period of time. The £243/month is that cost over three years, but do the same calculation over twelve and that would result in a wildly different monthly payment.

[Arborbridge]

For the first time ever, I decided to buy a car on PCP, not paying cash as I normally would. I've no idea if it will be a good idea or not, and I must admit it is difficult to get one's mind round what is really happening.

In short, it's just a debt. I've borrowed a certain sum and I am being charged 5.2% apr for the privilige The advantage is that I don't have to release investments which are likely to be paying more than that over the next four years. The disadvantage is that I am paying interest, which no one likes doing (a lesson I first learnt went buying a pair of binoculars from "Headquarters and General Supply Co" in the 60's as a teenager).
And, although I can be reasonably sure of making more than a 5.2% return pa over that period, I couldn't tell you which investments will do so, or in which years. Some will have failed miserably on that target in the past couple of years, but on average I would have gained. Of course, it might not be those investments I would have released to pay cash, but that's life.... Incidentally, the monthly amount is less than we were already saving towards the new car, in Fundsmith, as it happens so basically the exchange is seamless.

At the end, there is also a "balloon" payment, or alternatively they will take the car back or allow me to use that value against another car. They say it's a "guaranteed" value, but I'm pretty sure it isn't: I think the trade in value will still be whatever the market says it is. It's only guaranteed if you hand the car back to pay off the debt - it's a way the motor manufacturers solved the problem of people being in negative equity at the end of the contract.

However, I'm treating this purely as a loan at 5.2% apr the balance of which has to be repaid at the end of four years. Looked at that way, what I choose to do with the car at the end becomes simpler to think about.

Take all I've said above with some salt, because I am a first timer in this matter, and the impression I have formed may be erroneous - so I am open to corrections.

Arb.

[Alaric]

However, I'm treating this purely as a loan at 5.2% apr the balance of which has to be repaid at the end of four years. Looked at that way, what I choose to do with the car at the end becomes simpler to think about..

Like a repayment mortgage isn't some of the monthly cost a repayment of the capital used to buy the car?

A difficulty in assesing some of these schemes is that you don't totally know how much you are really paying for the car. There would be a cash price to private buyer but presumably a leasing or PCP company will get a much better deal.

In a way the leasing model is easier to understand. You can discount the lease payments at your personal discount rate and that is the cost of use of the car over the lease period. The value at the end doesn't come into it as it becomes worthless to you because the leasing company takes it back.

[scotview]

Hope this is helpful. Do have a look at Leasing.com if you are interested and play with a few different car options to see what's available.

Howard

Great post Howard, thanks.

I've looked at leasing and it does seem cheaper, particularly for Tesla. My only concern is what happens if there is a fault with the car. For example, with our ID3 (PCP), we take it to the local VW dealer (15 miles) who have trained technicians and a workshop. Our Duster (PCP) garage is 2 miles away. How is a leased car repaired? (thats for ICE, PHEV or BEV)

Thanks

[BullDog]

Hope this is helpful. Do have a look at Leasing.com if you are interested and play with a few different car options to see what's available.

Howard

Great post Howard, thanks.

I've looked at leasing and it does seem cheaper, particularly for Tesla. My only concern is what happens if there is a fault with the car. For example, with our ID3 (PCP), we take it to the local VW dealer (15 miles) who have trained technicians and a workshop. Our Duster (PCP) garage is 2 miles away. How is a leased car repaired? (thats for ICE, PHEV or BEV)

Thanks

Under warranty by the nearest main dealer franchise. Doesn't matter which main dealer supplied the vehicle.

[GrahamPlatt]

So back-of-a-fag-packet calcs, purchase price + fuel has been circa £200pcm and total cost is that + tax + insurance + service / repair costs. So call it £300pcm at worst.

Here's the thing Graham, our ID3 is £248/month, the Duster is £165/month.

If your engine blew up, it's basically a write off, if the Duster engine or ID3 electric drive train packs in, so what, apart from a courtesy car from the supplier.

I'd suggest that you're a thrill seeker at heart.

And we've got shiny new, no risk toys to play with.

Remember, I’m including the cost of fuel.