Finance options

[PaulR]

Most of the general public don’t have a “spare” £20K (or whatever amount) to buy a new car, but they do have £300 a month to spend on the nicest form of transport they can.

Indeed, most people focus on the monthly amount. Dealers even ask you how much you can afford to pay each month then fiddle with deposits, GMV and other factors to get the monthly premium right for you. Look at the adverts on TV saying you can have this car for the magic £299 per month!

My point is more around the fact that PCP is the most expensive way to buy a car overall. It might look good due to a low monthly payment. But in the end it will cost you a lot more than cash or an alternative form of finance. You've also got to factor in, not just your current car, but how you will afford your next car after and so on. For many people their first PCP is the most attractive as they have a decent deposit or paid-for car to trade in. It's the subsequent ones that screw you even more because people 'forget' they should really be saving up a decent deposit for the next car (or saving up to buy it cash at end of contract).

It''s not much different to the catalogues we used to get in the 80's. Everything in the catalogue (even if it's a £20 toy) came with a monthly equivalent price. You could buy anything for a monthly price instead of outright. Obviously it cost you a lot more in the end. And with 80's interest rates, it probably cost you a heck of a lot more. That £20 toy probably ended up costing £40! Today's car finance schemes are little different. If you cannot afford to buy the car outright, you can pay for it monthly and therefore pay a lot more for it in the end.

I'm not saying that's bad, because a large proportion of the population are willing to pay that extra price. This thread was started by a gentleman looking at different ways of financing the car. So I'm trying to point out some facts. If you can avoid a PCP, please do so if you want to keep your TCO to a minimum.

[Clive]

PCP can offer low monthly payments on more typical cars, ie £200 per months for a very adequate runabout.

When looking more at expensive cars I've found the dealers don't want a too low monthly payment - this so a year before the end of the PCP they swap you to a new car with minimal or zero deposit having built equity in the initial car through higher payments. They'd rather you pay £600 / month than a big deposit and £200 / month so their switch trick works.

[Semerka]

I would just add to this discussion that on a PCP you can make additional lumpsum payments and thereby reduce either the monthly installments or reduce the term of the PCP, saving some of the interest charges in the process.

So, if for example, you are an impatient saver, but you know you can afford the monthlies, but also know that you get bonuses couple of times a year, you can massively reduce the interest charges. That seems more flexible than a loan, but requires discipline.

[VanB]

That’s a very good and valid point, Semerka. Can’t remember the details but I believe you still pay 30 days’ interest on the sum repaid


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[Semerka]

That’s a very good and valid point, Semerka. Can’t remember the details but I believe you still pay 30 days’ interest on the sum repaid

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That I am not sure about. But that would not be a huge amount.
But you still need to have the balloon payment ready if you want to own the car at the end of a PCP.

Cars are like phones to many people nowadays, just gadgets and people got used to being able to swap for a new one thanks to PCP's and phone contracts. Also the technology evolves so quickly, some people just want to have the latest toy every couple of years.

[PaulR]

Cars are like phones to many people nowadays, just gadgets and people got used to being able to swap for a new one thanks to PCP's and phone contracts. Also the technology evolves so quickly, some people just want to have the latest toy every couple of years.

It will be no surprise to you that I always buy my phones cash. For the same reason as my car - I'm tight and want my TCO to be the absolute minimum possible! I hate when people say they're 'due a new phone'. You're not 'due' one as you could always keep the one you've got and save yourself some cash. Now people say the same about cars - that they're due a new one. No one's due anything!!

[Wing Commander]

So, if for example, you are an impatient saver, but you know you can afford the monthlies, but also know that you get bonuses couple of times a year, you can massively reduce the interest charges. That seems more flexible than a loan, but requires discipline.

Speaking from experience?

P.S. Many loans allow overpayments too nowadays.

[Semerka]

So, if for example, you are an impatient saver, but you know you can afford the monthlies, but also know that you get bonuses couple of times a year, you can massively reduce the interest charges. That seems more flexible than a loan, but requires discipline.

Speaking from experience?

P.S. Many loans allow overpayments too nowadays.

Yes, from my experience.

I did not know that about loans. I know that you can settle a consumer loan early against usually a 30 days worth of interest as a fee, but I did not know that you can make irregular overpayments too. With the PCP you can overpay whenever you want, just need to tell them if it should go towards reducing the monthlies or reducing the term of the PCP. Very easy, and no limit on overpayments.

[Semerka]

Cars are like phones to many people nowadays, just gadgets and people got used to being able to swap for a new one thanks to PCP's and phone contracts. Also the technology evolves so quickly, some people just want to have the latest toy every couple of years.

It will be no surprise to you that I always buy my phones cash. For the same reason as my car - I'm tight and want my TCO to be the absolute minimum possible! I hate when people say they're 'due a new phone'. You're not 'due' one as you could always keep the one you've got and save yourself some cash. Now people say the same about cars - that they're due a new one. No one's due anything!!

I do that with phones too, but not cars.

[Pivot]

It will be no surprise to you that I always buy my phones cash. For the same reason as my car - I'm tight and want my TCO to be the absolute minimum possible! I hate when people say they're 'due a new phone'. You're not 'due' one as you could always keep the one you've got and save yourself some cash. Now people say the same about cars - that they're due a new one. No one's due anything!!

Ditto!
I financed 50% of my car on HP to improve my credit rating, but I will repay it faster, which should improve it further.
That should enable me to refinance my house at a better rate.