PCP to buy used, is that a stupid idea?

[jurbie]

I normally buy my cars outright so have never concerned myself with the various loan options available so will happily admit that I don't understand them or the potential pitfalls involved. Having played around with the calculators on Autotrader it seems there are options to get a nearly new car, rack up a load of miles and then give it back after 4 years which is tempting as I drive about 30k/year.

Using the example below, if I pay a £10k deposit, over 4 years I'd pay back £10,980 so a total of £20,980 if I choose to hand it back and skip the optional final payment. This seems like a no-brainer as in 4 years I would have saved up another £10k and I can start the whole thing again with another nearly new car.

So what am I missing/failing to understand in the above scenario? I get that I'll be paying £21k for an asset I won't own so I'll have nothing to show for it. It's tempting however because if I was buying outright I'd be looking to spend about £15k on something about 5 years old which I would likely keep until the wheels fell off. My current car is on 210,000 miles and worth about £1000 after buying it for £11k back in 2016.

PCP representative example
First payment £228.75
47 monthly payments £228.75
Optional final payment £7,129.38
Term 48 months
Contract length 49 months
Car price £22,999
Cash deposit £10,000
Total amount of credit £12,999
Total amount payable £28,109.38
Representative APR 12.9%

[Andy665]

PCP payments are massively dependent on mileage. The more miles you want to do, the more you pay, unless you make the OFP and take full ownership.

There us of course the grey area of termination once you reach the " paid half of total amount payable" point.

I say grey as it's unclear whether the finance provider could / would pursue you for mileage charges on a pro rata basis based on miles paid for / miles actually done

[Earthdweller]

What’s the contract mileage on that PCP term and the excess mileage cost per mile?

If it’s 5k or even 10k and you try and hand it back with an additional 120k then you’ll be paying a fortune in excess mileage fees

You could of course VT it once you hit 50% paid but then you’d have lost your £10k and have no car

[Truckosaurus]

jurbie said:

...I drive about 30k/year..... So what am I missing/failing to understand in the above scenario? ...

As others have said, if you want to hand it back without paying the final balloon then they'll charge you the excess mileage, but if you pay the balloon they won't care.

However, if that's what you are going to do then you might as well get a bank loan for the whole amount at a much better rate than the 12.9% APR listed in the quote.

[esuuv]

PCP excess milage fees range from about 5p a mile to 30p a mile - so if you signed up for a 10k a year contract and did 30k on a 4 year deal your excess milage would be between 4k and a ridiculous 24k

So you may as well just pay the balloon (and no fees), at which point you should have just got a personal loan at a lower rate to pay for the car in full.

[Gad-Westy]

Ignoring everything else, the £5k interest would kill this idea stone dead for me. Of the £432 per month that this would cost, £100 alone would be on interest. The rest depreciation. And that'd before you even think about excess mileage which I'd guess could be considerable.

It doesn't seem like a great time to borrow a large amount of money but a bank loan would be miles more cost effective than PCP if you do go that route. Far more flexible too with it not being tied to the car. But I think if it were me, I'd be tempted to just buy something with that £10k outright. I know a couple of people who used to do big mileages and they would often buy cars on about 60k miles, run them for 1-2 years and then sell at 90-120k miles. It seemed to work okay as they weren't paying crazy money for very low mileage cars but were still selling them at sensible mileages where the car would still be dependable and in good condition so easy to move on and not depreciated to nothing. I know £10k doesn't go as far these days as you'd like it to but I would think it would still get a very decent, presentable car more than capable of racking up 30k miles per year if you buy sensibly.

[Earthdweller]

esuuv said:

PCP excess milage fees range from about 5p a mile to 30p a mile - so if you signed up for a 10k a year contract and did 30k on a 4 year deal your excess milage would be between 4k and a ridiculous 24k

So you may as well just pay the balloon (and no fees), at which point you should have just got a personal loan at a lower rate to pay for the car in full.

Yup

Here’s my bank quote on the above borrowing £12990 over 48 months

[itcaptainslow]

Bear in mind that bank rate is only representative - you may (probably will!) find it’ll go up when you apply.

[Gad-Westy]

Not necessarily the route I'd go down, but you could also consider a lease. I just had a quick look and this was one example that looked okay.

https://leasing.com/independent-brokers/vip-gatewa...

30k miles per year. 4 years would cost £20k so about the same as the PCP deal but I suspect actually far cheaper given it already factors the mileage in. No idea if that particular car is suitable of course but there are many options.

Personally, I think I'd still just spend the £10k cash though....

[DickP]

Gad-Westy said:

But I think if it were me, I'd be tempted to just buy something with that £10k outright. I know a couple of people who used to do big mileages and they would often buy cars on about 60k miles, run them for 1-2 years and then sell at 90-120k miles. It seemed to work okay as they weren't paying crazy money for very low mileage cars but were still selling them at sensible mileages where the car would still be dependable and in good condition so easy to move on and not depreciated to nothing. I know £10k doesn't go as far these days as you'd like it to but I would think it would still get a very decent, presentable car more than capable of racking up 30k miles per year if you buy sensibly.

In 2021 I would have agreed, much less sure now that you can get a 50k miles car for hammering the miles on and be comfortable all for £10k. Would suggest heading for near double that budget if you want a Passat or similar class car that’s around four years old.

[jurbie]

Excess mileage shouldn't be a problem, the example above is based on 30,000 miles per year before excess mileage kicks in, another reason why I'm wondering if it's too good to be true and if I actually go and talk to them they'll tell me that Autotrader's calculator shouldn't be relied on and I can only have 10k miles. I'd guess it is accurate because you do have to hunt for the 30,000 mile deals. Most will only allow a HP agreement at that level but there are enough PCP deals available that it got me thinking it might be a good idea.

[toon10]

I bought a new M135i on PCP a few years back and that was a good deal. I replaced it with a 3-year-old 540i and got a new PCP deal. I was lucky when I sold it as used prices were high due to the difficulty in getting the electronics for new cars. I paid off the PCP deal and made about £7000 profit, so I'd have no issues doing PCP again in the future on a not so old used car.

[jurbie]

DickP said:

Gad-Westy said:

But I think if it were me, I'd be tempted to just buy something with that £10k outright. I know a couple of people who used to do big mileages and they would often buy cars on about 60k miles, run them for 1-2 years and then sell at 90-120k miles. It seemed to work okay as they weren't paying crazy money for very low mileage cars but were still selling them at sensible mileages where the car would still be dependable and in good condition so easy to move on and not depreciated to nothing. I know £10k doesn't go as far these days as you'd like it to but I would think it would still get a very decent, presentable car more than capable of racking up 30k miles per year if you buy sensibly.

In 2021 I would have agreed, much less sure now that you can get a 50k miles car for hammering the miles on and be comfortable all for £10k. Would suggest heading for near double that budget if you want a Passat or similar class car that’s around four years old.

That would be my usual plan and I've got £15k available to buy outright but it just struck me that I could get a newer car this way plus I would get to change it more often and thus enjoy a newer car more often. If I own it outright and it doesn't give me any problems then I generally keep it until it dies. I know I should try and move it on after a few years while it still has some value but I never do.

[CloudStuff]

If you're a regular car switcher like me, an accurate assessment of the mileage is not useful when PCPing a used car.

Just base the calcs on low mileage, as long as you're 100% sure you won't take it full term.

Then you only need to focus on buying the right car, at the right price and putting enough money down so you always have value and settlement amount in relatively close correlation.

As it's regaulted, settlement will be predicatble (together with the addition of 2 months interest).

Caveat - right now is a interesting time as rate as pants. but the advertised prices are low which may compensate.

I like the flexibility of PCP. Leases have always looked like an irritating lock-in for me.

[Zoon]

CloudStuff said:

I like the flexibility of PCP. Leases have always looked like an irritating lock-in for me.

PCP is great for switching unless you are 6k underwater on the deal.

[J1990]

itcaptainslow said:

Bear in mind that bank rate is only representative - you may (probably will!) find it’ll go up when you apply.

Actually the opposite is true. The advertised rate 'must' be achievable by 51% of those accepted for the product, so technically if you're going to be approved then you're more likely to achieve that APR than any other.

[J1990]

Zoon said:

CloudStuff said:

I like the flexibility of PCP. Leases have always looked like an irritating lock-in for me.

PCP is great for switching unless you are 6k underwater on the deal.

Agreed. Whilst it's very easy to walk away at the end of the term and not make the optional payment, however people seem to believe they have flexibility at all stages and forget about the negative equity that's present in most situations.

[Roger Irrelevant]

I struggle to believe that paying 13% interest when you don't really need to is the correct answer to anything really. I wouldn't get much of a warm fuzzy feeling from driving a 'nearly new' car vs a four-year old one (which could well be still the current model), and I don't really get how contractually obliging yourself to make a series of payments increases future 'flexibility' over and above owning your car outright with no debt. But that's just me; we are all different and tbh it sounds like you've largely made your mind up OP so you may as well go for it.

[CloudStuff]

Zoon said:

CloudStuff said:

I like the flexibility of PCP. Leases have always looked like an irritating lock-in for me.

PCP is great for switching unless you are 6k underwater on the deal.

Agreed - made this point above. It is a really key consideraiton. "Then you only need to focus on buying the right car, at the right price and putting enough money down so you always have value and settlement amount in relatively close correlation."

[interstellar]

If it was me and I was doing that sort of mileage and I wanted piece of mind I would go down the leasing route.

brand new car, 30k per year, same price. I am not sure what cars you are looking for but your figures equate to £437.50 per month which puts you in the new golf auto!

https://leasing.com/car-leasing/volkswagen/golf/ha...