Talk Morgan Forums Community The Malvern Arms PCP Car Finance Future Problems

Modern cars are like white goods or mobile phones. You pay a monthly fee to use them, and either walk away after a while or start again. What's the issue?

PCP is where you want a £30,000 car.

You pay £7000 up front ( in most cases the trade in value of a 5 year old car), £350 a month for three years. Then a final payment of say £15,000.

As most people do not have the £15,000 to pay the car off, they go for another PCP deal but as they have already lost the deposit from the old car they had three years ago, the usually have to get a lower priced car the next time.

Now to get the car sales, the final lump sum is more than the car is worth ( in order to get the monthly payments down) in the trade therefore a lot of big manufacturers have many many expensive cars in disused airfields that they release very slowly to the second hand market as they cannot allow the secondhand values of the cars to tank.

The Bank of England is concerned about certain manufacturers that have massive stocks of overvalued secondhand executive cars.

With cheaper cars say around £10,000 or so the deposit can be around £170 with 36 payments of £170. This works as the value of say a Polo or Fiesta is still quite high at three years old as they are cheap to run and find plenty of secondhand buyers.

This makes absolute financial sense I just have this aversion to borrowing money and am probably cutting off my nose to spite my face.

The doctrine I was brought up with was " Neither a borrower nor a lender be" not very current though and possibly not the best advise viewed today. Especially as it dates back to Will's days...

That works for inexpensive cars. The problem is the more expensive cars that people want but could in reality afford.

They then hand the expensive car back after three years on a PCP but cannot afford to finance the new one as the usual trade in that you had with HP etc is lost to keep the monthly payments far too low on the first expensive car you could not afford on PCP.

There are now people with massive debts and the car manufacturers with massive stocks of three year old premium cars that have a book value well above reality.

The worry is that secondhand car prices will tank and the Banks will be in criss again.

I certainly wouldn't want to run up debts or interest - but leasing a car is quite an attractive alternative to owning one. It's like renting it.

A perfect example of why I think PCP is a bonkers proposition for many people.

You start with a car worth say £7k. Which is something like a 10 year-old VW Golf Gti, a perfectly good and desirable car. You then chop it in against something new, and fork out another £12k over 3 years, after which, if you haven't got a spare £15k lying around, you end up with nothing

You have saved maybe £3k in running costs, but now you have to buy another car - or commit to another PCP, but this time with no down payment.

If you'd stuck with the GTi and saved the PCP payments, it would still be worth say £4k, it would have plenty of life left in it, and you'd have £9k in the bank. The GTi will have practically stopped depreciating, and as it's comparatively old tech, you'd be able to get it serviced anywhere for peanuts. If by some chance it blows up you've got plenty of money saved to pay to fix it, or you could just walk away from it and buy another.

Renting stuff is great if you have plenty of income, but for most of us I reckon my way makes far more sense.

One of the problems is that loans are packaged and sold as high quality investment to pension funds I can see a real problem if there is a rush to a new technology ie electric or self drive which makes current executive cars as valuable as last years I phone.

Spot on!

I might get my kids to write this out x100

Wholeheartedly agree with you Tim. I think the rate of change in technology over the next few years will be rapid and depreciation on second hand newish cars to match. Also can't come to terms with so much unnecessary blingy gadgets which are storing up a lot of potential problems and expense. Perhaps if our journeys were as long as they used to be I'd probably have a slightly different view.

No-one should be given credit for anything unless they have done it.