Car PCP - What am I not understanding?

[PTP]

At first I was going to buy a used car for just £8,000 cash. Then I fancied something newer costing a good bit more at £15k.
I don't want to tie up £15k in a car at the moment. I'd rather tie up £8k now and pay the rest a few years later or spread out.
So I thought how about taking out a PCP and putting down an £8,000 deposit, 24 months. The dealer's website says the payments would be just £89/month with an optional final payment of £6,700.

They way I'm seeing it is: Total outgo if I wanted to own the car would be = 8,000 + 24*89 + 6700 = £16,836. Therefore I'd be paying £1,836 for the privelege of spreading the payments out - which I'm happy with.


When I told the dealer that this is what I wanted to do, he said "No way - that's not what you want to be doing!" He says that PCP's aren't meant to have such large deposits and if I want to buy it with such a large deposit then I'd be better off funding the other £7,000 with a bank loan instead of PCP. (But I don't want to do that because monthly bank loan payments would be £250 ish and I don't want a regular outgo as big as this in case it causes problems with mortgage affordability applications).

Is the dealer right? Is there something I'm not understanding about PCP? or is he just using a sales trick to try and make me take out a bigger debt / more interest?


Thanks

[northernladuk]

What's the interest rate they are giving you? I wouldn't be putting so much in to a car I don't own personally.

Just watch the mileage options. If you change gigs and start putting the mileage on it could be a problem.

[ChimpMaster]

The dealer is correct in that most people who buy on PCP will put a small deposit and finance the bulk of the purchase cost. But to each their own - if you want smaller monthly payments then so be it. Personally I wouldn't leave such a big final payment (almost 50% of the car cost) but then that's just me.

A bank loan won't allow you to have the 'final payment' option as you put it, i.e. they will want regular monthly payments that eventually pay the loan off in full at the end of the 24 months.

Car sales people will get kickbacks from the lenders so I'm surprised he is telling you to get a bank loan instead. Unless as you say he is just trying it on.

I don't know if I'm misreading the numbers here but the PCP will cost you 26% over 2 years, i.e. £1836 interest on the £7k loan. That is way too expensive. Can you not take a director's loan for now?

[Antman]

Can't you stick 7K onto a credit card as a balance transfer?

2.9% transfer fee, do it twice for 12 month interest free period, total loan cost: £406

[Andy O]

The way I read it is £8000 deposit and £6700 final payment which equals £14,700. So to finance the final £300 over 24 months is £2136 which it a very high interest rate. Are you sure you have the figures right? Paying £1836 interest on £300 just doesn't sound right!

[WTFH]

Based on Car Finance PCP Calculator
That's saying the PCP interest rate is around 13.5%


You should be looking at half that or less. Perhaps it's due to the size of deposit compared to the overall value.

[Agent]

Have you considered leasing rather than PCP?

I was in exactly the same mind as you, I had about £11k tied up in my owned car (10 year old range rover) and wanted something newer as well as keeping hold of my cash.

I've taken out a 24 month lease on a Hyundai Tucson which cost me £800 initial payment with 24 payments of £275 (based on 6k miles a year)

So 2 years of motoring costs £7,400 or £3,700 a year.

Taking depreciation, maintenance, repair, MOT, road tax etc into account this is a massive saving compared to what I spent on the range rover.

Now I am going down a few league in terms of car but you get the idea.

Plus I have no cash in the car and give it back in 2 years at which point I can do the same for a new car at a similar cost.

Depends on what vehicle you are looking at but if it's a 'normal' car rather than a prestige then you may like the idea of leasing?

[NorthWestPerm2Contr]

Can't you stick 7K onto a credit card as a balance transfer?

2.9% transfer fee, do it twice for 12 month interest free period, total loan cost: £406

Why not just go for an interest free purchase credit card initially and then transfer onto a balance transfer - you can now get nearly 4 years interest free for under 2% fee! That's like a 0.6% APR deal but when you combine it with a purchase interest free period it's basically free.

[NorthWestPerm2Contr]

Have you considered leasing rather than PCP?

I was in exactly the same mind as you, I had about £11k tied up in my owned car (10 year old range rover) and wanted something newer as well as keeping hold of my cash.

I've taken out a 24 month lease on a Hyundai Tucson which cost me £800 initial payment with 24 payments of £275 (based on 6k miles a year)

So 2 years of motoring costs £7,400 or £3,700 a year.

Taking depreciation, maintenance, repair, MOT, road tax etc into account this is a massive saving compared to what I spent on the range rover.

Now I am going down a few league in terms of car but you get the idea.

Plus I have no cash in the car and give it back in 2 years at which point I can do the same for a new car at a similar cost.

Depends on what vehicle you are looking at but if it's a 'normal' car rather than a prestige then you may like the idea of leasing?

Lease deals are becoming more and more competitive and worthwhile. The future model will be an Uber like model where a car arrives at your doorstep and you get to chose that particular car and pay for it on a per mile basis.

[LondonManc]

The dealer is right. PCP is basically about you paying the depreciation costs across the life of the PCP then having a right-to-buy figure at the end.

If you'd rather own it from the start (and trade in after a couple of years), you're better off with HP instead - two years into a PCP and you're probably on the wrong part of the depreciation curve to have any equity in the vehicle. Not only that but with a deposit of over half the value, you'd be able to find a good APR - some dealers were doing 0% APR for a 50% deposit purchase last year.