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PCP car deal - what's the catch?

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    PCP car deal - what's the catch?

    Normally I try to get something around 3 years old with lowish mileage, and take a personal loan out so I can make the purchase in cash. This always felt like a sweet spot to me, getting a reasonably new car, big depreciation hit out of the way etc, and using a personal loan instead of car company finance to get a better rate.

    Now looking at a getting a new motor for the family, and with the state of the used market (prices are high), thought I'd have a look at new, just out of interest. I was struck by how little I would potentially be saving if I did find a suitable used car, and in particular the PCP deal on offer almost seems too good to be true.

    Some rough figures, for a Skoda Octavia Estate 1.5 SE, with metallic paint the only additional option:

    3 year old used, approx 15-17k for something with ~25k miles on the clock. Cost of financing that over say a 5 year loan at 4% would be about £1700, so call it 16 + 17 = 17700 leaves you with an 8 year old car after 5 years.

    Brand new (newer shape as well), headline price £24k, carwow brings in a few offers of £21,800 cash price. PCP deal cuts another £1250 off as a "deposit contribution", but the PCP deal APR is 0% - so an interest free loan over 3 years, with lower payments than the personal loan but of course a residual to pay (if you want to) of £9k after three years to buy the car outright (probably far less than the used value at that time).

    I won't further bore you with any more of the finances, but the headline seems to be a comparison between £17,700 and £20,000 once financing costs are taken into account, with benefit of the latter being a 3 year younger car, and a car you get to specify for yourself and own for its entire life. Also some warranty benefits etc. I appreciate that a chunk of this difference is due to the exceptionally strong used car market, but we are where we are.

    Am I missing anything? Why would Skoda want to chip in an extra grand to get me to take a PCP deal that has a 0% APR? I'd mostly discounted PCP as a concept in the past, thinking it must be for suckers, but (I don't think) the numbers lie. Yes, paying more of course for the new one, but so little more that it is strongly tempting - and perhaps not even more at all if you really drill into residual value of younger car, warranty benefits etc.

    #2
    Originally posted by mattster View Post
    Normally I try to get something around 3 years old with lowish mileage, and take a personal loan out so I can make the purchase in cash. This always felt like a sweet spot to me, getting a reasonably new car, big depreciation hit out of the way etc, and using a personal loan instead of car company finance to get a better rate.

    Now looking at a getting a new motor for the family, and with the state of the used market (prices are high), thought I'd have a look at new, just out of interest. I was struck by how little I would potentially be saving if I did find a suitable used car, and in particular the PCP deal on offer almost seems too good to be true.

    Some rough figures, for a Skoda Octavia Estate 1.5 SE, with metallic paint the only additional option:

    3 year old used, approx 15-17k for something with ~25k miles on the clock. Cost of financing that over say a 5 year loan at 4% would be about £1700, so call it 16 + 17 = 17700 leaves you with an 8 year old car after 5 years.

    Brand new (newer shape as well), headline price £24k, carwow brings in a few offers of £21,800 cash price. PCP deal cuts another £1250 off as a "deposit contribution", but the PCP deal APR is 0% - so an interest free loan over 3 years, with lower payments than the personal loan but of course a residual to pay (if you want to) of £9k after three years to buy the car outright (probably far less than the used value at that time).

    I won't further bore you with any more of the finances, but the headline seems to be a comparison between £17,700 and £20,000 once financing costs are taken into account, with benefit of the latter being a 3 year younger car, and a car you get to specify for yourself and own for its entire life. Also some warranty benefits etc. I appreciate that a chunk of this difference is due to the exceptionally strong used car market, but we are where we are.

    Am I missing anything? Why would Skoda want to chip in an extra grand to get me to take a PCP deal that has a 0% APR? I'd mostly discounted PCP as a concept in the past, thinking it must be for suckers, but (I don't think) the numbers lie. Yes, paying more of course for the new one, but so little more that it is strongly tempting - and perhaps not even more at all if you really drill into residual value of younger car, warranty benefits etc.
    Drive the deal has it at £18,470.

    You buy the car, taking out the dealers PCP Finance and then (as it's at 4.1%) pay it off after a week during the cooling down period.
    merely at clientco for the entertainment

    Comment


      #3
      Sounds good and probably is. Even paying cash it can be worth taking the finance to get the deal and even when interest is involved simply paying it off immediately. I suppose the manufacturers need to shift stock which equates to cheap finance deals to shift the stock levels they need to especially when a lot of people are bypassing the depreciation hit by buying nearly new second hand

      Why Skoda? The Koreans will give you 5 years peace of mind deals on what are now very nice cars. I've a BMW but won't get another one, not because they aren't good, but because they're overpriced (and that new grill is ugly) and there's some very nice cars coming out of the far east that are getting there on quality and desirability

      Comment


        #4
        Originally posted by eek View Post

        Drive the deal has it at £18,470.

        You buy the car, taking out the dealers PCP Finance and then (as it's at 4.1%) pay it off after a week during the cooling down period.
        Got similar to that from carwow as well, but that is for a longer deal with, as you say, a 4.1% APR - headline price is lower because they throw in £2250 to the deposit, but the overall cost is higher because of the interest. I hadn't thought about simply paying off the PCP deal though (thanks for that idea), and assuming you get to keep the deposit contributions etc then that is an even better deal, potentially, albeit without the 3 year interest free loan you get on the first one (would have to crunch some numbers).
        That headline figure is even more stupidly close to current used values - it does make me think used prices are in for a tumble, but then even before current silliness you were looking at 14-15+ for a good, low mileage three year old.

        Comment


          #5
          Originally posted by tazdevil View Post
          Why Skoda? The Koreans will give you 5 years peace of mind deals on what are now very nice cars. I've a BMW but won't get another one, not because they aren't good, but because they're overpriced (and that new grill is ugly) and there's some very nice cars coming out of the far east that are getting there on quality and desirability
          We're not dead set on a Skoda, but we are looking for a non-flash family estate (2 kids, 2 dogs) for longer drives (Europe etc) and the Octavia does consistently top a lot of the group comparisons for such cars. What else is worth looking at?

          Comment


            #6
            We just got a Volvo XC40 for £300 a month on PHP. Similar to to PCP but you don't own the car, just rent it. However, in the scheme of things, given that most people hand back PCP cars anyway at the end of the loan period, then there isn't much difference.
            Have a look at Nationwide Vehicle Contracts, see what their prices look like.
            Had 2 other cars on PCP prior to this, and never had any issues. Nice new car every 3 years, for same price as a car loan for a second hand car.

            Comment


              #7
              Originally posted by mattster View Post

              We're not dead set on a Skoda, but we are looking for a non-flash family estate (2 kids, 2 dogs) for longer drives (Europe etc) and the Octavia does consistently top a lot of the group comparisons for such cars. What else is worth looking at?
              The Octavia does seem to be a tough car. It appears to be the most popular for taxis in the UK and Europe; it is one I will always consider if I need a replacement.
              "A people that elect corrupt politicians, imposters, thieves and traitors are not victims, but accomplices," George Orwell

              Comment


                #8
                Originally posted by mattster View Post
                3 year old used, approx 15-17k for something with ~25k miles on the clock.
                3 year old low mileage used BMW 3/Merc C/Audii/Lexus are £18-£20K by the looks of things. That is around 10K off what you pay for new?

                If what you say is correct it would seem Skoda is holding value better than the more up market brands.
                Last edited by Fraidycat; 27 July 2021, 09:44.

                Comment


                  #9
                  Current second hand car prices are however high at the moment - my JCW mini is worth virtually what I paid for it 3 years ago.
                  merely at clientco for the entertainment

                  Comment


                    #10
                    Originally posted by eek View Post
                    Current second hand car prices are however high at the moment - my JCW mini is worth virtually what I paid for it 3 years ago.
                    For sure. There is a current distortion in used prices that is making new a more appealing prospect than it would otherwise be.

                    Comment

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