Financing a new car, PCP

_sheep

Was thinking about buying a car in 3/4 months time, was checking prices on cars and came to the conclusion that a new car is well within reach, im not a fan of buying used, i like buying a new machine. Now while looking at some ways to pay i came across PCP's (Personal Contract Plans, http://www.cbg.ie/finance_products.asp#PCP )

I believe the idea is, you decide on a car (focus please ) say 20k, you take it over 3 years, dealer decides how much the car will be worth in 3 years, for the sake of argument we'll say 13k so they want you to pay 7k over 3 years. Seems like a nice way to buy and car and constantly have a new car every 2/3 years. Obviously i got myself very excited that a new car could be so cheap but now want to know about the pitfalls.

Im driving down the road and for some reason the car drives itself into a wall and is a complete write off, and because of my age i only have 3rd party f&t insurance, does this mean im absolutly boned and left paying for it for a few years, this seems to be the only bad point i can think of at the moment, prehaps you can advise me further.

Anyone care to warn me away from this method and just get a big ass loan ?

Seth Brundle

I assume these contracts are similar to HP in that you are responsible for maintenance, repairs, insurance, etc.
I would also presume that the final figure is 'reviewable' in that if the car is not worth the estimated value after 3 years (perhaps because you stuck on 250K miles and had loads of dents), the dealer can ask you for the difference or something.
Check the small print.

spockety

Any car I've bought was always 2nd hand and for cash, but I have often wondered how much exactly banks are prepared to loan out for car loans in relation to your income?

Would they give you the same amount you earn in a year over a 5 year loan? Or is it less? Or is it more?

Like the way a mortgage is going to be 3.5 or 4 times your annual income, is there a similar metric for car finance?

Seth Brundle

At the moment banks seem to be a law unto themselves in terms of dishing out money.

_sheep

Originally posted by kbannon
I assume these contracts are similar to HP in that you are responsible for maintenance, repairs, insurance, etc..... 'reviewable' in that if the car is not worth the estimated value after 3 years......... the dealer can ask you for the difference or something.

Ya some good points ill have to discuss, gonna tip along to a dealer nearer the end of the week and see. Only thing putting me off is if i write it off ill be boned, but i suppose thats to be expected.

Wonder if they decide i need to pay off 7k over 3 years, and my trade in car is worth 5k so they only want 2k over 3 years ( all seems to good to be true )

spockety

Originally posted by _sheep
Ya some good points ill have to discuss, gonna tip along to a dealer nearer the end of the week and see. Only thing putting me off is if i write it off ill be boned, but i suppose thats to be expected.

Wonder if they decide i need to pay off 7k over 3 years, and my trade in car is worth 5k so they only want 2k over 3 years ( all seems to good to be true )

If it seems to good to be true, then it usually is

One thing I will say is, if you are investing in a 20 thousand euro car, you should make a point of investing in fully comp insurance. If you can't do that, then think long and hard about if you can handle it financially if it all goes tits up.

_sheep

The plan really is i currently have a 5k loan over 2 years (got a great deal on a car from an uncle but have decided i want a car im not embarrised to be seen in)

So trade in this car, get around 5k, pay a minimal sum along with it and get a new car for minimum payments while im still paying off the first one, then when both cars are 'payed off' around the same time i can use the money i was paying together previously i get an even better motor again.

I think im missing something, all to easy

_sheep

Originally posted by spockety
........ if you can handle it financially if it all goes tits up.

Ya this is whats stopping me going getting the car now , the thoughts of writing it off and then buying some crappy banger while i wait the 5years for my pockets to fill up again.

Some great points, thanks lads keep your thoughts comming

daveg

Afaik you cannot trade in a car you have finance on. The bank has to be paid back before the car can be sold. I'm sure we have all heard the stories about unfortunate people buying cars with previous finance still outstanding on the car. And then the bank repossess the car.

_sheep

I have a personal loan of 5k, which i paid an uncle with

Seth Brundle

sell your existing car privately if possible as you will get more on it than trading in.

dcGT

Originally posted by kbannon
sell your existing car privately if possible as you will get more on it than trading in.

Definitely! I'd NEVER go near a garage for a trade in....an unbelievable rip-off....

DC.

daveg

Originally posted by _sheep
I have a personal loan of 5k, which i paid an uncle with

ahhh your sound so.

Actually this really does sound like a good idea. Not much info on the web except for your link which states:

Up to 90% of new cars sold in the US last year were purchased utilising this method, with the figures in the UK and Europe encroaching on the 80% mark.

:eek: 90% in the US.

If there are no hidden catches this sounds like something I maybe interested in myself. Assuming you picked a car with lower depreciation (ie not a Peugot 407) you would be in a win win situation. For instance a new VW golf 1.4 is E19,675 according to http://www.carzone.ie/. From the same website a 2001 golf is about E16,500 - granted thats asking price at a garage so atke trade in to be E14,500. Therefore the depriciation costs come to approx 6K. Over 3 years that works out at E166 per month (I wonder is there a HP cost on top of this)?

If you balance this against taking say a 5 year loan for the full cost of the car but you own the car after 5 years and have the resale value against a new car again which is the better deal?

impr0v

slightly off topic, you mention a focus in your first post as your car of choice if you do decide to go with this method of finance. you do know that there is a new focus due about the end of the year? i used to have a 3 dr 1.6 focus and they're a great car, but i'd wait until the new model comes out, as this will surely have a big effect on the residual value after 3 years.

daveg

Also who provides the finance? Do banks offer PCP or is the garage (HP) themselves?

Seth Brundle

Presumably the dealer isn't authorised to be a moneylender by the Central Bank so I guess it would be bank or other lending institution such as Woodchester

_sheep

Originally posted by daveg
.....Some positive stuff......

LOL everyone ive mentioned this to, pcp's, are planning there new cars already


Found a friend of a friend that went down this pcp route, and got some facts. Basically as long as your fancy updating your car every 2/3 years its excellent but heres the catches,
want to update your car earlier, you pay more
decide you want to buy your car, you pay more
Opting out of the pcp and paying your own way, you pay more
An excellent and cheap way to get a new car for low monthly payments, but only recommened if you cant afford the normal repayments as it WILL work out more expensive in a few years when you decide to stop trading and trading and trading because of the interest.

Prehaps ive explained it badly, but for my personal situation it seems perfect and of course I expected it to bite me in the ass in some way in a few years by costing more overall anyway. Hello new car (in a few weeks)

_sheep

Originally posted by impr0v
slightly off topic, you mention a focus in your first post as your car of choice...........................

Ya was keeping an eye on the focusII, had hoped it would be out in 3months when i decide to buy, ill more than likely wait for it either way.

alias no.9

While principle might only be the difference between the purchase and trade in price, you pay interest on the whole new cost of the car over the term and given the fact that you're paying such small sums monthly, approximately 1/2 of what your paying will be interest so if you expect depreciation over 3 years of ~e6000 on a new car costing ~e20000, then expect to pay closer to e12000 than e6000 for the joys of owning this car. For all this money you will have nothing to show for it at the end.

daveg

Originally posted by _sheep
LOL everyone ive mentioned this to, pcp's, are planning there new cars already
Opting out of the pcp and paying your own way, you pay more

Surely this is only if you opt out before the 3 year period is up. If you opt out after the 3 years then I presume no penalty is given?

If woodchester supply the finance do you go to them directly or would you enquire at the car dealer?

Keep us up to date _sheep. I'd be very interested in hearing the details.

_sheep

If i hear anymore ill let you know, but until then anyone else know about this method, perferably the bad points horror stories etc

_sheep

Come'on, someone must have personal expierance of this

_sheep

Ok sorry to bump this really old thread - but i thought it was a better idea than making a new one.

In the end i didnt go down the route of a pcp as a better deal came along. But time for a new car is again on the horizon and im thinking about finance.

Has anyone expierance of this method? Has it become more popular? Should i totally avoid it? Anyone know garages in the Waterford area that know of this finance method.