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Will PCP go POP?

rubbadubdub

Just seeing peoples thoughts regarding PCP and the potential burst that could happen in the next few years.

Like alot of people I opted for PCP as was getting a Brand New Ford Focus for less (€35 a month less) than taking out a loan on 3 - 4 year old focus. Surely would have been mad to get the 2nd hand one as when the 5 year loan was up I would just want another car again and so the cycle continues.

My worry would be with so many people doing this and going again on new PCP deal every 2- 3 years the garages will struggle to sell these 2 year old cars on to traders/customers that are returned to them at the price they are looking for.

Does this mean that the customers original deposit that covers the extra cost from the GFMV (guaranteed future market value) to go again will become less valuable as dealers wont be able to get the price they need to make up value to go again?

I know the new car trade is flying but it just doesn't stack up in my opinion. I believe these extra costs will passed on to the consumer in the new car deals and also people on rolling PCP deal currently.

Anyone else any thoughts? Sorry not sure if there is a thread on this, couldnt see anything.

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frozenfrozen

There is going to be a big flow of pcp cars from the UK in the next few years that will have an impact of second hand cars in Ireland.

The issue I see is that perfectly good cars which could continue to run for the rest of time are becoming uneconomical to keep on the road when a couple thousand euro repair makes it "mad to not put that towards a deposit" on something new which is really going to be essentially a disposable vehicle.

We should lose the year on the registration plates and include the lifetime of the vehicle in co2 emissions. Ok a petrol S type jag may look dirty but when you keep it on the road for 30 years, it is probably a hell of a lot cleaner than cars which are scrapped within 10 years..

Cee-Jay-Cee

I agree with you, it can't continue as there simply isn't the market for the used cars. The way I see it there are 2 types of car buyer, those who can buy new cars either straight deals or on PCP finance and then you have those who can only afford older cars (5-8yr old cars) I don't think there is the market for the 2 and 3yr old cars and so therefore those cars are going to devalue quicker which will eventually cause the PCP game to grind to a halt.

I can safely say I will never even consider a PCP deal, I think they're terrible. I know loads people who borrowed the deposit and are paying €300-400 a month for their car and plan to continue doing that every 3 yrs. I have always borrowed to buy my cars, I own them outright within 2/3yrs and when I sell them the money is mine and not owed to anyone and can go towards a newer car. I generally buy 5 or 6 yr old cars as they're fantastic value compared to the new price.

techdiver

Cee-Jay-Cee wrote: »

I agree with you, it can't continue as there simply isn't the market for the used cars. The way I see it there are 2 types of car buyer, those who can buy new cars either straight deals or on PCP finance and then you have those who can only afford older cars (5-8yr old cars) I don't think there is the market for the 2 and 3yr old cars and so therefore those cars are going to devalue quicker which will eventually cause the PCP game to grind to a halt.

I can safely say I will never even consider a PCP deal, I think they're terrible. I know loads people who borrowed the deposit and are paying €300-400 a month for their car and plan to continue doing that every 3 yrs. I have always borrowed to buy my cars, I own them outright within 2/3yrs and when I sell them the money is mine and not owed to anyone and can go towards a newer car. I generally buy 5 or 6 yr old cars as they're fantastic value compared to the new price.

Is it really all that bad?

We are still selling less cars than during the "boom times (bubble times)" regardless of PCP. Especially with the low interest rate in some cases 0% it's a cheaper way to finance cars, even than paying outright with cash.

I understand that in the case of people borrowing for the deposit, then that is crazy, but there are some people like me, that have a full 30% deposit and will have the balloon payment available at the end if needs be, if the eventuality you talk of comes to pass.

The reason I'm going for a new car this time, is I'm sick of buying older cars that end up costing loads in maintenance (timing belts, flywheels, break disks etc) and also not having peace of mind of a warranty in case of mechanical fault if anything goes wrong. I did the sums, albeit at current prices and the depreciation isn't massively out of phase between new and secondhand in certain models. I understand this can change. But trying to predict three years down the line is a fool's erin. If Brexit happens by then, the import market from there will be gone due to import charges above and beyond VRT.

I might be completely wrong, but I don't think, anyone knows for sure what will happen.

rubbadubdub

OK well borrowing for a PCP is lunacy IMO.

From speaking to a few 2nd dealers they are struggling to sell cars and if they werent importing some machines from the UK witha much higher margin they would be on their knees!

From SIMI we are close to boom times and the flow is currently more consistent.

I really think this will not end well for the consumer especially for those put high deposits on PCP to bring down monthly costs. For the people who paid bare min deposit for Higher monthly payments wont be so bad......

Special Circumstances

rubbadubdub wrote: »

I really think this will not end well for the consumer especially for those put high deposits on PCP to bring down monthly costs. For the people who paid bare min deposit for Higher monthly payments wont be so bad......

I haven't been paying much attention to PCP ( but I'm interested in the effects of pre and post Brexit on it), so could you expand on this part of your post - it's not obvious to me why one is good and the other bad:o.

techdiver

rubbadubdub wrote: »

OK well borrowing for a PCP is lunacy IMO.

From speaking to a few 2nd dealers they are struggling to sell cars and if they werent importing some machines from the UK witha much higher margin they would be on their knees!

From SIMI we are close to boom times and the flow is currently more consistent.

I really think this will not end well for the consumer especially for those put high deposits on PCP to bring down monthly costs. For the people who paid bare min deposit for Higher monthly payments wont be so bad......

I've seen this stated before, but I don't understand why this is the case? Are you simply assuming that these will definetly be "rollover customers" and not those that will pay the balloon? With 0% finance, you will only pay the exact sale amount of the car. Using PCP is definetly better than borrowing from elsewhere. Also, keeping your monthly payments down allows you to put extra money into savings which will earn (albeit low) interest.

If you are 100% banking on trading up in 3 years and hoping your deposit then will definetly match you 30% deposit now, then you would be foolish to make that assumption, but if you are confident of having the option to either trade up or pay the balloon and walk away, then PCP holds no risk to you.

NIMAN

Some form of PCP will likely continue, as there will always be a certain percentage of the population who will always be happy just to pay out €250 - €300 every month to (own) have use of a nearly new car, always trading it back in as s deposit on the next one.

It might be rebranded as something other than PCP, but it'll always be buying on the never-never.

Atlantic Dawn

The big question is where the market will be for the PCP stuff handed back at the end of the 3 years, they will be coming on to an already flooded market of UK imports. The banks who lent for PCP will be needing a fire sale.

CIP4

Upto now the newest car I have owned was 4.5 years old so I have never been involved in car finance. However in the last few months I have been looking at brand new and demo cars. A few things I noticed, with most makes and models it only makes sense to buy brand new, demo save a few thousand or then 4 year old plus to get a substantially cheaper car. The 2/3 year old cars are too close to the new/demo prices in many cases to warrant buying them.

I am still undecided about PCP. I think it would have worked a lot better if half the people had been buying out the cars after 3 years and keeping them a few years whereas as it is almost all people are giving them back after 3 years and getting a new one. For me I have no intention of getting rid of a perfectly good 3 year old car that I have minded like a baby. But When I said it to salesman that I would be buying it out after 3 years they looked at me like I had 10 heads why would I do that if I could get another new one and just pay PCP monthly repayments forever. So for me if I could get a decent interest rate on HP that's the road I would go. But it obviously works for some people and some are happy to have permanent car repayment long long term.

My biggest surprise is the amount of people on PCP I have asked who don't know how much the balloon payment is on there car at all :eek: my favourite response is oh well we would be taking another new one out after 3 years as the car would be getting abit old for us at that. 90% of the time that's coming from someone who had €500 15 year old car before PCP came.

rubbadubdub

So from my point of view I invested 6.5k (30% of cost) as a deposit on a new car for PCP deal over 2 years.

MY monthly payment is 200 so after the 2 years my total investment will be 6.5k Deposit + 4.8k in monthly payments. The GFMV is around 11k I think.

If I had only invested 10% so around 2k my payments would have increased to between 350/400. So 9600 in total payments if its at the higher scale.

So total investment over the period is roughly the same.........So scratch that point

No sane person is handing the car back and saying toodle doo. The GFMV for my car is about 4-5k below market value and that cushion is what lets you rollover again but if that market value decreases significantly then the gap between GFMV and the extra cash you may become not existent not allowing you to roll over without adding another cash deposit or increasing your payment.

carsfan2

I have a theory that main dealers i.e. The motor industry have been keeping the asking price of used cars less than 3 years old artificially high to make people go for the new option often on pcp.
This is starting to unravel with the low sterling values making imports substantially better value in most cases.
Hopefully most buyers went into pcp with their eyes open but I fear a lot didn't and will get a rude awakening when they don't have the equity in the car anticipated at the end when balloon is due. The only thing is that I have no doubt that there will be "offers" out there in the future to keep the conveyor belt rolling.

techdiver

CIP4 wrote: »

Upto now the newest car I have owned was 4.5 years old so I have never been involved in car finance. However in the last few months I have been looking at brand new and demo cars. A few things I noticed, with most makes and models it only makes sense to buy brand new, demo save a few thousand or then 4 year old plus to get a substantially cheaper car. The 2/3 year old cars are too close to the new/demo prices in many cases to warrant buying them.

I am still undecided about PCP. I think it would have worked a lot better if half the people had been buying out the cars after 3 years and keeping them a few years whereas as it is almost all people are giving them back after 3 years and getting a new one. For me I have no intention of getting rid of a perfectly good 3 year old car that I have minded like a baby. But When I said it to salesman that I would be buying it out after 3 years they looked at me like I had 10 heads why would I do that if I could get another new one and just pay PCP monthly repayments forever. So for me if I could get a decent interest rate on HP that's the road I would go. But it obviously works for some people and some are happy to have permanent car repayment long long term.

My biggest surprise is the amount of people on PCP I have asked who don't know how much the balloon payment is on there car at all :eek: my favourite response is oh well we would be taking another new one out after 3 years as the car would be getting abit old for us at that. 90% of the time that's coming from someone who had €500 15 year old car before PCP came.

It's an unfortunate trait of Irish people that we are not very financially prudent. I am going for a PCP deal also, and like you will intend to keep the car at the end, so it works well for me. If the case arises whereby my car will have decent equity after 3 years that would enable me to get a new then I might consider it, but i'm not approaching it in that way. That would be a bonus not expected. As it is prior to this car the newest car I would have ever purchased was over 3 years old, so I would still be doing much better than previously anyway. My current car is approaching 7 years old and whilst to me that is not very old, it is very high mileage (it was a UK import) and it is approaching the phase where it could cost me thousands on a new flywheel, so I'm bailing out now.

ANother point on the UK imports, is that they tend to be very high mileage cars. So if you purchase a new car that is a sought after make and add some nice extras to make it stand above the rest, whilst keeping the mileage low, you might come out better on the equity front than many are predicting.

[Deleted User]

Proper low interest rate PCP on the 3 year old cars would help a lot in shifting them. You might get a decent PCP deal on something a year old but most of these are demos I suppose but look at something 3 years old and its mad HP interest rates with big monthly payments or else a car loan again with big monthly repayments and high interest rates.

Why would I buy a 3 year old 25k car with a loan and high interest rate with a monthly repayment up over 400 euro a month or more when I could but the same car new for 40k with a similar deposit and a monthly outlay of probably 350 or so a month but the car is brand new, speced as I want etc.

Now if the 3 year old car could be bought on PCP with similar terms (0% or no more the 3% interest rate say) to the new car it would get appealing as you would be probably only paying about 200 euro a month and have a lower deposit.

I'm thinking a lot about changing the car but to me buy new on PCP, buy a demo/ something one year old or so on PCP or keep the car I have are the only 3 options that make sense at the moment.

NIMAN

I also think that a lot of people like the idea of gettting rid of a car before it needs NCT'd and any maintenance it needs to pass that.

Its probably no surprise that the usual PCP term is 3yrs, so people 'buying' their car that way will never see an NCT centre is they keep trading in after 3yrs and getting a new car.

carsfan2

The usual term for a pcp is 3 years but statistics show most that buy in pcp change again after 26 months in the UK anyway

TherapyBoy

For those who buy on PCP & get a new car every 3 years, and plan to continue doing this into the foreseeable future, what would be the difference in monthly cost between a PCP car & a leased car? Long-term lease for 2 years, then replace with a new car - leasing company takes all maintenance hits.

NIMAN

carsfan2 wrote: »

The usual term for a pcp is 3 years but statistics show most that buy in pcp change again after 26 months in the UK anyway

Is this more beneficial for the customer or the dealer?
Who is doing best out of this?

J.pilkington

While it is a simple concept and widely used around the world it is relatively new to Ireland and I can't help but get the feeling based on the sheer number of people now driving €50k plus cars who wouldn't be only for PCP (as they wouldn't have a hope getting a bank loan) don't fully understand the monetary consequences and will only do so once their PCP term is up.

rubbadubdub

Ford are 25 months here now and 3.9% APR, isn't it more beneficial for the Dealer to be selling new cars?

ShadowHearth

carsfan2 wrote: »

I have a theory that main dealers i.e. The motor industry have been keeping the asking price of used cars less than 3 years old artificially high to make people go for the new option often on pcp.
This is starting to unravel with the low sterling values making imports substantially better value in most cases.
Hopefully most buyers went into pcp with their eyes open but I fear a lot didn't and will get a rude awakening when they don't have the equity in the car anticipated at the end when balloon is due. The only thing is that I have no doubt that there will be "offers" out there in the future to keep the conveyor belt rolling.

This.

I was saying that for ages myself.

Back in the normal days 1-3 year old cars were nice bargains. Almost new cars with a good bit smaller price tag. Now all these 1-3 year old cars are so expensive and become even worse when you borrow it with very high APR. In the end, you are actually pay same or less price on brand new car, because of scrappage and 0% APR.
There are 2 explanations for what is happening:
1. I am putting my conspiracy tinfoil hat first: Dealers keep prices high on 1-3 year old stock to make PCP way nicer deal. In a lot of cases ( I heard, not first hand ), dealers just telling clients not to buy second hand older stock, but order brand new! Where back in the day, when I was looking at Brand new Astra all dealers were pushing 1-3 year old stock first, before new car.
2. Dealers are just fecking dumb and dont see what their doing. Or they do see it, but live by the rule of: "Its going to be future me and you problem".

The APR we pay for car is just insane. A lot of older cars 1-5 years old are very expensive when you count in APR from 5.5-11%. Lets be honest, not many people can go in and buy car from savings for 10-20k. Most of the time its finance. I personally even when have enough money to buy car, I will try to get low APR loan and buy it with banks money. I better have few grand in my pocket for emergency and pay small amount to bank for loan, then buy a car and have no savings left.

Finance expensive -> People dont buy 1-5 year old cars -> Cars sit there with very high price tags and rot.
So in grand scheme of all things we got in to situation where the only cars that properly sell are brand new on pcp and old cars with massive running costs. To make it worst now, Insurance is pretty much killed any value 10+ years old cars had. Those are dead stock.

As for pcp. I dont see much problem in it, but I am afraid that industry and stupid people will make the balls of it very fast. Its a good idea, which will back fire due to people idiocy.
PCP, as any product, is good for certain consumers, not everyone.
PCP is good:

If you have Money and you dont do too much millage, but like a nice car to drive, money is not an issue and you do realise its not a brand new car every 3 years on same payment. Its a brand new car every 3 years for a new deposit+monthly payments. If you can barely afford deposit and payments for the car, you should not look at pcp. In 3 years you will get a heart attack.
If you have Money and you want to own a car, but dont want to pay 5.9% APR on 20k eu. Take pcp with 0% APR with small deposit. Pay off 3 years with 0% APR. When you got landed 8k ballon payment, you pay maybe 4k eu or as much as you comfortable and refinance it again, most likely with dealers bank, which would be around 5.5% APR. If you do the maths it will be cheaper to pay 5.5% APR on 4k, then 5.9% on 20k! Best part, you will own car in 3 years, not in 5 like in HP.

Another wild card we got going now: Brexit and whole pound crash. Donedeal is overflooded with English cars. WAY cheaper with added VRT then anything you can buy here. Its scary. I am almost waiting for some second hand car price crash soon.

Sorry for long post, but I am researching it for a while now as I am planing on changing my car. I am not saying I am right lads, take it for whats its worth.

[Deleted User]

Paisley Rapid Newscast wrote: »

.....................

Why would I buy a 3 year old 25k car with a loan and high interest rate with a monthly repayment up over 400 euro a month or more when I could but the same car new for 40k with a similar deposit and a monthly outlay of probably 350 or so a month but the car is brand new, speced as I want etc.................

With a €7k deposit and borrowing €18K off AIB over 3 years the Total amount repayable is €20,418.48, so €2,2418 in interest.

Monthly payment is €567 but there's no balloon payment.

The way you phrase it is exactly how a car salesman would, and many people are dim enough to go for it when they can't actually afford a €40k car.

Ferrari3600

rubbadubdub wrote: »

I know the new car trade is flying but it just doesn't stack up in my opinion. I believe these extra costs will passed on to the consumer in the new car deals and also people on rolling PCP deal currently.

I agree. It has the whiff of another inflating bubble about it, to me.

[Deleted User]

Worst case scenario people stop paying and the car is taken back from them or they get offered the actual GFMV at the end of the term and give the car back.

So there's a glut of 3 year old cars in dealers.

Might be a burst bubble but the overall impact is minimal.

bazz26

TherapyBoy wrote: »

For those who buy on PCP & get a new car every 3 years, and plan to continue doing this into the foreseeable future, what would be the difference in monthly cost between a PCP car & a leased car? Long-term lease for 2 years, then replace with a new car - leasing company takes all maintenance hits.

Nobody leases cars to private individuals in Ireland.

I really hope PCP finance doesn't end up being the motoring equivalent of the 100% or 110% property mortgages we had during the Celtic Tiger years. I'd hope we would have learnt something for that.

NIMAN

I would say dealers would love it if people handed the cars back after 3yrs, considering they will have got a deposit + 36 monthly payments out of the customer, and now have a 3yr old car to sell.

[Deleted User]

NIMAN wrote: »

I would say dealers would love it if people handed the cars back after 3yrs, considering they will have got a deposit + 36 monthly payments out of the customer, and now have a 3yr old car to sell.

They are well covered to be fair, a €45.5k A6 2.0TDI 150 SE has a GFMP of €20,025.

ShadowHearth

Augeo wrote: »

With a €7k deposit and borrowing €18K off AIB over 3 years the Total amount repayable is €20,418.48, so €2,2418 in interest.

Monthly payment is €567 but there's no balloon payment.

The way you phrase it is exactly how a car salesman would, and many people are dim enough to go for it when they can't actually afford a €40k car.

567eu per month is a lot to pay monthly. 7k deposit is a lot to put right on the spot too.

I think a lot of people are REALLY afraid of balloon payment. Its looks very scary, I will admit, as almost everyone will think: ****! I need to come up with 7-10k on the spot or they will take away car!!!
In reality it is still flexible amount of money to be payed. As I mentioned above you can pay half of it yourself and just take personal loan or dealers loan for the rest and you own the car in 3 years.

Its easier to pay 7k eu in 2 parts over 3 years. 4k when you taking car and 3k when you buying it out.
Its easier to pay 270eu per month on 0% APR ( added another loan of 4k, which would not be less then 200eu per month for 2 years, but at that point you already own the car ), then 570eu with added banks APR.

[Deleted User]

ShadowHearth wrote: »

567eu per month is a lot to pay monthly. 7k deposit is a lot to put right on the spot too............

My comment was in response to a claim / view stating why folks buy €25k 2nd hand cars when you can get a €40k new car for similar deposit and less monthly payments.

The deposit needs to be found in either case.

ShadowHearth

Augeo wrote: »

My comment was in response to a claim / view stating why folks buy €25k 2nd hand cars when you can get a €40k new car for similar deposit and less monthly payments.

The deposit needs to be found in either case.

Okay, sorry, missed that one. The 25k vs 40k new is stupid, I agree. Thats a good point too. A lot of people look at deposit+payments and not how much will the whole thing cost in the end all included. Obviously people miss baloon payment and just pretend that car will have enough equality left for next one.

mickdw

The way I see it, if you can afford the repayments on a pcp with about 10 to 15 percent deposit and you are in a position to obtain finance should you need it at end of term to keep the car, it is probably a safe enough way to go. With zero percent interest, it's probably as good as any.
worst case then even with a poor car market is to clear off balloon and keep your car for a couple of further years and see what it's worth then when you owe zero on it. Maybe that will give you a deposit on a new car again. Considering you would have had the car from new, there should be nothing scary about keeping it to 5 or 6 years - worst case.