Don’t try it with supercars
2 Likes
[quote]The only problem is that pretty much no one understands how PCPs work
It is difficult to explain quite how PCPs work,[/quote]
This really pisses me off. Almost always the people saying “X is hard to understand” or “nobody really understands X” don’t even bother trying to explain X.
A little googling shows that a PCP is basically the same as a lease in the US. You pay an up front sum, a monthly payment, and the car has a residual value at the end, which you can either pay to keep the car, or not and return it. You can also “trade it in” which means if the market trade-in value is greater than the contracted residual value, you can use the difference as a credit against a new lease. The fees are subject to mileage limits.
Maybe the terms are typically very bad in the UK, but in the US, it is usually a reasonable deal if and only if you typically want a new car every 3-4 years anyway. You don’t pay much extra to offload the risk of a rapidly depreciating car (for instance if a particular model turns out to be a lemon). Obviously it is far cheaper to keep a car for 10 years or more. Often it is even cheaper to buy a 3-5 year old off-lease car and keep that for 10 years, although in the US, used prices on “practical” cars are often unreasonably high.
Some people in the US definitely get screwed by lease contracts --most commonly by underestimating their required miles. For instance, if you get a new job that is better paying but has longer commute, you can easily burn through a 12,000 mile/year. But I don’t really think that is a symptom of the lease terms being complicated hard to understand, simply that people are bad at estimating future demand.
But if you want to criticize leasing or PCPs, criticize them for problems like that, or dealers not being upfront about the cost structure or insurance requirements, or even just that it is designed to exploit peoples tendency to be bad at considering the future cost in 3 years of paying a lump sum or continuing to pay for another new car. Just saying “shady, complicated financial instrument will lead to doom!” is lazy and not helpful.
5 Likes
And this would only happen if they thought the taxpayer is available as the bagholder of last resort. This article is dated spring 2016, and remember that Obama and Hillary both supported the bank bailouts.
1 Like
I criticize them because making it easier to “buy” stuff through dodgy financing makes it easy to wildly inflate the price of college educ… oops, I mean cars and houses beyond what the buyer can really afford to pay.
Since we’re already in Top Gear territory, I give you Richard Hammond explaining the different methods there are of acquiring a set of wheels.
–In which Jeremy lamented that he wanted both the trip and his finances to wind up in different sorts of hedges.
As a double Toyota owner, I am not too surprised. It was the reference to Jaguars that threw me. “Reliable”, “Economic” and “Jaguar” may occur in the same sentence, but only with at least two "not"s.
Many years ago a friend decided to trade in his low mileage, carefully maintained Jaguar for a Golf. The salesman offered him £330 part exchange. He protested "That’s what I’d expect for a Reliant Robin (3 wheel lightweight car). “No,” said the salesman, “I can go up to £340 for one of those.”
3 Likes
To be fair, the X-type is basically a Mondeo in really nice pants. I’d happily own a V6 longroof til it disintegrated. Taxi drivers love them, so they’re clearly doing something right.
2 Likes
My sister and brother in law tend to do that - but she has a 90 minute each way commute on the M1. They buy second hand high mileage “status” cars (because of where they live) which then tend to fail catastrophically on a regular basis. I understand the desire to pay cash for a vehicle, but it seems to me the wiser choice would be to buy a new, reliable, inexpensive car and keep it for ten years or more. If you can pay cash, great, but interest rates are extremely low right now, so borrowing sensibly is not a terrible decision. The alternative seems to be buying cheaper, old, knackered cars that then strand you on the motorway at night, in the rain, every six months or so.
I had enough of that shit in my early twenties to never want to deal with it again.
1 Like
If you like automatics (and I refuse to mess around with early 20th century technology, so I do) you can save even more by buying a modern year old car. Modern autos are computer controlled and the computer will not allow the engine or the driver to abuse the auto box, so by around 10 000 miles you know all the bugs are out, and that the transmission hasn’t been abused. With a manual, of course, one careless owner can wreck the expensive bits in a year.
The last car I bought was three years old and top of its range but had only 1300 miles on the clock and had been stored for two years because the owner died. I got it basically a little over half price, the only thing that went wrong was the battery (I should have replaced it because I know batteries react very badly to storage) and even that had the decency to fail in the garage.
The moral of course is do your research. But the potential savings from paying cash and knowing a bit of engineering are enormous.
2 Likes
LOL at “unreasonably” high. Cars are priced by the market, they’re extremely rational in that regards.
Also to the person who said it would be dumb to have an infinite car lease: eh? If I could pay $250 a month for the rest of my life and know that:
a) my car is 100% under warranty
b) no more than 3 years old
I’d be sorely tempted. Especially given the imminent rise in electric cars and self-driving cars, and the major push in the car industry towards newer features at zero additional cost, you’re really shooting yourself in the foot by getting into a 20 year attachment with a single vehicle.
And given the supply glut that will inevitably occur as self-driving / Uber / electric eat the market, you could easily see a more affordable $79 a month option for all the 8 year old Civics of the world.
2 Likes
Very much this. I lease my car and tend to change when the brand I want is having a low-lease-rate special, and buy based on the monthly rate I want to pay. By doing this I get a new car every 2-3 years, no worries about maintenance, and the techie in me gets to play with new car features every few years. (Of course the laws in Ontario are pretty good when it comes to things like lease residuals and whatnot, so I’m not in fear of being “underwater” at the end of the lease or anything, either). I also fully research the exact model and spec of vehicle I want before I head into the dealer, and will happily wait for the order to arrive if they don’t have it on the floor.
As I approach retirement I’m sure I’ll make my last purchase as a 0% finance for some ungodly period, grab an extended warranty with roadside assistance, and hold onto that car until either it, or I, am no longer road worthy. But until then, I’m happy having a fixed monthly cost with no surprises that just goes into my budget.
Eeeeh, I grew up with 70s British Leyland. All modern cars are a dream by comparison, even the bad ones.
2 Likes
A university friend got a job at British Leyland as a research engineer. When he turned up he noticed there was not a single Leyland car in the car park.
Contrast this with Oldsmobile of the same era where you could turn up at the car park to read a sign from the UAW reading “Japanese cars will be sledgehammered” and find that if you had a non-Olds you had to go to the far end of the car park, a long walk.
Whether by choice or compulsion, neither brand did a good job of customer reassurance.
1 Like
I’m glad you said all this.
I was beginning to wonder, with the talk of ‘incomprehensible’, ‘pay day loans’ and ‘infinite leases’, if this was some other PCP that I was not aware of.
In the UK PCP is not only easy to understand but the sales agent has to also explain it to you anyway and you get to sign to say it was explained to you.
Your description is correct, I would just add that you often do not need to pay anything upfront, can choose how long the PCP period is (up to a maximum of, generally, 42 months), the interest rate can be 0% and at the end of the term you do not have to either buy the car of trade it in, you can just give it back.
Putting aside the debate of buying new or secondhand, if one does intend to buy new PCP at 0% is the best way to do it if you need to take finance.
It is popular in the UK as an alternative to a company car. Many UK firms will give a cash allowance option instead of a company car. Then it is a case of looking at tax on the cash as earnings vs. rising tax year on year on a company car as a benefit in kind. That is a lot more complicated to understand then the very simple PCP.
Horses for courses. What I love most is that 6-7 year period between the day the three-year loan is paid off and the day I decide to replace the car.
[quote=“kthejoker, post:31, topic:102055, full:true”]
LOL at “unreasonably” high. Cars are priced by the market, they’re extremely rational in that regards.
[/Quote]
Well rational is, as always a dumb word to describe markets run by humans but that is not really the point I was making. I was talking about the most affordable way to own a car was to but a reliable economy car and drive it as long as possible rather than leasing a new luxury car every three years. In that context I was pointing out that used cars are often not a good value. A 3 to 5 year old Camry or similar will be cheaper than new, but often not enough to make up for the fact that you lose out on the “best” most trouble free, warranty covered years and losing out on three years of safety advances while getting a car whose history you don’t know and whose previous owner probably drove like they only intended to keep it a few years.
It may be the market price but it doesn’t mean it is always a good value compared to a comparable new car.
I get annoyed that some people act like consumers are simply too dumb to understand any financial arrangement that goes beyond the 3 variable “x amount paid back over y years at z percent interest”. Just because something is more complicated than that doesn’t mean they are trying to rip you off, and if you don’t approach contracts with a skeptical eye and read the fine print and consider the consequences, then you’re probably doomed in life anyway.
Have you tried getting spare parts for them?
1 Like
Maybe it’s going the direction of housing. People used to routinely buy houses, or pay 50% down and pay the rest off over 3-5 years. After the 30 year mortgage became common, prices inflated such that hardly anyone could do that. More people overall could buy houses with the payments spread out and lower down payments, but it took almost an entire career span to pay them off. Then speculation drove the prices up higher faster than inflation while wages stagnated or decreased. How could we get back to a world where 40-50% of households buy their homes with cash or pay them off within 5 years now that prices are structured to cost 30%+ of two full lifetimes of income?
If cars go the same way it’ll be worse though - a lifetime mortgage on a rapidly depreciating asset that will wear out before it’s paid off. Even the dodgy-loan / dodgy-lease is better than that.
