Shelina asks: “I’ve got myself caught up in a PCP nightmare. Please can you advise me on what to do as I’m really stuck and it’s really stressing me out.”
Q&A 77 – Stuck In A PCP Trap – Shownotes
Please can you advise me on what to do as I’m really stuck and it’s really stressing me out.
I bought a new car on a PCP at the end June 2013 from Toyota. I part exchanged my old car and got £4k for it from Toyota plus £2,500 knocked of the price of the car. So altogether £6,500 of the original price. I agreed to doing 10,000 miles per year over a 3 year term on an APR of 5.65%.
I’ve still have got 7 months to go and already at 28,000 miles plus there is some minor damage on the car. The brake pads and tyres also need to be changed in less than 1000miles which will cost me a further £816.00.
I called Toyota finance today and they have said that if I want to return the car now, there will be nothing to pay apart from the damage to the car. If I choose to pay it off now before the 27th June….it will be £13,462.60. Or I can part exchange on any car but they value I have been offered by a few dealers is max only £13,300…so no equity in the car.
I have also been told by Toyota finance that if I want a car from another dealership that they can still offer me a loan on 3.5% APR.
Do I do this and get another car?
I do have funds to pay my current car of (Toyota GT86 on a 13 plate) when the PCP ends at the end of June, when the estimated value of the vehicle will be £12k. Is it best to do this and is it best to wait till the end of the PCP term?
Please can you help me as I really don’t know what to do for the best. I was always told its best to buy a car outright but then everyone is going down the financing route and I keep being told a car is a depreciating asset so let the car dealership take the loss. But then you never own the car until any financing is all paid of.
What should I do? Any advice would be much appreciated.
Hope you understand my mumble jumble.
Who Swallows The Deprecation?
Let’s start at the end Shelina. You say: “I keep being told a car is a depreciating asset so let the car dealerships take the loss. Car dealerships don’t take the loss when you finance a car, you do. And, you then pay for the financing as well.
The only way to avoid the depreciation is to buy a car that has already largely depreciated. The fall in value between when you buy a new car and the end of the first year is up to 60% of the cost. However, between year 5 and 6 of ownership, it will only be a few percent. Therefore, always let someone else take that depreciation, and buy an older car to avoid losing money on depreciating assets.
I want go on too much about that in this episode as we have a lot more to get through, but you can check out the following articles for more justification why:
Your Current PCP “Deal”?
Let’s have a look at your current PCP deal.
In June 2013, you financed a Toyota GT86 over 3 years.
You mention that you got £6,500 off. You didn’t. Your part exchange of £4,000 would have been available if you’d have sold privately and the “discount” meant that you effectively bought a £20k car on finance, not a £22.5k car on finance, for example.
The financing period is up in June 2016 and are only 2,000 miles away from the point where you’ll start paying extra for breaking the limits.
You need new brake pads and tyres, which are estimated at £816. Where is that estimate from? I assume that is with the dealership, and I would imagine that you could find that MUCH cheaper if you go to a local trustworthy mechanic.
What you actually do is going to depend mainly on your priorities. A Toyota GT86 (according to google because I know nothing about cars) is not a cheap car. And, hence, you are probably not going to like the advice of get rid of it and buy a banger.
You also mention that you’ve got the opportunity to buy the car at the end of the term, and you have the funds to do so.
When Do They Make Their Money On PCP?
Unfortunately, the finance guys make their money from you at the start of a PCP deal, not the end. Therefore, if you’ve got the money to buy the car at the end of the deal, if you like the car, if you can afford it and if the price to buy at the end of the deal is similar or less than the open market value, then I’d go ahead and do that.
Then, in the future, stick away from PCP deals for new cars, and instead come in at this stage. There is always much better value in buying cars that have had someone else swallow the depreciation and finance cost and you are there to pick it up when they fall for consumerism and the patter of the new car salesman and end up buying a new car again.
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