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In the UK, most people don't pay the "sticker" cost for a car. They take out a PCP or similar plan. Pay £X00 per month for Y months. At the end of the period,

by edent 3y ago

In the UK, most people don't pay the "sticker" cost for a car. They take out a PCP or similar plan. Pay £X00 per month for Y months. At the end of the period, either buy the vehicle outright or hand it back. Or, as many people do, switch to a new vehicle. That's why you see so many expensive cars driven by people who can't afford them. No one is paying the up-front cost. They splurge their disposable income on a motor and treat it like a mobile phone - upgrade it every few years. A VW eUP (an electric vehicle) is about £200pcm. The new Mini is about £300pcm. Those are comparable with ICE vehicles.

highwaylights 3y ago
I didn’t realise until recently just how engrained this practice is in people’s behaviour. I was discussing cars with someone not long ago and they were really matter-of-fact about switching to a new car just because the dealership offered it to them. It came across very much as that’s just how it works and everyone does that.
- padjo 3y ago
  I wonder do any of them realise they’re paying the maximum depreciation every single time too. Losing 20k+ in depreciation every year feels like a great way to stay poor
  - edent 3y ago
    On the flip side, using PCP means that you get a brand new car and it has a warrantee. You could buy a banger for £500 - but then you're always going to be wondering if today is the day it'll cost you £££ to repair. And if you can't get in to work, that'll cost you dearly as well. £300 per month to basically not have to worry about any unexpected bills seems reasonable to me. Plus you get the social value of having a "nice" car. The safety features are likely to be higher quality. And, as mentioned in the article, newer vehicles tend to be more efficient. Basically, it is a fairly rational way to spend money.
    - 2Gkashmiri 3y ago
      in my city at least, this PCP concept hasnt really taken off because companies arent offering it. what the people have done informally is something similar. 1. person "buys" a car and Hypothecates the same to a bank for paying the car dealer. usually 80-90-100% of the car value can be paid by bank meaning 0-10-20% of the car value can be given as deposit. 2. now that the new "owner" has taken the car, they start making monthly EMI payments to bank. 3. 1 year or 2 years from purchase, the owner wants to "sell" the car so what they do is, find a buyer willing to accept the outstanding loan amount. 4. the first "owner" has paid 2 things. 1 deposit and say 12 months of EMI. 5. first "owner" tells the buyer that "here, take hold of these future EMI entries and give me a portion of the amount i have paid till now as in #4" 6. the first "owner" takes cheques each dated monthly in future with the amount from the buyer which the first "owner" will deposit every month and if there is any failure, claim default in payment of cheque. 7. car remains in title of the first owner and Hypothecated by bank until last EMI is paid at which point the first owner "transfers" the car to new owner
    - badpun 3y ago
      You don’t have to buy a banger, just buy a new car and drive it for 20 years. You will save vast amounts of momey.
      - okaram 3y ago
        Same difference, after 7-10 years, it becomes a banger, or at least it has enough problems that you worry.
        verall 3y ago
        Maybe if you buy British cars? Everyone I know driving 100k+ 10y+ cars from reliable manufacturers have no issues beyond regular maintenance. My father's Benz certainly spends more time in the shop though.
        badpun 3y ago
        I bought a new (made in Japan) Mitsubishi in 2013, still have it, and it didn't have any failure yet whatsoever. If you buy German, American or (shudder) French cars, then yeah, they will become problematic after 7-10 years, or even earlier. Just buy Japanese (so, not Nissan, and sadly also no longer Mitsubishi, since, after a merger, it's now a Japanese-European company), preferably made in Japan.
  - helij 3y ago
    Our car was £40k new. We've been paying £400/month for 2.5 years now. It's a 4 year lease. We still owe £22k. They gave us £7k for our old car - that was the difference between how much we owed and how much previous car was worth. Now the latest one we can buy for around £18k once the lease is up I think. Currently I'm being offered £31k for it. So, rough calculation is that the car cost us £120/month in the last 2.5 years if we sell it today. Pretty good deal I think. Of course we realise we're paying for depreciation but I consider a car to be a fixed expense and honestly if you take a look at the numbers above it's not that bad and we drive a new, safe, no issues (free servicing) car every 3-4 years.
    - marcusverus 3y ago
      > if you take a look at the numbers above it's not that bad and we drive a new, safe, no issues (free servicing) car every 3-4 years. Driving a new car every few years is incredibly decadent. If you bought a car, paid it off in 5 years and drove it for another 10, you’d be saving thousands every year. Repeat that cycle every 15 years and invest the savings, and you’re talking about hundreds of thousands of dollars in trade-off costs over the course of a lifetime. That might be a reasonable trade-off for folks who are in great shape financially (I’ll certainly be doing it once retirement is funded!), but it’s pure foolishness for the average household.
      - Nextgrid 3y ago
        > drove it for another 10 What about maintenance? There's a lot of moving parts (often the labor to get to the part costs more than the part itself) and a stroke of bad luck can quickly balloon into 4-digit sums. Paying a flat monthly fee for transport sounds like an attractive option to not have to worry about any of that.
        helij 3y ago
        This is exactly it. Worry free transport option. We have a set monthly budget for transport and we get whatever car is we think best available for our budget when lease is up. I never have to worry about service, the car is always in warranty, etc.
CraigJPerry 3y ago
>> That's why you see so many expensive cars driven by people who can't afford them How is it possible to keep possession of the car if you’re not paying the contractual obligation? Is there some exception for cars? For example, failing to keep up with mortgage payments will eventually see you lose the property.
- br3d 3y ago
  OP meant "can't afford them" in the sense of "couldn't afford the full price of". There are lots of people here in the UK on medium incomes driving around in £80,000 cars using this finance
  - highwaylights 3y ago
    Can confirm. Financial literacy is fairly thin on the ground here.
  - j4yav 3y ago
    How do the economics work out for the seller? Depreciation is highest at the beginning, when these people are paying the per month price. If they can't afford a loan for the price of the car, how are they making a lease payment that covers the depreciation for the leasor? I'm sure there's a reason but I can't think of it.
    - Dalewyn 3y ago
      I don't think you understand how car loans work? Let's say a car costs $50,000 and Joe wants to finance it (because he either doesn't have $50,000 or just doesn't want to spend $50,000 right now), so he gets a $50,000 loan to buy it. Let's also say the loan will mature in 10 years, also obviously the loan has interest but we don't need a specific number for this conversation. The minimum payment per month will be set such that Joe will pay off the loan in 10 years, and Joe presumably can afford the loan's minimum monthly payments since he accepted it to buy that new car. If Joe wants to pay off the loan sooner and he can afford it, he can just pay more than the minimum due during a given month. So Joe gets a loan from a bank (oftentimes middleman'd by the dealership), the bank pays the dealer in full, Joe gets his car, the bank becomes the lienholder on the car until the loan is paid off.
helsinkiandrew 3y ago
I didn't realise how pervasive this was, but yes 90% of new car purchases are using a PCP. https://www.thecarexpert.co.uk/car-finance-pcp-explained/ https://www.thecarexpert.co.uk/car-finance-pcp-explained/
nunez 3y ago
Didn't know leasing was popular outside the US. That's how a great majority of luxury cars are acquired here. To be fair, given how their asset price depreciates and repair demands increase over time, leasing makes a lot of sense.
tonyedgecombe 3y ago
I'm pretty sure finance is what has driven up the costs of a typical car. Parkers (the car valuation people) had an article recently that showed the median price of a car has gone up by twice the rate of inflation over the last 50 years. The price has tracked earnings which tends to indicate people will buy as much car as they can afford.

by edent 3y ago

highwaylights 3y ago

I didn’t realise until recently just how engrained this practice is in people’s behaviour. I was discussing cars with someone not long ago and they were really matter-of-fact about switching to a new car just because the dealership offered it to them. It came across very much as that’s just how it works and everyone does that.

padjo 3y ago
I wonder do any of them realise they’re paying the maximum depreciation every single time too. Losing 20k+ in depreciation every year feels like a great way to stay poor
- edent 3y ago
  On the flip side, using PCP means that you get a brand new car and it has a warrantee. You could buy a banger for £500 - but then you're always going to be wondering if today is the day it'll cost you £££ to repair. And if you can't get in to work, that'll cost you dearly as well. £300 per month to basically not have to worry about any unexpected bills seems reasonable to me. Plus you get the social value of having a "nice" car. The safety features are likely to be higher quality. And, as mentioned in the article, newer vehicles tend to be more efficient. Basically, it is a fairly rational way to spend money.
  - 2Gkashmiri 3y ago
    in my city at least, this PCP concept hasnt really taken off because companies arent offering it. what the people have done informally is something similar. 1. person "buys" a car and Hypothecates the same to a bank for paying the car dealer. usually 80-90-100% of the car value can be paid by bank meaning 0-10-20% of the car value can be given as deposit. 2. now that the new "owner" has taken the car, they start making monthly EMI payments to bank. 3. 1 year or 2 years from purchase, the owner wants to "sell" the car so what they do is, find a buyer willing to accept the outstanding loan amount. 4. the first "owner" has paid 2 things. 1 deposit and say 12 months of EMI. 5. first "owner" tells the buyer that "here, take hold of these future EMI entries and give me a portion of the amount i have paid till now as in #4" 6. the first "owner" takes cheques each dated monthly in future with the amount from the buyer which the first "owner" will deposit every month and if there is any failure, claim default in payment of cheque. 7. car remains in title of the first owner and Hypothecated by bank until last EMI is paid at which point the first owner "transfers" the car to new owner
  - badpun 3y ago
    You don’t have to buy a banger, just buy a new car and drive it for 20 years. You will save vast amounts of momey.
    - okaram 3y ago
      Same difference, after 7-10 years, it becomes a banger, or at least it has enough problems that you worry.
      - verall 3y ago
        Maybe if you buy British cars? Everyone I know driving 100k+ 10y+ cars from reliable manufacturers have no issues beyond regular maintenance. My father's Benz certainly spends more time in the shop though.
      - badpun 3y ago
        I bought a new (made in Japan) Mitsubishi in 2013, still have it, and it didn't have any failure yet whatsoever. If you buy German, American or (shudder) French cars, then yeah, they will become problematic after 7-10 years, or even earlier. Just buy Japanese (so, not Nissan, and sadly also no longer Mitsubishi, since, after a merger, it's now a Japanese-European company), preferably made in Japan.
- helij 3y ago
  Our car was £40k new. We've been paying £400/month for 2.5 years now. It's a 4 year lease. We still owe £22k. They gave us £7k for our old car - that was the difference between how much we owed and how much previous car was worth. Now the latest one we can buy for around £18k once the lease is up I think. Currently I'm being offered £31k for it. So, rough calculation is that the car cost us £120/month in the last 2.5 years if we sell it today. Pretty good deal I think. Of course we realise we're paying for depreciation but I consider a car to be a fixed expense and honestly if you take a look at the numbers above it's not that bad and we drive a new, safe, no issues (free servicing) car every 3-4 years.
  - marcusverus 3y ago
    > if you take a look at the numbers above it's not that bad and we drive a new, safe, no issues (free servicing) car every 3-4 years. Driving a new car every few years is incredibly decadent. If you bought a car, paid it off in 5 years and drove it for another 10, you’d be saving thousands every year. Repeat that cycle every 15 years and invest the savings, and you’re talking about hundreds of thousands of dollars in trade-off costs over the course of a lifetime. That might be a reasonable trade-off for folks who are in great shape financially (I’ll certainly be doing it once retirement is funded!), but it’s pure foolishness for the average household.
    - Nextgrid 3y ago
      > drove it for another 10 What about maintenance? There's a lot of moving parts (often the labor to get to the part costs more than the part itself) and a stroke of bad luck can quickly balloon into 4-digit sums. Paying a flat monthly fee for transport sounds like an attractive option to not have to worry about any of that.
      - helij 3y ago
        This is exactly it. Worry free transport option. We have a set monthly budget for transport and we get whatever car is we think best available for our budget when lease is up. I never have to worry about service, the car is always in warranty, etc.

CraigJPerry 3y ago

>> That's why you see so many expensive cars driven by people who can't afford them How is it possible to keep possession of the car if you’re not paying the contractual obligation? Is there some exception for cars? For example, failing to keep up with mortgage payments will eventually see you lose the property.

br3d 3y ago
OP meant "can't afford them" in the sense of "couldn't afford the full price of". There are lots of people here in the UK on medium incomes driving around in £80,000 cars using this finance
- highwaylights 3y ago
  Can confirm. Financial literacy is fairly thin on the ground here.
- j4yav 3y ago
  How do the economics work out for the seller? Depreciation is highest at the beginning, when these people are paying the per month price. If they can't afford a loan for the price of the car, how are they making a lease payment that covers the depreciation for the leasor? I'm sure there's a reason but I can't think of it.
  - Dalewyn 3y ago
    I don't think you understand how car loans work? Let's say a car costs $50,000 and Joe wants to finance it (because he either doesn't have $50,000 or just doesn't want to spend $50,000 right now), so he gets a $50,000 loan to buy it. Let's also say the loan will mature in 10 years, also obviously the loan has interest but we don't need a specific number for this conversation. The minimum payment per month will be set such that Joe will pay off the loan in 10 years, and Joe presumably can afford the loan's minimum monthly payments since he accepted it to buy that new car. If Joe wants to pay off the loan sooner and he can afford it, he can just pay more than the minimum due during a given month. So Joe gets a loan from a bank (oftentimes middleman'd by the dealership), the bank pays the dealer in full, Joe gets his car, the bank becomes the lienholder on the car until the loan is paid off.

helsinkiandrew 3y ago

I didn't realise how pervasive this was, but yes 90% of new car purchases are using a PCP. https://www.thecarexpert.co.uk/car-finance-pcp-explained/ https://www.thecarexpert.co.uk/car-finance-pcp-explained/

nunez 3y ago

Didn't know leasing was popular outside the US. That's how a great majority of luxury cars are acquired here. To be fair, given how their asset price depreciates and repair demands increase over time, leasing makes a lot of sense.

tonyedgecombe 3y ago

I'm pretty sure finance is what has driven up the costs of a typical car. Parkers (the car valuation people) had an article recently that showed the median price of a car has gone up by twice the rate of inflation over the last 50 years. The price has tracked earnings which tends to indicate people will buy as much car as they can afford.