What’s best: PCPs or used cars?

What’s best: PCPs or used cars?

28 January 2020 Concept Car

PCPs have grabbed a lot of headlines. Over the past decade, they have completely turned the car industry around. Back in 2010, when it came to car finance, you basically had two choices:

  • A regular car loan from a bank.
  • A regular car loan from a car dealer.

Today, the private loan has been overtaken by PCP deals. According to some reports, PCPs make up about 80% of new car registrations today.

In many ways, the rise of PCPs explains the ongoing boom of the car market as a whole. This makes it one of the most successful finance instruments of the new century.

Table of Contents

PCPs: The impact on the used car market

Interestingly, PCPs don’t seem to have hurt the used car market. To the contrary, for many years, both new and used car registrations kept growing. The main impact of PCPs has been that they allow drivers with a limited budget to buy better cars. This is because monthly payments are considerably lower with a PCP compared to a private loan.

How is this possible?

Strictly speaking, you’re not buying a car with a PCP. Nor are you leasing it. Rather, it’s something in between. The cost of a PCP is based on the estimated depreciation of the car. This means monthly payments are a lot smaller than with a private loan for a new vehicle, which is based on the purchase price.

At least in absolute terms, however, used cars are generally still cheaper. And so, both financing options continue to co-exist.

PCPs and used cars: The difference

That actually makes a lot of sense. After all, PCPs, despite all their flaws, have really enriched the car finance market. They are not just a new spin on the private loan. They are something genuinely new.

Here are the main differences between a PCP and a used car loan:

  • With a PCP, you don’t actually own the car within the contractual term. Only if you cough up the so-called balloon payment at the end, do you become the legal owner. With a used car, you become the owner the moment you pay off the final instalment.
  • Many dealers appreciate deposits on every deal they offer. Still, if you can’t afford to pay one, you can usually find no deposit deals for used cars if you look carefully. This is not the case with PCPs. With a PCP, you will definitely need to pay around 10% of the purchase price upfront. If you don’t buy the car at the end of the contract, that’s money you’re not going to get back.
  • Monthly payments tend to be low with used car loans and PCPs alike. However, used cars are usually still the cheaper option. With PCPs, the monthly contribution depends on the depreciation of the vehicle. If it’s a big brand, depreciation will be lower, but the purchase price will accordingly be higher. With a smaller brand, depreciation is higher, but based on a lower purchase price. Either way, used tends to be the better deal.

With this in mind, let’s now take a look at how PCPs and used cars compare to each other.

PCP versus used: The new feeling

To many, one of the main benefits of both leasing and PCPs is that you’re always driving a new car. If you decide not to buy the car at the end of your contract, the dealer takes it back and instead offers you a new one. Clearly, this has quite a few benefits:

  • That famous new smell (which obviously eventually disappears once you’ve had one too many drive-in meals or if you have a four legged friend for a family member).
  • You always have access to the latest safety features and technology.
  • New cars tend to improve in terms of fuel economy, which makes them greener and cheaper at the pump.

This is something you just don’t get if you stick to used vehicles. Certainly, over the past few years, safety standards have gone up considerably. If you buy a ten year old car, you will probably feel a lot less safe than if you drive around in a factory new one.

Then again, it’s worth considering the counter arguments.

Here are a few reasons why that new feeling is often blown way out of proportion:

  • Used cars bought at a dealership are cleaned and routinely checked. They often feel almost as good as new.
  • You don’t only have the choice between a ten year old car and a brand new one. Cars tend to be at their best value around the five year mark – when they don’t yet feel old at all.
  • While safety considerations matter, many technology ‘innovations’ are purely about entertainment. As such, they’re nice, but hardly essential.

If you really can’t live without a new car every three years, there’s no way around PCPs and leasing. If you can, read on to find out more pros and cons of PCPs versus used cars.

PCP versus used: Driving feeling

You would expect a new car to be better than a used one in every respect. Especially when it comes to the sensation of driving, a new car, surely, must be superior to a second hand one which has been on the road for many years, right? It has new wheels, a new motor, unused brakes and is just waiting to be taken on a drive.

Ironically, this is not always the case. Many drivers tend to be disappointed when taking their new property on its virgin ride.

In comparison, used cars can be a pure joy to drive.

This is because many components of a car simply work better after they’ve been used for some time. Sometimes, after a few weeks, the system needs to be adjusted as well. In some respects, you and your car need to get acquainted and this takes some time.

Although new cars may indeed offer a little bit more excitement once they’re properly attuned, there’s no reason to reject a second hand vehicle merely because you suspect it won’t be any fun.

PCP versus used: Choice & Customisation

One aspect where used cars have a clear edge on new ones is choice and customisation.

Imagine walking into a dealership. How many new cars can you choose from? Let’s say ten different models, which is already quite a sizable number. How many used ones, on the other hand, are available to you? There could literally be dozens and dozens of them. And that’s without counting the hundreds of models you can find online.

The second hand market is all about finding the perfect car for you. Not only can you choose from many, many different models, some of which may no longer even be in production. You can also go back in time and take a pick from different model generations.

Last but not least, you can buy a cheap used car and then add a plethora of extras to it to customise it to your liking. You can do the same when buying a new car on a private loan. PCP deals, however, do not allow this. Only after you’ve made that final balloon payment does the car really belong to you and are you free to do with it as you like.

This need not be a deal breaker. Especially since many cars come with an impressive list of extras. But it can be quite disappointing not to be able to adjust the car you’re driving each day to your personal taste and requirements.

PCP versus used: New versus experience

As we already mentioned, new cars come with quite a lot of important new safety features. This should mean that they’re by default safer than used cars.

In practise, however, this isn’t always the case.

The reason is that every new model generation comes with a number of issues which need to get ironed out first. Even some of the most popular cars of our times had significant quality problems during the early phase of their introduction. This includes the current Dacia Duster and the second generation of the Ford Focus, just to name two.

Thanks to the Internet, you can now research different model generations with regards to their track record. With a new car, this may also be possible, but there simply will be a lot less data. It doesn’t mean that you will definitely run into trouble with a new car. But it also means that a new car does not by default equal more reliability and safety.

Costs I: Monthly payments

For most people, however, what really matters when they’re looking for a car, are the costs. To make this as transparent as possible, we’ve divided them up into four groups. For each one, we’ll take a look which is the better deal: Opting for a PCP or deciding on a used car loan.

First, let’s take at the monthly payments and the overall purchase costs.

If you’re merely looking at the latter, we can stop right here. Of all the options at your disposal, PCPs and leasing tend to be most expensive if you want to become the legal owner of the car at the end of the term. Vice versa, buying used is cheapest. This is so obvious that it requires very little explaining.

Things only become a little more complicated if we start to look at the monthly instalments. In this regard, PCPs can be spectacularly attractive. Especially to those who value that new sensation above all, driving around in a brand new car may be worth the few extra Pounds this incurs.

Indeed, the monthly rates for PCPs and used cars can be quite close together. We explained the reasons for this in the opening section.

However, this is deceptive for a very simple reason.

Unless you buy a car on a PCP deal, you are stuck with paying monthly rates for the future. With a used car, however, once you’ve paid back your loan, you no longer have any payments at all. This makes a huge difference in costs in favour of a second hand vehicle.

So, let’s say your used car loan runs for six years. Then, for the first two terms of your PCP, the difference between these two forms of car finance may not be that big. Once you renew the PCP contract for a second time, however, it is suddenly a lot less attractive. After all, if you had actually bought the used car, you would now no longer paying any rates on it!

This is an essential point which you need to take into consideration. We’ll get to the long term perspective again in a few paragraphs.

Costs II: Repairs

Monthly payments are not the only recurring costs of a car finance deal. Unfortunately, even the best vehicles can run into problems or get caught up in an accident. In these cases, you will need to take them in for repair.

In this regard, PCPs are a great deal. For one, they are usually always in warranty. This means a large part of all potential repairs is going to be for free with them. You can expect new cars to require less repairs in general anyway.

In some cases, there are even special repair provisions in the contract by the dealer. Since dealers have a vested interested in keeping their PCP cars in great shape, they will often do everything in their power to assist you with this.

Used cars, on the other hand, can be expensive when it comes to repairs.

If you’re really unlucky, some core components may have to be exchanged. This way, costs can quickly run into the hundreds and even thousands of Pounds.

That said, although there is a certain risk attached to buying used, it is by no means as big as some make it out to be:

  • The Internet has made it a lot cheaper to order formerly expensive replacement parts. Even something as fundamental as an engine need no longer cost the world.
  • Cars are built to last a long time. 100,000 miles once seemed like an eternity. Today, it is nothing but a number. Although second hand cars may need a little more attention and the occasional minor repair, you shouldn’t automatically expect them to break down the second you drive them off the lot. Those times are well and true behind us.

Cost III: Running costs

When it comes to car finance, many buyers habitually forget to take the running costs of the vehicle into consideration. This is a grave mistake. Especially if you’re using your car every day, they can make up a significant portion of your expenses. If you can just about pay back your monthly car loan rate, how are you going to afford the petrol to actually drive it?

Next to petrol, car insurance and car taxes are the main running costs. In terms of a comparison between PCPs and used cars, the picture is quite confusing:

  • Newer cars tend to be more economical than older ones. However, it really depends on the kind of car you’re going to drive. A new Hummer is going to cost you more in petrol than a used Fiesta, for example. And many used cars offer excellent fuel economy either way.
  • Car insurance tends to be more expensive for a new cars, simply because it represents a higher value. Again, the type of car you’re choosing will matter. To return to the above example: A used Hummer will almost certainly be more expensive to insure than a new Fiesta.
  • The car tax system in the UK has become insanely complicated. There is no way to make any general statements about them at this point. Depending on their release year and model, a used car could be a lot more expensive – or far cheaper.

What this boils down to, very simply, is that you will have to do the math and crunch some numbers. Only by making a concrete head to head cost comparison can you determine whether a PCP deal or used car finance will be better for you.

Costs IV: Long term

When we’re buying a car, we usually don’t think many years ahead. That’s a mistake. It is really only after a few years of use that the costs of a car really become apparent. And in this regard, used cars have a clear edge over any kind of alternative finance deal.

For one, as we already mentioned, you will eventually have paid off your loan. Once that’s accomplished, you no longer have any monthly finance costs.

To add to that, you can still resell many used cars at a more than decent price. This is impossible on a PCP contract. Depending on how well you’ve maintained the car, the resale profit can make up for the higher repair costs. They can also contribute to buying your next vehicle. Either way, it’s cash that belongs to you and that you can put to good use.

All in all, it seems as though used cars take the overall lead compared to PCPs. Then again, there’s a new trend towards a fusion:

Used car PCPs: The best of both worlds … or the worst?

The latest trend in the world of car finance is to offer PCPs on used cars. The idea is straight-forward: By combining these two worlds, some of their respective disadvantages could be offset. Most importantly, monthly payments could drop even lower, since depreciation for a used car is a lot less than with a new one.

So are used car PCPs the best thing since sliced bread?

Not really. In fact, they don’t seem like a particularly great idea upon closer inspection:

  • Used car PCPs become non-sensical around the 8-year mark. After all, depreciation is virtually non-existent then. This severely restricts which models are available for this type of deal.
  • The main benefit of a regular PCP – a valid warranty – no longer applies with used car PCPs.
  • Assessing the value of the car at the time of the end of the contract becomes very tricky indeed. This means it may be even less attractive to pay the balloon payment at the end of the term.

Instead, go for used cars at CCC

At CCC, we try to offer you the best possible used car experience:

  • Many different used cars for sale, including the currently most popular models, all in excellent shape, cleaned and extensively checked.
  • Affordable car finance with a special focus on very poor credit car finance.
  • Low monthly payments, potentially low deposits, all according to your personal needs.
  • Great service and customer care.

If you’re interested in a used car, drop by our Manchester showroom or simply take a look at what’s for sale in our digital showroom. We add new cars all the time, so you can get great deals every single day!

28 January 2020 Concept Car