Squeak, 1 year ago

It means a lot are driving cars they can’t really afford.

Say you buy a car for £40k, finance it on PCP and you effectively make payments against a £20k loan. At the end of the agreement, you can buy the car for the remaining £20k, or hand the car back. Often the car will be worth £20k-£25k. Most dealerships will say ‘hey you can just take this new car’ and they get a £25k car for £20k. Dealerships make more sales of new cars and make more on the 2nd hand cars. Meanwhile those paying don’t actually own anything at the end and have continuous payments.

The only saving grace is if the car is worth less than the outstanding amount. If the car is worth £16k and you have £20k outstanding, you can just hand the car back and walk away. You aren’t obliged to buy the car or take out a new loan.

You can also pay off the finance yourself for the £20k, then sell that car on to get the £25k. But no one does because it’s not convenient like just taking a brand new shiny car.