Over the past three years consumers have increasingly been relying on credit to fund new car purchases, with nearly nine out of 10 private vehicles bought this way during 2016, according to the Finance & Leasing Association. The rise of the personal contract purchase (PCP), which lets you buy, say, a new Ford Fiesta for as little as £150 a month and a small deposit, is largely behind the boom in cars sales in Britain. But with a lot of three-year PCP deals coming to an end in 2017, it might be a good time to pick up an ex-finance bargain.
Under most PCP schemes the driver makes monthly repayments for three years before being presented with three options: either make a “balloon” payment and take legal ownership of the car; trade it in and use any equity as a deposit for another new car; or return the car to the dealership. If it is traded in or returned the dealership usually approves the ones in the best condition to re-sell. The rest are disposed of via an auctioneer, such as British Car Auctions (BCA), to a secondhand dealer or a private buyer (see box below), opening up the opportunity for bargain seekers.
Buying an approved used car from a manufacturer’s franchised dealer is the easiest and safest way to buy secondhand. If the car is between two-and-a-half and three years old it will most likely be ex-PCP, which means it should have been well looked after and not driven into the ground. This is because many PCP deals charge for excess mileage and require that the car is maintained in accordance with the manufacturer’s service schedule. However, buying this way is also likely to be the most expensive way of obtaining your ex-PCP bargain.
You should also heed this advice from motoring expert Rupert Pontin: “Buying any vehicle requires detailed national research these days to find the most competitive price. Always check the provenance of the vehicle thoroughly and make sure it has been fully checked and serviced, although every dealer selling a car of this age should be doing these things as a matter of course. Remember to factor in travelling costs too, as a car that is £100 cheaper but 150 miles away will probably not be worth the travel time and hassle to go and see it, buy it, and then go back to collect it.”
Of course, buying from a manufacturer’s own dealership is likely to be more expensive than buying at auction. But this method isn’t recommended for a novice: there is little time to make an appraisal of the vehicle as you won’t be able to sit in it, never mind take it on a test drive. Moreover, you’ll find it very hard to be sure that a car sold at auction is actually ex-PCP. If it is, however, it should have a full service history and be around three years old.
If you do buy at auction take someone with you who knows about cars. Be aware of what the list price of the car make, model and year should be by consulting a guide to used car values, such as Glass’s or the Black Book from Cap HPI. Meanwhile, a spokesman for BCA told us: “The very good cars, well looked after and with low mileage, will often make more than the guide price.”
Generally, the cheapest way to pay for a car in the long run is to pay cash and haggle hard for a good discount. If you have to borrow to finance the purchase, a bank loan may be the cheapest way to do this, but you don’t want to secure the loan against your property. There are also PCP deals that can be taken out to buy used cars (see below).
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