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Beware of the PCP finance options hike!

New car drivers warned that they can face ‘rip-off’ costs for optional extras with PCP finance

RIP-OFF monthly payment hikes for optional extras mean most drivers should avoid loading cars purchased through PCP with expensive additional features, experts have warned.

Analysts at the online motor retail specialist BuyaCar.co.uk have calculated that adding optional extra features to cars financed on PCP adds disproportionately to monthly payments.

This was revealed by testing the impact on finance quotations of loading cars with a number of pricey extras. And they discovered a wide discrepancy between the value for money offered by the car itself and shelling out for additional luxury kit.

So while a £22,745 Volkswagen Golf could cost you £327 per month, adding £14,190 worth of options almost doubles the monthly payment (based on a 48-month contract with £1 deposit and a 10,000-mile-per-year allowance). In other words, it costs £325 a month to finance just over £14,000 of equipment though just £2 more per month nets you almost £23,000 of car.

The reason drivers are overcharged for optional extras is that while PCP monthly payments cover the difference between a car’s value new and at the end of the contract – not its full price – most new car finance schemes charge the full original cost of any options split into instalments.

This ignores the fact that a car with thousands of pounds’ worth of desirable options will typically be worth much more at the end of the contract – which should reduce how much those extras add to the monthly bill.

It means that add-ons such as high-end sound systems, panoramic roofs and automatic parking systems can end up costing significantly more to finance on a monthly basis than going for a higher specification model that has them as standard.

With nine out of 10 new cars now financed – mostly on PCP (Personal Contract Purchase) – the risk of paying through the nose for options is faced by an overwhelming majority of new car customers.

As most drivers who take out PCP finance hand the car back at the end of the contract and take out another finance deal, choosing many options dramatically increases motorists’ costs. But the finance company wins because it gets a more desirable and valuable car back at the end of the contract.

Sometimes drivers who have splashed out on lots of options may end up with extra ‘equity’ – where the car is worth more than the remaining debt when the contract ends, giving drivers additional value they can put towards another finance deal. However, this is never guaranteed and relies on the driver taking out another contract – which they may not want to do.

BuyaCar.co.uk’s analysts calculated that for a typical PCP deal on Britain’s favourite new car – the Ford Fiesta – in 1.0T 100 Titanium form, every £1 per month paid covers £72.94 of the car’s list price. Meanwhile, the same £1 per month increment only gets drivers £46.91 worth of options (48 months, £0 deposit, 9,000-mile-per-year contract).

In another example of a top-selling model, the Volkswagen Golf TSI 130hp Match, BuyaCar.co.uk calculated that every £1 per month covers £69.56 of the car’s value, while each additional £1 per month covers only £43.63 of extras (48 months, £1 deposit, 10,000-mile-per-year contract).

Worse still, is the Jaguar F-Pace, with options costing a monthly equivalent of nearly double the finance for the car itself. So while the £41,530 F-Pace 20d 180hp RWD R-Sport would cost you £504.33 per month, adding £22,465 worth of options would cost motorists an additional £505.55 per month (48 months, £0 deposit, 10,000-mile-per-year contract).

There are exceptions, however, as some manufacturers do account for the fact that certain individual options or option packs make the car more valuable at the end of the contract. As a result, rather than paying the full cost of the option, drivers pay a smaller monthly premium.

One example is the Mini Cooper Sport 5dr; though drivers can still add many thousands in options, some of these extras increase the predicted value of the car at the end of the contract. This limits the premium charged, meaning that adding the £2,900 Navigation Plus and Comfort packs, only adds £2,148.26 to the total cost, for instance – as Mini expects the car to be worth an additional £751.74 after four years.

Consequently, rather than these £2,900 of options costing drivers an additional £71 per month – as they would if they didn’t increase the car’s future value – they only add £51.75 per month. This means that a Mini packed with options would cost £1 per month for every £65.24 of the car’s list price with every extra £1 per month adding £50.37 worth of options – a much smaller difference than with the other cars (48 months, £0 deposit, 10,000-mile-per-year contract).

But there are ways consumers can get a better deal.

BuyaCar.co.uk advises consumers to look for PCP deals on cars with most of the equipment they want as standard, or where choosing desirable options is accounted for at the end of the contract, such as in the case of the Mini above.

Austin Collins, Managing Director of BuyaCar.co.uk, said: “Although PCP finance has made new cars more affordable to ordinary people than ever before, there are still aspects of personal contract purchase which do not always represent the best value buyers could get for their money and option costs are one of them.

“Buyers can protect themselves though, by choosing a car with the desired equipment already installed rather than loading a basic model with expensive features.

“And, of course, there is one surefire way to enjoy all the benefits of the luxuries and convenience offered by today’s growing range of optional extras – and that is to choose a used car where they are already fitted.

“Used cars represent the very best value for money when it comes to getting a car with plenty of standard and optional kit fitted, because they have already lost the bulk of their original value and that is reflected in the purchase cost – and PCP finance monthly payments – for the car.”

*Article Source http://buyacar.co.uk

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