if you take out any finance deal on a car, you don't own it until the car is payed for. If you don't keep up the payments, they can repossess the car. A PCP can also make sense for some prestige brands as well. Some of these depreciate very slowly and as you are only effectively paying for the depreciation, the payments can be reasonable.

I would rather pay for depcreciation rather than having a lot more money tied up into something which won't be realised until I sell the car.

You're tied to the servicing contract anyway otherwise you loose your milleage and you can always buy the car afterwards. How is my example that bad?

128 a month for four years

1800 final payment

I will say however that PCPs seem to make more sense on cheaper cars.

Unsecured loan for most people is much harder to get (especialy in these circumstances) so the APR will probably be much higher than of a PCP.

Ita a brand new Panda 1.1 Eco Active in metalic blue. In four years time it should be worth around £3k so the actual cost is about £5k in four years. My insurance premiums are high because I am still classed as a risky driver so low monthly payments were important to me. I used to have a ten year old Corsa I paid cash for it went like this:-

March 09 - Paid £1100 for a 9 year old Corsa, it then cost me around £90 a month in repairs on average (mostly tyres, brakes, exhaust etc) but the MAF went which was an expensive job.

In Feb 10 the head gasket went and sold the car for £250 as in need of repair. I lost nearly £2k on that car.

So I am more than haoppy to pay £128 a month for a new car, the overall cost is not too important. I have cheap insurance, no MOTs to worry about and a full warranty.

In four years time I either get to buy a low milleage car in suburb condition I know the history of for £1800 or for about the same month I get to drive another brand new car.

PCP's don't necessarily mean paying top whack. I got a good discount plus some goodies thrown in (including extra mileage) when I took out my PCP.

That sounds more like a leasing plan rather than a purchase plan.

Lease rentals are, if you are a business, allowable as a revenue expense to be offset against your profits. You can offset the total of the rentals paid during your current financial year.

Strictly speakingyou can NEVER own a vehicle on a lease. If title passes to you HMRC are entitled to consider it a deferred purchase (HP) and disallow your claimed tax reliefs. Paying a peppercorn rental gets round this point.

A purchase plan, AFAIK, allows the normal writing down allowance for the type of vehicle concerned, to be claimed, even if you "buy" the vehicle on the last day of your financial year.

Lease rentals normally attract VAT.

Straight leasing, because of the VAT element is not usually the best route for a private individual - a PCP, with all its disadvantages is better, but only if you are fixated on low monthly payments.

The interest element is high, as interest is charged on both elements of the loan - your initial advance, ( the loan balamce reducing as you pay your monthly instalment ) and the selected final value. As this final value loan remains static during the period of the agreement charges can be high.

Edited by malteser on 05/06/2010 at 10:29