From research conducted by the AA, it has become apparent that the average car depreciates by 60 per cent of its residual value in the first three years, considering it is negotiating 10,000 miles per annum. The biggest losses come in the first year however, with a deduction of around 40% being made by the end of the first 365 days.
Obviously, there are different ways of putting the brakes on depreciation. Keeping the car clean, regular servicing in accordance with manufacturer’s guidelines, and one eye on the mileage gauge, will all go a long way in reducing potential losses. But is there another option to consider?
A car is considered the ultimate mark in class and being able to sport a premium vehicle. Owning a renowned car such as the new Mercedes GLE for example is undoubtedly a proud moment in any household.
Currently, there are more than 38 million vehicles registered for use on the roads here in the UK and considering the average person spends more than nine hours a week sat in the driving seat, more than they do eating, cars play a significant part in our lives.
Due to the fact the vast majority of us don’t have copious amounts of cash stored under our mattress, buying the car of our dreams isn’t always feasible. With PCP, the payment is broken down into three major chunks. Firstly, you’ve got the initial deposit which is usually 10% of the car’s showroom value.
Secondly, the monthly payments which will include enough to cover the depreciation costs incurred throughout the contract. Finally — and this is where things change once the final payment of the contract has been made, you get the option to either return the car or take a new one on a new contract. Or, you can pay a balloon payment and then the car is yours.
By taking out a PCP lease, the monthly repayments are significantly lower than they would be with a finance deal. The option then presents itself is to drive a car that you would initially have deemed to be significantly out of your price range. Therefore, if you don’t have a big deposit and want lower monthly repayments, then this might be exactly what you’re after.
With 78 per cent of the people in the UK now choosing to take PCP (A personal contract purchase) as their finance option, it is clear it has established itself as a popular option. Admittedly, it goes against everything our parents have told us to do, in regard to owning our own car, but if you can battle those initial demons, then we’re here to show you why this might be for you.
Three reasons many drivers in the UK have steered away from the daily commute in the car and opted for public transport are congestion, fuel costs, and parking. A decade ago, our decision when purchasing a car will have depended hugely on our day-to-day usage — but when that isn’t the same, why should the choice be?
The average annual mileage of a car in the UK is 7,900. One drawback of renting your car through PCP is that is that when initially taking out the contract, you are given a mileage restriction and if you exceed this, you will be penalised. If, however, you would consider yourself to be one of those average UK drivers, then PCP offers no qualms. The opportunity to purchase a new contract once your current one is up means you aren’t going to have spent your days driving around in an old car with high mileage.
If you don’t use your car for your drive to work every day, PCP can provide you immense positives in regard to the fact, you are basically buying a weekend car. When purchasing a new car outright, you are restricted by the constant reminder that you will have this car for the foreseeable future. With PCP, you can buy the car that caters exactly to the needs of your evenings and weekends. For example, an SUV if you go camping with the kids most weekends throughout the summer, or a two-door roadster, if your Sundays are filled by coastal runs. And, if your circumstances do change, you can simply exchange the car.
Alongside providing the British public with the opportunity to get behind the wheel of a car that perhaps would have never been feasible, PCP has, in effect, saved the British car market. For the past three years, the number of new car sales in the UK has stayed above 2.5million units per year, in comparison to 2011 when it was only 1.9million.
Undoubtedly the best performing manufacturers in the PCP generation have been premium brands such as Audi, Mercedes, and BMW. This is due to the fact these cars hold their value better, and therefore depreciation is less, ultimately benefiting both dealer and driver. Mercedes reported a 100% upturn in UK sales since 2010.
Who knows what the future holds for car purchasing and PCP, but it is sure to be interesting!
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