I treated myself to a new (well ex-demonstrator) car recently. Oh OK. Since you ask. One of these:
In amongst all the negotiations I was offered a PCP deal. Looking at the numbers (and the depreciation curve from Autocar and Whatcar) got me thinking about what exactly you are financing.
Inspecting the (badly sketched) graph above I have made a stab at plotting the depreciation. I have based the three year number on the quoted balloon payment.
The 'depreciation' has two components. (1) VAT (2) 'Depreciation'. In regards to the latter with any new car you generally get all servicing thrown in for at least three years. (Mine included 5 years servicing). You'll get first years RFL. You'll get a guarantee - typically unlimited or perhaps 60K miles. All these have a cost to the maker but to you it means peace of mind (and that lovely new car smell). But all these benefits have 'run out' by year three ish.
However, you get nothing for the VAT. Or rather the government gets 20% VAT that you have financed. You've borrowed money to pay tax. Or rather again a bank has credited some money it has just made to your account so you can finance the VAT. As I understand it 80% of new cars are bought on PCP deals. This is an awful lot of 'off balance sheet financing' for the government.
About 2m new cars are sold each year. Say average of £17,500. That's £7.0Bn per year in VAT financed by the Great Car Buying Public.
If that analysis is correct, someone should be told. Or have I missed something?
(Oh, I didn't use a PCP deal. I put down a hefty chunk and financed the balance at a stupidly low rate as I can better use that money in my business.)
