Buyers now change their cars as often as they upgrade their phone

Buyers now change their cars as often as they upgrade their phone

Buyers now change their cars as often as they upgrade their phone

Most people change their mobile phone once every two years – but many car buyers are looking to upgrade their wheels within as little as 18 months, according to automotive experts CAP.

Finance options such as personal contract purchase (PCP) and personal contract hire (PCH) have rocketed in popularity in recent years, allowing motorists to ‘buy’ a new vehicle and swap it for a new one a few years down the line – as you would a mobile phone.

CAP HPI’s retail and consumer specialist, Philip Nothard, said: “What we are seeing is the ‘iphonification’ of the car industry as consumers increasingly pay to drive rather than pay to own their vehicles. It’s the same model as the mobile phone industry where people are comfortable paying a monthly fee – only they are now doing this with their vehicles as well as their mobiles.”

Although PCP deals generally last for a three-year period, buyers are entitled to ‘voluntarily terminate’ the contract after 50% has been paid off.

Dealers often encourage car buyers to do this in a bid to persuade them to upgrade to a new car in a shorter period of time – but an investigation revealed today by Auto Express magazine has found that this could harm their credit rating.

Although dealers themselves are happy to cooperate with a voluntary termination if their customer buys another car from them, the finance company could be losing out – meaning a red flag might be placed on their credit rating.

Nothard added: “Not so long ago it was fairly common for motorists to have their cars for a minimum of five years or longer but that has now changed dramatically and dropped to just two years for millions of motorists. After buying a house, the car was usually the biggest outlay for most consumers but now they are far more likely to change their car more often than their mattress.”

Experts advise that mattresses should be changed every seven or eight years to ensure a good and healthy night’s sleep although in reality many consumers don’t stick to this guideline. When it comes to cars, however, fewer of us are holding onto our motors for such a long period of time.

What is PCP/PCH car finance?

CAP estimates around 80% of new car sales are on finance – with most of these being PCP or PCH schemes.

When you see dealers advertising tempting deals, such as a new Renault Clio for £159 a month, it’s usually a PCP on offer.

Using the Clio as an example, you’ll pay a deposit of £947 followed by 36 payments of £159 over three years. These payments essentially cover the depreciation – the dealer will have estimated how much the car’s worth after three years.

If, after the three-year period, you want to upgrade, simply hand the car back and pay nothing else. Or, if you want to buy the car outright, stump up the value of the three-year old Clio (£4,632).

These payments can often be tweaked to suit you. If, for example, you can’t afford a large deposit, many dealers will compensate by offering larger monthly payments.

If you have a car you already own outright, most dealers will take this as part-exchange – and it could act as the entire deposit on a PCP plan.

PCH is very similar to PCP, but you don’t technically own the car. Although you’re responsible for paying insurance, you don’t usually pay road tax and there’s never the option to buy the car after the leasing period.

If you expect to change your car every few years, it’s usually best to consider both PCH and PCP – whichever’s best can depend on the deals the manufacturer is offering at that time.


Get FIVE years’ 0% finance on an MG3 or MG6

MG3Looking to own car for half a decade and are keen to find the best deal going? Then head to your local MG dealer between now and the end of September: the firm is offering FIVE YEARS of 0% finance on the MG3 and MG6.

The 0% finance deal is spread across the full range of MG3 supermini and MG6 large family car models too – even the £8,399 entry-level MG3 3Time.

This means that you can pay £111 a month for the next five months and find you own outright a handily-sized five-door supermini at the end of it. And not have spent a penny extra on interest in doing so.

You have to find a 20% deposit but, given such low list prices, this can be as little as £1,679. And you can have three years’ or four years’ 0% finance if the idea of spending half a decade in the same MG is too much.

Other finance deals are also available, such as affordable PCP schemes and free insurance offers. But for penny-conscious buyers who feel they shouldn’t be spending anything on interest given how low the Bank of England’s base rate is, we’ve yet to see anything that beats the MG offer.

It runs until the end of September too, so your five-year 0% finance MG can wear the new 66-plate registration when it goes live on 1 September if you so wish.

Find out more in the MG offers section – where you’ll discover the firm is even offering you goodies simply for taking a test drive: it seems Ford isn’t the only car company incentivising people for having a spin in one of its cars.

New car showroom

New car finance continues to grow in popularity

New car financeLatest figures from the Finance & Leasing Association have revealed new car finance volumes grew by almost a quarter in January 2014 compared to a year ago.

The 24% increase in volumes comes on the back of a 20% rise for new car finance during the whole of 2013.

Used car finance was also up – 25% in January 2014 and 16% for the whole of 2013 compared to 2012. Indeed, the 915,000 used cars bought through dealer finance was the highest since 1999, reports the FLA.

The obvious driver is record-low interest rates, but Samantha Cripps, head of sales development at finance provider Alphera Financial Services, said other factors were contributing to the sustained growth in dealer finance penetration.

“Flexible PCP and modern HP finance promotions which focus on consumer lifestyle choices and affordability” are key, she said – and they’re likely to continue to perform well, certainly in the short term.

She did sound a warning, though: today’s ‘never had it so good’ affordability may not last forever. “With the Bank of England warning that interest rates could rise six-fold over the next three years, the cost of borrowing will inevitably go up.”

The March plate change month may thus be a record for dealer motor finance, then, but such magnetic deals may not be around forever… question is, how will the car industry respond? Or will the growing acceptance of PCP simply mean it’s here to stay even if deals aren’t quite as affordable as they once were?

A longer-term trend to watch, we feel…

Renault RCI Bank

You can now bank on Renault (and earn 1.5% interest)

Renault RCI BankRenault’s own finance company, RCI Banque, has launched a brand new savings arm in the UK called RCI Bank – making it the only car company to also compete in the UK savings market.

The new bank has rolled out a flagship savings product too: a ‘best buy’ easy access savings account that offers 1.5% AER interest.

The Freedom Savings Account has a starting balance of £100 and people can invest up to £1 million into it. There are no penalties, notice periods or tiered rates either, adds Renault: it’s a genuinely easy access product.

It’s not the only product the new ‘Renault Bank’ is going to launch either: a full range of products will be rolled out over the next year.

“Saving money should not be difficult,” said RCI Bank CEO Steve Gowler “We believe we have a product that people will love.

“We also have the added benefit of being part of a global group, working for Renault and Nissan brands, and we are committed to using our strength to deliver the very best savings accounts and security for our customers in the UK.”

All Renault and Nissan finance is provided by RCI Banque – and British savings in the UK RCI Bank arm are guaranteed by the French scheme FGDR to a vale of €100,000.

Keen savers will have to be quick though: the 1.5% offer is a launch special and won’t be available for long.

Act fast, then, if you’re one of the millions in the UK who have up to €160 billion in savings accounts earning 0.5% or less…

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