I drive a 2014 BMW X1 with 159,000km. I’m thinking of purchasing a Tesla. If I purchase a new Tesla Model Y this year on PCP, with a deposit of €15,000 and monthly payments of about €300, in three years am I likely to have to put up about the amount of cash again as a deposit to renew at about €300pm?– Warren F, Limerick
You shouldn’t have to find the €15,000 to refinance in three years’ time, as the guaranteed minimum future value (GMFV) that’s built into the PCP plan, the predicted residual value of your car, ought to be higher than that, which will allow you to use its trade-in as part of the deposit for your next car.
This is both the magic and the trap of PCP (personal contract purchase) plans. In fact, the name is a bit of a misnomer, as you’re not really purchasing anything, unless you actually do pay off that final lump sum at the end of the term to clear the GMFV and take the car into your outright ownership. Few PCP customers ever do that, though.
So, according to Tesla’s official figures, if you put down a €15,000 deposit (and your existing X1 is likely to cover only about €5,000 of that, and there’s currently no more ICE2EV grant to boost that trade-in value) and finance the rest over 36 months at 1.99 per cent APR interest, you’ll pay approximately €317 per month, and the car will have a GMFV of €16,733 at the end of it, leaving you with slightly more than €15,000 to roll into a deposit for the next purchase.
RM Block
Of course, the plan is the car should – note that “should” – be worth slightly more than that, and that value becomes your equity for the next down payment.
That’s for a basic rear-wheel-drive Tesla Model Y, the cheapest version available, and with no optional extras.
You could buy the same car on hire purchase, which with a €15,000 deposit would leave you with a €768 monthly payment over 36 months, at the same 1.99 per cent interest, and there’d be no final payment – at the end of the term, you would own the car outright.
Can we do better for you than that? Possibly, although it’s always worth remembering that as with credit cards and personal loans, the figures shown are best-case estimates, and any finance product will be tailored to you and specifically to your credit rating, so the actual amount you pay may well be different.
Skoda has a special finance offer for the popular Enyaq electric SUV, which is a good foil for the Tesla (bigger and nicer inside, nicer to drive too) and with a deposit of €13,529 you could have an Enyaq 60 on your driveway for €319 per month, and you’d have a bigger GMFV at the end of the process with which to play – €20,090.
Hyundai has a very good offer for the excellent Ioniq 5 electric crossover (also nicer inside than the Tesla, and really good to drive).
For a down payment of €14,803, you could get the biggest 84kWh battery and therefore more range than either the basic Tesla or the Enyaq 60, and your monthly repayments would be €276, although that’s over 37 months rather than 36. At the end, the GMFV would stand at €19,233.
As an alternative, Ford has a 0 per cent finance offer for the long-range Explorer electric SUV (an underrated car) but the numbers actually don’t come out quite so well. True, you’d not be paying any interest, so the credit would be effectively free, but for a deposit of €12,475, the monthly repayments would be €328, and you’d have a GMFV of €18,250. A case of 0 per cent interest unable to compensate for poorer residual values, we suspect.
However, there’s a deeper question here, which is whether a PCP is right for you.
In line with there being no such thing as a free lunch, PCPs were created by carmakers in the 1990s (Ford was in the vanguard of this, as it happens) and were sold to people as a more affordable way to get a car loan. By deferring a chunk of the loan to the end of the term, covered by a guaranteed minimum value for the car, the monthly payments could be reduced to more affordable levels.
Great, right? Well, yes, but there’s always a sting in the tail.
PCPs don’t suit customers who want to keep their cars for longer than the standard 3-4 years, and there are numerous subclauses in each PCP contract relating to maximum annual mileage and the expected minimum condition in which the car must be kept.
Breach either of those and you’re going to pay significant penalties.
True, you can just hand back the car at the end of the period and clear the final debt, but you’ll not actually have a car at that point, having handed out several thousand euros of your hard-earned money.
[ How much is too much to spend on a car? A financial guide to buying a new vehicleOpens in new window ]
So, as ever, buy with care. Make sure you can afford the repayments of any form of loan over the full course of its term, and try, if possible, to save up as much as possible at the same time so that you’re not overly beholden to the final GMFV when the time comes to trade in.
