In the UK PCP (personal contract purchase) is probably the most common financial solution for BMW, but there’s also PCH (personal contract hire), which is a rental with no ownership option, just like hiring a car from Enterprise, but for a longer term. Also many employees in the UK choose to take a cash alternative to a company car, so these schemes can work well for this.
With PCP the consumer is simply financing the known depreciation of the car, an amount set by BMW at the outset, and premium brand cars tend to retain a higher % or their new value, hence lower depreciation, therefore a lower amount for the consumer to finance, and a reduction in the amount paid monthly.
Another benefit of PCP is BMW takes the risk on the guaranteed future value (GFV), whilst also providing an ownership option at the end of the term. So if the market tanks and the car is worth less than the GFV (a higher GFV means less depreciation so less to finance in the first place) just hand it back and walk away (buying outright with cash your cash is lost
). If the market is good, sell/trade the car and take the equity, or just pay the GFV and keep the car. Don’t fall for the BS about a lower GFV means you have more equity at the end, as you are just paying this difference in the amount you finance, and the risk is yours if the car is worth less.
The interest rate on my current PCP, is 2.9%, and my multi year fixed rate bond saving is 6.1%. So do I choose to put my cash into a depreciating new car, or making money from my cash ?
In my case the difference is a £3-4k net benefit over the term using PCP and investing the cash, rather than using the cash to buy new outright. That’s in addition to potential equity at the end of the term if I choose to sell or trade.
There are also benefits here around consumer protection, because the finance provider is also severally responsible for the quality of the goods or a breach of contract by the seller. If you pay 100% cash there is no additional consumer protection.
Financing is just a tool, and the preconception that it’s only for people that otherwise can’t afford something isn’t necessarily the case. Personally, I just evaluate the best use of my capital, overall cost, and risk factors.
YMMV.
