cars
It's Friday, March 20th 2015. I've perched myself on the edge of a needlessly deep tub-style chair in an Arnold Clark showroom. I had just taken a Ford Fiesta for a test drive and had decided it was the one for me. I was 18-years-old and had spent the past year of my life researching cars, seeing which car in my price range gave the best fuel economy, was the most practical, was the most fun to drive, all the usual gubbins. Before I even arrived at the showroom I had my heart set on a Fiesta. I'm stubborn that way, always have been. My mum was sat next to me, poised to act as adjudicator of the inevitable attempts to up-sell, a look of both pride and fear donning her face. Her baby boy behind the wheel of a lethal weapon, amongst lethal weapons. Shudder.
We were waiting for the salesman to appear from the back shop. I like to imagine he was on the Gucci website spending his bonus before he'd even earned it. He certainly dressed like the type who would. Across the showroom was a similar double-act, a mother and daughter who too were negotiating the open seas of an enticing sales pitch. The daughter hugged her mum excitedly and expressed her gratitude. I tried to act like I wasn't boring a hole in the back of her head with my eyes but the screeching that was echoing around the room was piercing. I caught a whimper of, "Only the best for my baby girl!" Boke.
Suited and booted, a salesman appears. A dossier of papers in hand, he bounced over to introduce himself with a spring in his step and wearing his most enthusiastic face, one which exudes from someone who knows they are guaranteed a sale today. We stand to exchange pleasantries before taking our seats once again. I never shake hands sitting down. But then the hard sell began, filling the air with a thick shit-fog of "You know the Volkswagen Polo gets you a lot more equipment as standard," and, "the ST model comes with heated, leather seats," or my favourite, "you'd impress your friends with the new A-Class." The angles were dizzying.
My friends can suck one if they are that shallow! I didn't say that of course. Christ, I couldn't get a word in edge-ways. With the female Harvey Spectre to my right, batting each tactic right back at him, we eventually distilled it right down to what we actually came in for in the first place. I'd been banging on about this car for a while. With hindsight, she probably wanted that ear worm out of her head!
Finally on-task, the salesman pulls up the car on his screen. "Oh," he said, "That one has literally just been bought." His eyes flicked over to his colleague, who was showing the mother and daughter duo through the door to the car I had parked not twenty minutes ago.
"Not to worry," he continued, "We have another of the exact same car, make, model and age, at our branch down in Manchester. Would you like me to process this one?" I gave mum a look. We'd spoken about this before. Bait and Switch, a sales practice that's illegal in the UK but is still used in many places - and car dealerships are the worst for it. The sneaky sales tactic is used to draw in the customer with a good deal, but in reality said deal is, for one reason or another, unavailable. So instead they offer you a different product or service that is more expensive or, in the case of cars, built to a lesser quality or spec.
She gave me the eyebrows back, indicating she agreed. Buy a car I've not even seen yet? I don't think so. I relayed this as politely as I could to the salesman and quick as a flash, he reassured me with "Don't worry, when you come to collect it next week you can take it out a test drive. If you change your mind, you can cancel it there and then." My sceptical, slightly scornful face must have changed to one of compromise as he echoed, "Sound good?" I'm not sure 'good' was the right word. I was rather hoping for less bullshit. I was rather hoping that taking a car for a test drive would mean they would proceed to selling me that car, rather than fucking selling it to someone else. But no matter, the guy did his best, so I nodded.
You'd think that would be it sorted, right? Oh, no! Then came the optional extras. I know, how can you get optional extras on a used car? My question exactly! They'll sell you floor mats, air fresheners and all sorts of other in-car accessories that aren't even made by them. Course it's guaranteed that they slap a mark-up on those things regardless, for the convenience of getting everything in one place. But the one which stood out to me was an invisible coating they can put on the seats to help protect them from staining. He said "the young ones tend to go for that, should I add that on?" The young ones. If patrony sold cars he'd be on a beach in Corfu smoking a cigar by now. I nearly asked what the hell he assumed I'd be doing in the car, other than driving to work. With the benefit of hindsight, I know exactly what he meant*.
Then we get to the financing options, the part of the discussion which can make or break the deal. There are a few options these days, the most obvious being cash. For those who are relaying on The Bank of Mum and Dad, that's the first choice. These days it's almost become an expectation that a teenager's first car is to be bought for them by their parents, either with the understanding that the money is to be paid back or worse still, as a gift!
It is, from what I overheard from across the forecourt, the option the mother and daughter duo went with. I could talk for far too long on the topic, on how it encourages a society of young people that expect to be handed everything in life without necessarily having worked for it. Or on how you need to teach your kids the value of money, how hard you need to work to get it and how to budget to make sure the money you earn is serving you as best as it can. I'm no parent, so perhaps my opinion on this will change over time. Opinion, after all, is very much formed on a foundation of personal experience and perspective, so I've no doubt I'll come back to the topic one day. In any case, my parents had neither the money nor the inclination. I distinctly remember my dad saying to me he'd like to think that, even if they did have the money to buy me a car, that out of principal they still wouldn't do it. There comes a time in your life when you must pay your own way in the world.
So failing that, the next option is a bank loan. This is usually the cheapest method in terms of interest, so you'll pay less in the long run. However since you don't pay a deposit, these can be hard for young people to get. At 18, whilst I did have a credit card, I'd only had it for six months or so and my limit was very small. So this very short credit history meant it was unlikely that I'd be approved for a £10k car loan. And unfortunately, the way the credit check system works, if you apply for a loan and are rejected, this goes down on your credit history. So you are better to wait at least three months before applying for any further loans, else you are likely to get rejected again simply because you have been refused credit in the recent past. It posed more risk than I was willing to take, so that option was out the window too.
Next came good old fashioned hire purchase from the showroom itself. Generally these deals come with a higher rate of interest than an equivilent loan from a bank would, however hire purchase allows you to put down a deposit. This is off-set against the debt you are taking out, reducing the monthly payments and making it seem like you are getting a better deal - when in reality you are actually paying more in the long run.
If you want to test this, head over to the Arnold Clark website, choose a car and select the Hire Purchase option. I choose an 18-plate Fiesta, priced at £9,998 over 5 years with a £2,000 deposit. Then go to the loan calculator of a regular bank, I chose Sainsbury's Bank. Plug in the exact same details, excluding the deposit of course, and compare them for yourself. On the Arnold Clark website, I am given an estimate of £164.43 per month at an interest rate of 4.6% meaning the total amount payable would be £11,866.80. On the Sainsbury's website, the monthly payment was slightly higher, at £178.61 per month over the same 5 year period. However there is no deposit to pay, the interest rate is 2.7% meaning the total amount payable is £10,716.60. In other words, even after paying a £2k deposit to the dealership, in 5 years you will still have paid £1,150.20 more by taking out hire purchase over a simple bank loan.
So on the face of it, Hire Purchase looks like the cheaper option, but isn't. People tend to compare the monthly payment numbers and go with whichever is cheapest. Of course, your decision will also be influenced by how much you can afford to part with each month. If you don't know your stuff or are penny pinching to make ends meet, then it was likely that you would be railroaded into taking out hire purchase. But times have changed.
In the last few years, a new engine of consumerism has rolled into town, forcing many over its bonnet and under it's wheels since it's conception, it's victims reaching an all-time high in the past few years. I was one of them, drawn in by the very low deposit and lower monthly payments than even higher purchase could offer. PCP seemed like the perfect solution.
Personal Contract Purchase means you pay a small deposit, then finance a portion (but not all) of the car's remaining value. The rest of it, the Guaranteed Future Value, is left out of the equation. The finance then runs its course for three or four years and at its conclusion, the borrower has a choice to make.
PCP is unique amongst finance methods. Paying by cash, Hire Purchase or Bank Loan, you will eventually be left with a car you own out-right. That's not so with PCP. Remember, you still have that final payment, the Guaranteed Future Value, to worry about before you can truly call the car your own. Either you make the final GFV payment in full and keep the car, you hand the car back in "good relative condition" (which is a whole other ball ache) and take out a new deal, or you hand back the car and walk away with nothing. The great thing, so they say, is that it gives the borrower choice, but it doesn't - not really.
Imagine for a second that you are 22. You've had the same car for the past four years, you've seen a promotion or two and you're starting to feel that itch for a new car again. Most young, twenty-something year olds are going to want to show everyone that they are going places in the world. What better way to do that than with the car you drive. To many people, a car isn't just four wheels and an engine that gets them from A to B, it's a status symbol. They want the Audi or the BMW, maybe even a Ferrari one day. People want to at least be seen to be progressing up the socio-economic ladder. PCP plays right into that part of our human nature. It encourages people, particularly young people, to feed that longing for more. So they go back to the dealership, hand back their car and take out a new deal for a better one. Paying that bit more money for it too. It's easy for us to justify it. Perhaps it's just another £50 or £100 per month on top of what you are already spending. Tempting, isn't it? Just a little bit more money in exchange for a mobile symbol of status and wealth. The ability to drive around telling everyone "I can afford to drive this thing," is what you pay for. All whilst constantly feeding the big money machine. Every four years, you hand over one car you've paid lots of money for, drive away with a new car that you will pay more money for, whilst never actually owning any of them. Every four years, you sign a piece of paper that practically guarantees that you will always be in car finance debt. That is what you are paying for - the automotive equivalent of fast fashion. It's modern societies biggest con. It's ludicrous.
The salesman, having rhymed off all the options from his screen in a fast, excitable voice, knowing full well that his bonus cheque was edging closer to his bank account; leaned over the table towards me and said, "PCP is the popular one these days." A single sentence that would influence my entire purchase - and my finances for the next five years of my life! He sold me the benefits of PCP, the low deposit, the likely chance of my being approved for the finance, the ability to use my savings to pay my insurance premium in full, giving me just the one payment coming out each month. He was very convincing, colluding with consumerism.
18-year-old me was excited. My dream of that bit more freedom was nearly a reality. Weary from battling the hard sell, I had finally been pulled in. I never stood a chance. I nodded and pulled out my phone, knowing full well that I had a decision to make in four years time, a decision I was simply deferring to my 22-year-old self to deal with. I paid the £500 deposit with my credit card using Apple Pay. Crazy, right? I went into debt to take out some debt! After 30-minutes, maybe more, we had him sweating but the salesman had his deal and that bonus was no doubt on it's way. And so with a hand shake and a thank you, we left.
I signed on the dotted line and drove out the showroom car park a week later. I was chuffed with myself - and rightly so! I'd worked hard for more than a year to make this happen and so naturally, I felt I deserved it.
After a year or so though, the honeymoon feeling had already faded, that feeling replaced with a sense that I had been conned. Never a great feeling that, eh? Just a few more months of saving could have bought me a car debt-free. Sure, it would have been older, with fewer gadgets and comforts, but it would have been mine from day one. Had my car made the same noise as the first line of one particular Charlie XCX song (boom, boom, boom, clap!) after 5 years and was effectively worthless, I'd still have been better off! Not only would I have recouped the money I'd have paid out to buy the car, but I'd have been up a further £8,500. That was the price I paid for PCP, the price I paid out of stubbornness to buy a car I couldn't afford. I was once again dissatisfied. That payment I was making every month was no longer in exchange for something new, all shiny and exciting - it was just a car to me now. It gets me from point A to point B without getting soaked! I was once again feeling the itch for something new, but once again quickly realised that I couldn't afford anything bigger, better or shinier. As I started to acknowledge, for the first time, that I'd plunged myself into debt for something that only depreciates with time; with no exit strategy in sight for another two years, I wasn't quite sure what I was going to do when the deal finally came to an end.
Two years later and I still didn't know. The deal was due to end in 30-days and I was between a rock and a hard place. My circumstances had changed dramatically. I couldn't really afford to be paying much more than I already was. But on the other hand, I couldn't really afford an old car breaking down on me either! At the time it was a dilemma, not so much anymore. Even now when I'm thinking of making a rash, spur-of-the-moment financial commitment on the off-chance that my current thing breaks, I need to remind myself, "Hey dude, that's what your emergency fund is for." My grandpa has had the same car since I was in primary school and he's never had any serious trouble with it. Don't go replacing something that might not break, just because it could.
And so, with clarity, I refinanced my car loan over two years, paying it off in full after just six months. Finally, after five years of having the same car, I actually owned it.
I'm not saying for a minute that I'll never change my car. Provided the ability to jump in the car and drive to where I need to be is still a value-add in my life, owning a car makes sense. What doesn't make sense to me is that the industry don't actually encourage you to own a car anymore. Why do you think that is? It's because in the long run, you will hand over more of your hard-earned money to them. Simple as. You may do as you please, but I'm calling out PCP for the trap that it truly is. It doesn't make sense to me to "buy" a new car simply for the ephemeral pleasure of having the latest and greatest shiny thing, the latest Mercedes that will "impress your friends." Maybe it's just me, but I feel that coming home to my own sanctuary of peace and quiet gives me greater joy than parking a 21-plate Mercedes on my mum's driveway ever could. That's not to shame those that can justify it. You want it, go get it. But get it for the right reasons.
When we start valuing the things that clutter our lives over the people which fill them, we start living for mere things. In the words of Dave Ramsey, "we buy things we don't need with money we don't have to impress people we don't like." When you reach the end of your car finance, it's common for those around you to ask, "So what you getting next?" as if it's a natural progression of life. So let this be the answer. I'll buy a new car, or rather a 'new to me' car, when my current one, for one reason or another, no longer fulfils it's purpose. The day it breaks so spectacularly that it would be genuinely cheaper for me to buy a new one, then I will. The day that my requirements of a car out-grows that which I already have; the day I realise I have kids and a dog and want to go on long days out in the country with them, then perhaps a Fiesta will no longer make the cut. But until then, I'm 22 and barely use the car I have. Spending more money on it is not going to change that. I like to think of it in the same way I do insurance, that is, you only buy the insurances you actually need. Buying a new car every four years is an insurance policy that will never pay out.
~ Aedan.
*I declined, in case you were wondering. I have good aim!