PCP time bomb: why your next car could cost you dear

  • Many new car PCP monthly payments are rocketing
  • Blame higher list prices and falling residual values
  • Are you putting enough cash aside for your next car?

Coming to the end of your PCP finance contract and looking to chop in your car for a shiny new version? The scary truth is that you may now not be able to afford to finance the same car again, according to Parkers research.

Monthly payments for new finance deals have rocketed over the last year. This follows a rapid increase in new car list prices and a fall in used car values – meaning the total amount you finance has risen substantially. As a result, monthly payments for a number of popular models have risen by up to 57% compared with those a year ago, putting them out of reach for many drivers coming to the end of their contract and looking to get a new car.

This is partly down to the drop in the value of the pound following the EU referendum and falling used car sales – neither of which are likely to reverse markedly in the immediate future.

Concerned about whether you can afford a new car when you get to the end of your contract? Read our guide to how to avoid being caught out by finance price hikes.

Tune into BBC Radio 4's Money Box programme – broadcast on Saturday December 9 at 12:00-12:30pm – to hear Parkers explain how to make PCP finance work for you.

PCP finance time bomb

Meanwhile, keep reading to see just how much more you can expect to pay to finance five of the UK’s most popular cars compared with at the start of the year. And take a look at the links below to see the best value models currently available on PCP, whatever your budget:

Audi A3: 57% increase in monthly payments in a year

Audi A3 - PCP finance time bomb

An entry-level Audi A3 that would have set you back £190 per month just a year ago would cost you a whopping £298 now if you needed to sign up for a new contract (36 months, £2,000 deposit and 10,000-mile-per-year allowance).

To keep the same monthly payments you’d have to put down a hefty £3,500-larger deposit. The question is, have you been putting enough money aside during the contract to be able to afford a £5,500 deposit now rather than the £2,000 needed previously?

Or can you afford to pay an extra £108 every single month simply to stick with a new version of the same car? If you can’t, you’d have to trade down to the smaller, older and less upmarket Audi A1, and even then that would cost you more at £198 per month.

And if that’s too steep for you, the sad fact is that you can no longer afford to finance a new car on Audi’s PCP scheme.

Audi A3 - PCP finance time bomb

Explaining the increase in monthly payment, the A3’s list price has risen by £1,000 in a year, its predicted value at the end of the three-year contract has plummeted by £1,425 and the deposit contribution discount from Audi has shrunk by £700.

Throw all these together and the total amount you need to pay to finance the A3 for three years has mushroomed by £3,125.

Don’t think this is an isolated case. Yes, there are a few exceptions – where prices have stayed the same or even fallen – but we’ve logged a widespread trend for price hikes across the board.

Mercedes C-Class: monthly payments up by £70 in eight months

Mercedes C-Class - PCP finance time bomb

Mercedes has long been known for selling pricey cars, but a C 220 d AMG Line, which cost £359 per month in March would now set you back £429 – a jump of 20% – on a three-year, 10,000-mile-per-year contract with £5,014 deposit.

Explaining the rapid rise in monthly payment is an £1,150 fall in the optional final payment – what Mercedes predicts the car will be worth when you hand it back – a £957 drop in deposit contribution discount and a £510 list price increase. Together these bump up how much you pay by £2,617.

As a result, if you want to keep the same £359 monthly payment on this C-Class, you’d need to put down a £2,351-larger deposit, meaning an upfront payment of £7,365. Do you have that much sat in your bank account ready to go?

Want to find out more about car finance? Have a look at the stories below:

Vauxhall Viva: city car price leaps from £90 per month to £105 per month

Vauxhall Viva - PCP finance time bomb

Financing Vauxhall’s city car for £90 per month and looking to change your car soon on the same budget? Following a 5% list price jump since April, higher APR charges and lower residual values, you can now no longer afford the entry-level Vauxhall Viva.

While the Viva SE 1.0 75PS would have set you back £90 per month on a 48-month contract with a £2,650 deposit and 5,000-mile-per-year allowance, it’s now £105 – a 16% rise.

As the Viva is already the firm's cheapest car, if you’re after a Vauxhall on a £90-per-month budget, you’re going to have to step down to a used car.

Peugeot 208: 10% increase in monthly payments since March

Peugeot 208 - PCP finance time bomb

The Peugeot 208 isn’t the best supermini on sale, and following a £20-per-month jump in just eight months, it’s far from being the best value either.

The 1.2 PureTech 82hp Active 5dr model that was £193 per month has ballooned to £212 per month now (on a 36-month contract with a £1,500 deposit and 10,000-mile-per-year allowance). That means you’ll need an extra £650-worth of deposit – £2,150 rather than £1,500 – to keep the same monthly payments.

When you consider you can get a far more powerful, better equipped and higher quality top-spec Skoda Fabia SE L 1.0 TSI 110PS for £199 per month – with like-for-like contract terms – there’s absolutely no logical reason to choose the Peugeot. If you want value and you've got a £200-per-month budget, stepping to the Fabia could be a wise option.

Hyundai i10: 9% monthly payment jump as price increases and residuals fall

Hyundai i10 - PCP finance time bomb

The Hyundai i10 is one of the best value city cars, but following a 5% price hike since March and a 5% drop in residual values, you’ll have to dig further into your pocket to finance one now.

Despite weighing in at a great-value £97 per month in March, it’s risen to £106 per month now (on a four-year, 6,000-mile-per-year contract with a £2,000 deposit). That might not sound like a big difference, but it’s a hike of nearly 10% in just seven months.

Sign up for a three-year contract now, therefore, and simply to get into an equivalent model after that you may have to pay much more next time around.

Looking to learn more about car finance? Take a look at the stories below:

*Deals are correct at time of publication. Everyone’s financial circumstances are different and credit is not always available – Parkers cannot recommend a deal for you specifically. These deals are indicative examples of some packages available this week.