We tend to think that buying a car in one lump sum payment is the norm. However, for young people around the United Kingdom, this is becoming an increasingly out-dated way of paying for a vehicle. Instead, Personal Contract Purchase (PCP) deals, which allow young people to pay for their car monthly, are quickly outpacing the more traditional methods.
There is a sizeable generation gap beginning to form between young people and older people when it comes to paying for a car. In fact, almost half of young people purchase their vehicle through some form of car finance or PCP deal, while only 10% of people above 55 are going down this route.
To understand why PCP and car finance deals are so attractive to young people, one must understand their financial circumstances. In the midst of a struggling economy and fewer employment prospects, job security is a major concern among millennial drivers. Compounded with the high cost of living facilitated by mobile phones, pets, television packages and house prices, young people are not able to save as much money as generations before them. Alarming research was published just a few months ago which found that the majority of young people have less than £100 saved in their bank accounts and this data was tracked back several months.
Making a large financial commitment like buying a car is difficult for young people. Therefore, paying every month allows them to more effectively manage their money. They do not have to be saddled with debt or spend years saving up; they can break the purchase into small payments over a period of time.
However, there are obviously some challenges that purchasing a car via PCP can create. Despite being much easier, PCP is not always the cheapest way to own a car in the long run. At the end of the contract, most young people start a new agreement. That means they are continuously paying money out of their account every month, even if they have spent enough to be able to buy a half-decent used car.
Similarly, it is not the most secure way of owning a car. In the unfortunate event that you are unable to keep up with the monthly payments, it can lead to a scenario where you are either permanently or temporarily without a car. This can complicate your ability to get to work, enjoy social events and much more.
PCP offers a flawed solution to young people who are financially worse off than generations before them. It is an easier and quicker way of acquiring a car. However, there are several risks involved that young drivers should be aware of before they explore this option.