You finally sit down, on the soft leather seat, look in the rear view mirror as your old car sits on the garage forecourt like an abandoned child. Look at the electronic dashboard that you promise you will properly learn to use later (you won’t).

But here’s the catch.

That ‘new car smell’ is actually the smell of £500 leaving your bank account every month for the next four years.

As I drive up and down the motorway I see so many nice, new cars. Anecdotally I feel that the average standard of car I see on the road has vastly increased over the last 10 years.

I remember my dad coming home in the late 90’s with a green Nissan Primera and being so excited, it had replaced an old Bluebird (Dad had a thing for Nissans) and felt new and shiny.

Eight year old me didn’t know at the time that it wasn’t a particularly cool car and didn’t have a high social status.

Google tells me that the modern day equivalent purchase would be a Skoda Octavia. A very good car, but a sensible purchase nonetheless.

Would kids be as excited today, maybe, but it’s fair to say that many more of their friends would have parents driving Mercs, Beamers and Audis worth a lot more than the Primera was in the 90’s.

The question is though - how many of those parents own those cars?

The Emperor has no clothes…

…and everyone is an Emperor.

Particularly an emperor that drives in a car that they are spending far too much money on and pretending it’s fine. Many of these cars are purchased (sort of) through PCP. The most common way to get a car in 2025.

Now please note this is not an attack on all car finance. Not everyone can buy a car outright, and even if you can it may not be wise to part with all that money at once. What this is an attack on is a particular type of car finance.

What is PCP?

Personal Contract Purchase (PCP) is the most common way people buy new cars.

Essentially you put down a deposit (e.g. £5000), you pay a monthly fee for a set period of time - usually 3-4 years.

You will be given a Guaranteed Minimum Future Value (GMFV) which will then become the Balloon Payment that you can pay to keep the car. You will have to pay the difference between the car price today and the GMFV during your contract.

You will also usually have a mileage limit.

In 2024 the average monthly payment was around £400. That equals £4800 a year. Over 4 years that’s around £20k.

The average interest rate were 6-11%.

You don’t get the deposit back!

Think of it as a joining fee.

At the end of the contract you can pay (a usually large) balloon payment to keep the car, or you get the privilege of handing it back to the smug salesman whilst he poinders how much more he is going to sell it for.

You can also trade it by using any left over value as a new deposit. This is if the car is worth more than what they guessed the GMFV would be when you took out the PCP deal. This may be because you took really good care of the car, but dealers often offer you some equity as a way to make you mentally inclined to use it as a deposit for a new PCP deal.

Most people can’t afford the balloon payment, so they end up getting a new PCP deal and so the cycle continues.

Status Trap

We get into a vicious cycle where we want to have a car to match our peers. It is then hard to downgrade to a worse car - this feels like a step back.

The monthly payments also keep you trapped, as does the fact that you don’t own your car. You always need a car, and when you are in one of these contracts with a large outgoing each month it is very hard to save the cash to buy a car outright.

Revel in the budget car

My first car was a Vauxhall Corsa - It was a bit of a banger and I was chuffed to have it. We need to normalise this again

If you see that £40k Merc being driven past your Hyundai by someone who is young enough to be your child, revel in the fact you aren’t paying what they are each month!

Adam’s advice:

• If you can’t afford the balloon payment today, you can’t afford the car
• Focus on reliability over status
• Don’t renew your PCP deal
• Buy cash (with low - interest loan if needed) over PCP
• Dive your car until it dies!