What's the difference PCP/ HP?

sportie

I'm looking at buying a brand new civic. They are currently doing 0% finance but can't quite stretch to the monthly payments. They are also doing another deal at 5.4%. This involves a deposit (my old civic), 3 years of monthly payment and then a final payment.

5.4% sounds good to me as the cheapest loan I can find on the high street is 8%. But I'm not sure what the difference is between HP and PCP and which finance option Honda are offering.

Any advice please? Does this sound like a good deal?

ukjoel

First thing - what does 5.4% mean?

May sound like a silly question but the difference between flat rate or APR could be a lot of money so you need do ask.

Hire purchase - typically X number of monthly payments and then you own the vehicle at the end of it.

PCP - They are working out the value of the car at the end of X months and deducting this from the loan. Your monthy payments will be cheaper BUT you will not own the car at the end of 3 years unless you pay off the optional final payment.

This payment is typically the value of the car guesstimated at start of contract. Neither option is good or bad. It depends on your requirements.

sportie

It's APR (although has now gone up to 5.9%)

ukjoel

5.9% APR is a decent APR and would be subsidised by manufacturer via finance company.

Your decision needs to be based on what you will do in 3 years when the deal runs out.

Options open to you are increase the length of HP to bring down monthly payments (but I guess the 0% offer is restrcted to 36 months or close)

The PCP option is the equivilent of crack or heroin from car manufacturers.
It gets you hooked and ties you in. Most people on this scheme stick with the same manufacturer and change cars every 2-4 years. The benefit is you get a new car every 2-4 years.

Personally I stay clear of PCP and its not really 'moneysaving' so guess many on this site will feel the same. Having said that I think its the most common way of buying a retail car in the UK and has been for a number of years.

Worth having a quick look at your agreement to see if you can reduce monthly payment possibly by removing GAP, or Payment protection as they may have put this into the calculations.

Also worth trying some other dealers to see if they can beat the deal.

bclark

My last three cars have all been on PCP deals and all three have been with different manufacturers, there is no reason to be tied to one manufacturer.

I like PCP's they have allowed me to drive nice cars at a reasonable rate and I find them just as flexible as HP in practice.

ukjoel

The exception that proves the rule.

Nobody is tied in legally but loyalty on PCP's is far higher.

We used to phone customers on 12, 24, and 30 months to get them into a new car early without them having to pay any increased payments.

Lemonade_Pockets

ukjoel wrote: »

The exception that proves the rule.

Nobody is tied in legally but loyalty on PCP's is far higher.

We used to phone customers on 12, 24, and 30 months to get them into a new car early without them having to pay any increased payments.

Which kind of highlights why PCP's are effective ways of funding a car.
As presumably the reason you could do this was that they were already in equity or at least breakeven.

As others have said there is no reason/need (despite the fact that many people do) to stick to the same MFR any more than there would be with HP.

IMO if there is no difference in financing costs between taking HP or a PCP you would be stark raving bonkers to take HP. PCP's are normally cheaper than HP making it even more bonkers to take HP.*

*I'm talking in general there will always be weird and wonderful exceptions where HP better.

ukjoel

Never said PCP's wernt effective.
Just said they were not particularly moneysaving.

A lot depends on how long the OP wants to keep the car.
I am pretty sure there are some decent calculators on the net for working out whole life costs for using both methods so may be worth OP having a look there.


To answer original question both rates quotes are subsidised and sound pretty competitive as stand alone rates. Cant comment about the total deal as we dont know the details.

Lemonade - what PCP rates are you currently offering through FCE so the OP can make a comparison with a Ford dealer.

sportie

The deal is on a new civic type r - yes I know it's not a money saving car and is going to cost me tons of money to put petrol into but has been my dream for as long as i can remember.

The deal (without talking to the dealer to try and improve the costs)
OTR price £17,980
Deposit £4500 (my old car)
36 monthly payments of £245
Final Payment £6400

My plan is likely that I will keep the car for 3 years and then part exchange against a second hand car (as hopefully my commitments will change in the future). I see this as being the only time in my life I can afford and justify a brand new car. At present a 3 year old type R is worth about £12000 (so I am hoping I can part exchange with approx £5000 deposit)

Lemonade_Pockets

Just said they were not particularly moneysaving.

Compared to what? I would argue a 3yr PCP is money saving when compared to a 5yr HP.

Lemonade - what PCP rates are you currently offering through FCE so the OP can make a comparison with a Ford dealer.

You seem to have me confused with someone that works for FCE but since you asked its 4.9% APR atm.

OP forgive Joel and I we like to present both sides to the argument by bickering.

To answer your question:
As you are planning on changing the car after 3 years a PCP makes even more sense (IMO). For the following reasons.
Firstly the finance will almost certainly be cheaper.
Secondly you have a gaurantee against the market if everything goes belly up. If you type R is only worth £5k then you would effectively still get £6400 in px.
There are drawbacks of a PCP but none that don't apply to HP either.

HP wise it's worth getting a quote but i would guestimate that it will be at least £260pm based on the same "cash price".

Used car prices are very bouyant at the moment a 56 plate type R is probably worth more now than it was this time last year for example. So i wouldn't bank on the £5000 deposit in three years time.

Having said all that to be money saving haggle hard and see if you can get enough discount to make the 0% affordable. You may find haggling more effective if you start off getting a quote on a PCP basis then ask about 0% later!

Lemonade_Pockets

But I'm not sure what the difference is between HP and PCP and which finance option Honda are offering.

HP is the traditional form of financing a car. In a nutshell you make X amount of payments and when the last one is paid you own the car. You are legally entitled to pay off the remaining balance (less any rebate) at any time also. Typically people borrow over 3-5yrs. The loan is secured against the car as such certain rights are afforded to you but also to the finance company. Google "Halves and thirds".

It sounds as though Honda are offering a PCP although it always wise to check as there are countless different finance packages out there each with their own peculiarities .

PCP is a type of HP agreement. So you as a consumer have the same rights as does the finance company under HP.
However it differs that instead of it being X amount of payments its X amounts of payments plus 1 final payment.
The reason it was introduced is simply because a lot of people where financing new cars over 5yrs to make the monthly payments affordable but wanting to change after 3 yrs but finding it difficult as they where in negative equity - finance outstanding is more than the car is worth in px.
The motive for the car/finance companies is simple, if they could get round this negative equity problem they sell more cars.
So after three years they set a final payment (settlement figure) but they also guarantee that your car will be worth the exact same amount. Hence no negative equity subject to mileage etc. No negative equity people are inclined to change car simples.

Drawbacks are:
You have to either change your car or refinance (rates could have shot up) after a shorter period of time.
A really low GFV may make the payments unfeasibly high in comparison to HP, but then you should probably be thinking twice about buying the car if its going to depreciate that much.

Benefits:
Usually subsidised by the MFR so cheaper finance (MFR's are keen to sell in this way because statistically you are more likely to buy another car from them).
Gauranted Market Value, if used car values fall through the floor like they did this time last year it could save you a lot of money.
All the same benefits as HP agreement e.g. Voluntary termination, Early settlement rebate etc.