Car finance - hire purchase or PCP?

Unclepetey

I'd be grateful for any thoughts on how I might best finance a new car. I currently own my car outright (worth around £4,500) but looking to change. I have up to £3,000 to put towards a deposit.

What are the advantages and disadvantages of HP versus PCP? I'm quite tempted by PCP given the low monthly payments. If going for PCP is it worth keeping the deposit very low or perhaps increasing the deposit to make the monthly payments even lower?

Thanks

motorguy

Unclepetey wrote: »

I'd be grateful for any thoughts on how I might best finance a new car. I currently own my car outright (worth around £4,500) but looking to change. I have up to £3,000 to put towards a deposit.

What are the advantages and disadvantages of HP versus PCP? I'm quite tempted by PCP given the low monthly payments. If going for PCP is it worth keeping the deposit very low or perhaps increasing the deposit to make the monthly payments even lower?

Thanks

Unless you want to get into a cycle of changing your car every three years, i would be using straight HP to make your purchase. You have a decent deposit and you will own the car at the end of the term. PCP deals tend to work best for people with smallish deposits who are happy to replace the car at the end of the term rather than pay the largish residual.

diesel_dog

motorguy wrote: »

Unless you want to get into a cycle of changing your car every three years, i would be using straight HP to make your purchase. You have a decent deposit and you will own the car at the end of the term. PCP deals tend to work best for people with smallish deposits who are happy to replace the car at the end of the term rather than pay the largish residual.

Good clear advice :T

Unclepetey

Thanks Paul, that's really helpful.

I suppose the temptation is that PCP makes a nicer car more affordable. But slightly concerned that at the end of 3 years I don't really own anything and have the prospect of either new finance or paying a large amount to buy a 3 year old car...

albionrovers

Doesn't PCP have a pretty large deposit? For folk who want a new car every 3 years, I don't understand why folk don't take a simple personal lease deal for 3+35. Deposit then comes in at under a grand? Anyone?

motorguy

Unclepetey wrote: »

Thanks Paul, that's really helpful.

I suppose the temptation is that PCP makes a nicer car more affordable. But slightly concerned that at the end of 3 years I don't really own anything and have the prospect of either new finance or paying a large amount to buy a 3 year old car...

It works for some people - my wife for example has done it for about 15 years now. Puts down a smallish deposit, drives car for three years, then chops it in for a new one, using the difference between the value and the residual amount towards her deposit. Likes the convenience of a new car.

BUT a lot of people cant get their heads around never owning the car and also having little to show for it after the term of the agreement.

motorguy

albionrovers wrote: »

Doesn't PCP have a pretty large deposit? For folk who want a new car every 3 years, I don't understand why folk don't take a simple personal lease deal for 3+35. Deposit then comes in at under a grand? Anyone?

You are very very restricted with a lease. If you are absolutely sure your current needs with regard to a car are going to be 'set' for 3 years and your job is totally secure then grand. The problem is if your circumstances change then you're very tied in. Typically you have to pay the bulk of the remainder of the lease to get out of it.

Also, if you buy an 'off the shelf' car then grand, but spec up a lease car and the repayments go up dramatically as the lease company seem to just spread the cost of the option across the term of the lease. This doesnt happen so much with PCP. For example, my wife wanted the 19 inch wheel upgrade on her z4. It was a £500 option but it neither added to her deposit nor her monthly payments as the residual price increased by the same amount, as it was seen as a valuable option come resale time.

hopnut

Unclepetey wrote: »

I'd be grateful for any thoughts on how I might best finance a new car. I currently own my car outright (worth around £4,500) but looking to change. I have up to £3,000 to put towards a deposit.

What are the advantages and disadvantages of HP versus PCP? I'm quite tempted by PCP given the low monthly payments. If going for PCP is it worth keeping the deposit very low or perhaps increasing the deposit to make the monthly payments even lower?

Thanks

I am in exactly the same boat, only my car is only worth about 3k.

The choices are making me dizzy, and I am (always) fearful of being ripped off!

Have never bought new before, ever.

Every used car (nearly new, the last two) I have bought (for cash) and I have kept until they were worth very little (relative to purchase price).

Am feeling once again, that shelling out a big chunk of cash on a car, which in 5-8 years will be worth little is not the way to go.

What appeals about PCP is the reduced intial outlay, thereby keeping more of my wonga in the bank (for now)

The fact I wont own it at the end doesn't seem to be troubling me at the moment, as all the cars that I have owned over the years end up being worth very little by the time I let them go anyway.

Is this making any sense???

It almost makes most sense to just go PCP, and change the car every three years, and keep paying out a similar amount each month, and stuff 'owning a car' - why would anyone want to own a car??

But then isn't leasing the way to go, if you aren't bothered about ownership?

Really unsure what to do.. and fearful of the tie in of three years.

I assuming a PCP vehicle is covered under a normal warranty for all repairs, but that servicing is an additional outlay?

Lastly - do you have the same kind of bargaining power with PCP as you would with any other car purchase?

H.

verityboo

Also worth checking if there are any incentives for going the PCP route. Some manufacturers offer much lower rate finance, free servicing, deposit contribution (i.e. greater discount) or free insurance etc. As per the poster above, my better half has gone the PCP route for several years now as it has always worked out the cheapest option and is about to do the same again.

CB1878

Essentially HP and PCP are exactly the same, as a PCP is simply a HP with a balloon. You still get your VT rights with PCP, and this can be used if you are near the end of the deal and you have done over your mileage for example. VT may mean that you could avoid excess mileage.

In my humble opinion a PCP is much better than HP, but only if used in the right manner. That is put as small a deposit into the agreement as possible, because this is the amount you will certainly lose if you hand the vehicle back at the end.

Manufacturers normally offer low rate finance on PCP, so borrowing more is not too expensive. Keep your deposit in the bank and put it towards buying the vehicle at the end if you wish.

Remember also that the residual balloon does not change dependent on your deposit either. Sales staff can often quote high deposit requirements just to make the monthly payments look good. If you decide to hand the car back at the end, then your deposit is gone.

Just my two penneth, hope it helps

rs65

CB1878 wrote: »

Remember also that the residual balloon does not change dependent on your deposit either. Sales staff can often quote high deposit requirements just to make the monthly payments look good. If you decide to hand the car back at the end, then your deposit is gone.

That doesn't quite make sense to me. If the balloon payment stays the same, surely what deposit you pay is irrelevant?

A large deposit means smaller monthly payments and less interest, because you are financing less.

A small deposit means larger monthly payments and more interest, because you are financing more.

Surely your deposit isn't really gone because you have benefited from it by lower payments and less interest.

I would agree that you lose some of it if you end the deal early such as VT or trading in but surely no difference if you 'hand the car back at the end'?