Car finance - hire purchase or PCP?

CB1878

rs65 wrote: »

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'?

My point about the deposit is simply my view. You will find plenty of people who may argue differently but this is how I would look at it.

Lets say the car is £12000 and you look at a 3 year PCP with a GFV of £4000. Lets also say that the vehicle ends up being worth £4500 at the end, leaving you £500 equity (being positive).

Your two options are put £3,000 in, or put £200 in. In essence you are funding an extra £2800 at a low interest rate, and you always have your £2800 in the bank to use for a rainy day.

If you get to the end of the agreement and the you look at your options then you have £2800 in the bank, which will go a long way to buying the car for the GFV at £4000 if you want. You could use the £500 equity as a deposit on a new vehicle. The equity does not change no matter what you have put in as a deposit, and you have always got access to the £2800 if you ever need it. Put it down as a deposit, and yes less interest but you will never have access to that money again.

During my six years working as a business manager for a manufacturer who heavily subsidised PCP deals my view was always use a small deposit, because PCP is all about your options and keeping your money in your bank gives you more, in my opinion.

You will find plenty of people who would argue otherwise but in my humble opinion your deposit is simply what you will lose on a PCP deal.

rs65

BMW website has a useful comparator tool.

Two options, both have 4.9% APR, final payment of £14,544.80 and excess mileage charge of 9.3p.

Option 1 is £0.00 deposit and 36 payments of £566.72. Total cost over 3 years is £20,401.92

Option 2 is £6450 deposit and 36 payments of £369.00. Total cost over 3 years is £19,734.00

The rate of interest you are paying at flat 4.86% is more than you would get on your savings so it is more expensive to pay no/low deposit. Paying a deposit obviously means that you don’t have the money left in your bank but the above example shows that the difference in payments (566.72 – 369.00 = 197.72) could go back into your bank giving you £7117.92 at the end of the period.

It isn’t a case of having a view or an opinion - the numbers speak for themselves and your deposit isn’t lost on a PCP deal if it runs its term.

I do however agree that PCP is about options and some of a deposit will be lost if, for any reason, the deal doesn’t run its term. Its also probably not wise for someone to use their entire savings as a deposit - again this about options not numbers.

CB1878

rs65 wrote: »

BMW website has a useful comparator tool.

Two options, both have 4.9% APR, final payment of £14,544.80 and excess mileage charge of 9.3p.

Option 1 is £0.00 deposit and 36 payments of £566.72. Total cost over 3 years is £20,401.92

Option 2 is £6450 deposit and 36 payments of £369.00. Total cost over 3 years is £19,734.00

The rate of interest you are paying at flat 4.86% is more than you would get on your savings so it is more expensive to pay no/low deposit. Paying a deposit obviously means that you don’t have the money left in your bank but the above example shows that the difference in payments (566.72 – 369.00 = 197.72) could go back into your bank giving you £7117.92 at the end of the period.

It isn’t a case of having a view or an opinion - the numbers speak for themselves and your deposit isn’t lost on a PCP deal if it runs its term.

I do however agree that PCP is about options and some of a deposit will be lost if, for any reason, the deal doesn’t run its term. Its also probably not wise for someone to use their entire savings as a deposit - again this about options not numbers.

At no point did I state that putting in a large deposit is not cheaper, not quite as cheap as paying a low deposit. Similarly buying the car outright is even cheaper again I am sure you would agree.

Without getting a calculator I suspect your interest rates look a little out, a 4.9% APR should equate to a really low flat rate, depending on the term and any fees charged. The flat rate should roughly be half the APR plus a little bit, so the flat rate of 4.86 would equate to about 10% APR. A 4.9% APR should be a flat rate much lower than 4.86%, and using your figures above borrowing 6450 has cost you an extra 667 (20401 - 19734) over 3 years, which is 3.44% flat (OK got my calculator)

Either way I do agree if you borrow more on an interest bearing loan then you will end up paying more, a little more.

The payback is the access to your money, and as for not losing your deposit I do not think I have made my point quite well enough.

Using my way you pay a little more but I have 6450 in the bank at all times. I may not get 3.44% interest but I always have my money to hand. What could you get on it? 2%, so having your money always may cost you less than 280 quid. (3.44-2 over 3 years)

Doing it your way how do you get your 6450 at any time you want? Unless you have 6450 equity in the vehicle then your deposit is lost, and you will not get a cheque back from BMW for it under any circumstance after clearing the finance.

Would you not concede that any deposit you put into a PCP is lost no matter what you do? Full term, short term, part ex or hand back?

If you want the cheapest way to buy a car then buy it outright, if you want options use a PCP but I just think putting a large deposit is just not the way to do it.

Loving the debate though by the way :beer:.

rs65

CB1878 wrote: »

Would you not concede that any deposit you put into a PCP is lost no matter what you do? Full term, short term, part ex or hand back?

Absolutely not.

You lose access to it, but as demonstrated by my example, you will have £7117.92 at the end of 36 months.

rs65

CB1878 wrote: »

Without getting a calculator I suspect your interest rates look a little out, a 4.9% should equate to a really low flat rate, depending on the term and any fees charged.

I just used the numbers and rates on this page

http://www.bmw.co.uk/en/topics/owners/offers/5-series/saloon/retailoffers.html

CB1878

rs65 wrote: »

Absolutely not.

You lose access to it, but as demonstrated by my example, you will have £7117.92 at the end of 36 months.

IF you are dedicated enough to put the spare money away each month, and it takes you 36 months to get it. A bird in the hand?

So where is your deposit? How do you get it back? The inference of a 'deposit' is that you can get it back, when in truth with a PCP it is simply an amount that you are prepared to lose simply to to reduce your payments. If you do what most people do with a PCP, and go back in 3 years to get another new car, then you will have to put down another substantial deposit in order to get the same payments. Your original deposit is lost.

CB1878

rs65 wrote: »

I just used the numbers and rates on this page

/QUOTE]

Only going by the fact that the extra deposit of £6450 ends up costing you £7117 over 36 months, therefore £7117/£6450 is 1.1034, or a factor of 10.34%, divide by 3 (years) gives a flat rate of 3.44%. I haven't seen the full breakdown but 4.9% APR should not be anything like the flat rate quoted. It is therefore pretty low

prop

Hi Guys I am very interested in this discussion.
We are approaching retirement and are trying to get a handle on our fixed costs.
In the past we have always bought a car 1 year old for cash and run it into the ground, but I am concerned that with Modern Cars and all the electrics involved the cost of repairs will not be as cheap as has been in the past.

We have only just started looking at this and this is the first place I have looked to research the topic.

I dont know if this exists but what I am looking for is an arrangement where we can pay a fixed sum that we know is not going to increase and get a new car every 3 years., is that possible with PCP and can anyone advise where we can read up on the various finance methods.

We currently have a C3 Picasso worth about 8K we can use as a deposit

rs65

CB1878 wrote: »

So where is your deposit? How do you get it back? The inference of a 'deposit' is that you can get it back, when in truth with a PCP it is simply an amount that you are prepared to lose simply to to reduce your payments. If you do what most people do with a PCP, and go back in 3 years to get another new car, then you will have to put down another substantial deposit in order to get the same payments. Your original deposit is lost.

Your deposit goes back into the bank every month by virtue of you saving £197.72 a month (based on the above example).

As a business manager for 6 years you must understand this. You cannot think you are saving the £6450 when in reality you are paying an extra £197.72 a month for 36 months.

Whether you pay a deposit or not, you end up paying roughly the same over the 3 year period. You are not losing a deposit, you are spending it a different way.

rs65

CB1878 wrote: »

Only going by the fact that the extra deposit of £6450 ends up costing you £7117 over 36 months, therefore £7117/£6450 is 1.1034, or a factor of 10.34%, divide by 3 (years) gives a flat rate of 3.44%. I haven't seen the full breakdown but 4.9% APR should not be anything like the flat rate quoted. It is therefore pretty low

The APRs represent the total cost of the deal, not just the effect on the deposit, but you know this.

One of the Merc deals is similar, it quotes representative 4.7% and fixed 4.16%.