Car finance - hire purchase or PCP?

CB1878

rs65 wrote: »

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.

You are quite right, as a former business manager 'I must understand' how work out flat rates of interest and 'I must understand' that a 'deposit' that cannot be retrieved is simply lost. I would have thought this concept is not too difficult?

As I previously stated, I am aware that the £6450 I have kept in my bank may cost me about £300 over 3 years. So clearly this would be my preference to saving £18.56 per month, knowing I have always got my money.

My old role as a business manager does give me some insight into PCP I would hope, as I probably sold around 6000 vehicles on PCP, had one of the highest renewal rates for the manufacturer in the country. Why? because when someone came back at the end of their PCP I did not ask them for thousands of pounds each time to effectively lease the vehicle each time.

How many people do you think simply use a vehicle they own outright as a 'deposit' on a first time PCP? Huge deposit, low monthly payments, and no cash outlay, easy sale. Then when they come back in three years or so, and wonder why their payments on a new car has doubled or trebled without them putting in a huge cash deposit this time? How many car dealers do you think explain this clearly?

I can tell you that manufacturers encourage your way, optically low monthly payments makes it easy to sell cars...........the first time. Fortunately I worked for a dealer group who made sure consumers were made aware of the pitfalls of putting in a huge deposit, including the minimal amount of extra interest they may pay. Eventually the manufacturer saw the renewal and CSI rates we provided as evidence that we may have had a valid point.

If you are looking for a 'pounds and pence' way of buying a vehicle cheaply, then I dare say a personal CH or even a low rate personal loan may be cheaper than a PCP in many circumstances.

The original OP asked for peoples opinion, and mine differs quite differently from yours clearly. However, I would say that even though we may have to agree to disagree perhaps the OP will understand the pro's and con's of both ways far better than an explanation they may get in the motor dealer.

CB1878

rs65 wrote: »

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%.

I am aware of the definition of APR, thanks. This is why I did say that I did not know what kind of admin fees involved.

Of course the APR is an expression of the overall cost of borrowing, and I am sure the flat rate will also take into account the admin fee at the start and the OTP fee end. This therefore is only valid if you actually opt to buy the vehicle at the end, for the GFV. The 'option to purchase' fee at the end should not be charged if you hand the vehicle back or part ex (ie do not opt to purchase). This means that your APR and flat rate can look higher than actual cost in reality, if as most do, you do not opt to buy the vehicle at the end.

This may go some way to explaining the difference between the 4% plus you are stating and the actual cost of 3.44% on the £6450 I have shown.

Would you agree that the actual £6450 costs you an actual flat rate of 3.44% (I think the calculation is pretty clear), or actual the cost of borrowing (and therefore retaining your money) the £6450 costs about £7117 over 3 years?

CB1878

To rs65, just read back through the posts and I am sorry if I am getting a bit hot under the collar over this. I have seen plenty of people go into PCP blindly in the past, only to to be shocked at the end of it.

PCP is a brilliant scheme, I just think a low deposit retains you options better. A large deposit may save you a little in interest over the term, no doubt about it and I never said any different.

Clearly I would like to say we both understand PCP, we just have a different view on how to use it effectively. As long as a consumer understands all options, pitfalls and benefits then the choice they make is fully informed.

Respect for your views, but 'tit for tat' over flat rates and the what happens over a deposit is not going to make us agree really is it?

Thanks for the discussion though, and hope it may help anyone looking for a PCP to understand them a bit better...............just keep your money in the bank (lol)

BJV

Totally agree in another life I used to work for a German Car maker and i was always in constant battle over the PCP deposit issue!

The problem with PCP is that while it can and often if the most cost effective way to buy a car it can be very misleading if sold or promoted wrong.

Don't forget that no-one can ever say exactly what I car will be worth there are too many variables.

PCP is almost like a balancing scale the higher the deposit the lower the monthly rentals. ( Unless you reduce you optional final payment? Why would you ).

Too many dealerships advocate large deposits which long term is not the best way. The problem being that if and ok it is playing devils advocate your car is only worth the optional final payment you are faced having to find a substantial amount as another advanced rental / deposit in order to be able to lower your payments to an comparable amount. ( many car makers have got it wrong over the years, German as well as French and even closer to home)

Sorry but unless you have been sat in-front of an old lady explaining why her payments have increased over £200 a month when just three years later she had part exchanged her car, ( which she owned in full at the time ) has been being paying monthly payments and now she has absolutely nothing, you can not really understand the damage miss selling can do.

No not nice.

TBH finance companies get it wrong, and sorry if they get it wrong i would want it to be with their money not mine!

CB1878

prop wrote: »

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

Sorry missed this amongst all the fun of this thread!

Firstly of course cars will require maintenance, but modern cars often come with much longer warranties from the manufacturer. This may gives some confidence as to the longevity of the vehicle in the manufacturers eyes.

In terms to a long term solution for having a new car every three years, then PCP may be a good idea. This means you should not be faced with MOT's or major running costs over the period. You do have the option to buy the vehicle, hand back and walk away (if the vehicle is not worth the final payment), or part exchange the vehicle for a new one. If you take the third option, and the manufacturer will make it attractive to do so, then if the vehicle was worth more than the GFV (the final balloon payment) then this 'equity' is a natural deposit for a new vehicle.

There is the issue of deposit on the PCP deal (as you may have gathered from this thread). If you put your car in (so £8k deposit), then you will pay really low monthly payments this time around. However, when you go back in three years then to get a similar payments then you will have to put in a similar £8k deposit again.

As you may have gathered, I do not see the sense in putting a large deposit down as the savings in interest should be minimal on something you may choose to walk away from at the end.

Another alternative could be a Personal Contract Hire, a pure rental lease if you like, although no option to buy the vehicle at all.

Hope it helps

rs65

CB1878 wrote: »

PCP is a brilliant scheme, I just think a low deposit retains you options better. A large deposit may save you a little in interest over the term, no doubt about it and I never said any different.

I think you are completely missing my point. I am neither for nor against paying a deposit – I have done it both ways. I am pro PCP deals. It is just the comment about deposits being lost that is wrong.

All I am saying is to go into a PCP with your eyes open. If a car has an OTR price of 30k and will be worth 14k at the end of three years, you will be paying 16k over three years. It doesn’t matter whether you pay a deposit or not, the end result is the same (plus/minus a bit of interest).

rs65

BJV wrote: »

Sorry but unless you have been sat in-front of an old lady explaining why her payments have increased over £200 a month when just three years later she had part exchanged her car, ( which she owned in full at the time ) has been being paying monthly payments and now she has absolutely nothing, you can not really understand the damage miss selling can do.

Not just old ladies, one of my colleagues is delighted with her low payments and the fact she paid no deposit. She has already forgotten that she traded in a £7k car. I feel sorry for her future salesman already - he will be getting a hard time in the near future.

BJV

rs65 wrote: »

Not just old ladies, one of my colleagues is delighted with her low payments and the fact she paid no deposit. She has already forgotten that she traded in a £7k car. I feel sorry for her future salesman already - he will be getting a hard time in the near future.

So Sad, no matter how much she is enjoying her low payments now and no matter how much she says that she understands, she is in for a shock. I would not want to be the sales person or business manage who has to explain that one !

CB1878

rs65 wrote: »

I think you are completely missing my point. I am neither for nor against paying a deposit – I have done it both ways. I am pro PCP deals. It is just the comment about deposits being lost that is wrong.

All I am saying is to go into a PCP with your eyes open. If a car has an OTR price of 30k and will be worth 14k at the end of three years, you will be paying 16k over three years. It doesn’t matter whether you pay a deposit or not, the end result is the same (plus/minus a bit of interest).

Could not agree with you more, the issue is that thousands of people are reliant on the motor dealer explaining PCP deals correctly to have 'their eyes open'. Unfortunately poorly trained sales staff find the easiest route to a sale which is the lowest monthly payments and therefore a big deposit.

Regarding the deposit, and your insistence that I am wrong, I think most peoples understanding of a 'deposit' would be something that you can get back from the purchaser at the end of the agreement. I note that you concede that you 'lose access to it', so if you can explain how your motor dealer can give you your 'deposit' back without you having to pay the GFV and buy the vehicle, then I am happy to admit your deposit is lost.

'lose access to it' and 'lost' are really the same thing aren't they? Go on in the spirit of conciliation

almillar

I'm glad that two knowledgeable people, CB1879 and rs65, thrashed this out.
rs65 did the maths, and showed that if you put in a deposit, borrowing less, you do pay a bit less for the car on the whole.
CB1879's point I think is that this deposit is a one shot thing - you'll only have a car as a deposit once - next time, you don't own one any more. Don't get used to the luxury of those low payments, because the next time, they'll shoot up. Also an excellent point that you shouldn't put your last couple of thousand pounds as a deposit - you lose (easy) access to this money, and if something bad does happen, you might be shoving that money onto a credit card for a while, which will be a much higher interest rate than your car!
Don't learn about PCP from a salesman, they're obliged to educate you, but can gloss over the important things whilst wafting the 'new car smell' at you!