Two car finance deals, seems like a rip off!

TheSock

Hi all


My parents (OAP's) are looking for a new car. The are not sure about doing PCP or HP, they know how the deals work, so went to two different garages to look at two separate cars. The are trading in a car worth around £5000. I would appreciate if some folks can look over these figures and confirm both are a rip off. They are not committing to anything until I tell them the deal is good.


Deal 1. HP
New car cost £15'000
Trade in £ 5'000
48 monthly payments of £260 ( Total £12'480)
Total amount spent = 12'480+5'000 = £17'480


That was the info they got. I work the APR out as around 24%


Deal 2. PCP
New car cost £13'300
Trade in £4'800
Garage takes £800 and puts it towards new car. Garage gives the other £4000 as cash back.
PCP Finance stated as 7.7%
48 monthly payment of £238 ( £11'424 )
After 48 months, additional payment of £5'725 to buy car.
Total outgoing cash, £17'149 Minus the £4'000 cash back gives £13'149 cash out.


So the cash out on this second deal is near enough the same as the new car cost. The trade in value is now actually zero!


Seem the garage would have done anything to get the PCP deal done that day. Took me a little while to get my head round the deal.



The are now calling the garage to ask for a HP deal and the lowest APR and go from there. I don't know what APR they should accept, I am considering 8-12% as a normal deal on a loan of around £8'500?

Is Deal 2 even legal??? Seems they have just lumped on four or five grand final payment, just for the sake of it, and see if a couple of OAP's would fall for it.

Thanks for your feedback.

Clive_Woody

APR on deal 1 is around 11.5%, not 24%.

If they have cash available or can get a loan at a lower rate them might be better off going for deal 1, then paying off the finance immediately.

somethingcorporate

Your calculations are wrong.

Ask for the APRs to compare them to see which is the best deal. I would be advising my OAP parents not to take on these expensive debts though, not esp when they obviously currently have a car worth over £5k that presumably works? (this is an MSE site after all).

TheSock

Hi all

Thanks for the replies.


The PCP deal is exactly as it is stated on the paper. The £5725 seems to be a random number.

My parents have savings that are fairly close to maturing but they would like to change car now.


The latest deal from the garage is HP with an APR of annual flat rate 3.99%, monthly payment around £195. They tried to add extended warranty and two services to the amount to finance but they did not take it. That is something like I was expecting. The trade in is not in good condition, it's a good time to change! They are happy, the have search for the exact car in the spec and colour for the last 6 months it's all good.

National_Debtline

Hi there,


If your parents have set their hearts on this car and don't want to wait for the savings to mature then they should consider personal finance, such as a personal loan with no early repayment issues or possibly a credit card with 0% interest on new purchases. This should give them more flexibility in the future but they may also want to take some free, independent financial advice before going any further (especially if they are both retired).


The benefit of this potential solution is that they will own the car outright immediately and there no risk of repossession if they can't afford to pay (as there is with HP and PCP agreements). It could also give them more flexibility because they could then clear the debt with savings when they mature (if they want to), sell their current car to pay a lump sum off the loan to drive down the monthly payments, pay the loan monthly as the original contract outlines and pocket/reinvest all additional money. Or, in a worse case scenario, they have the option to sell the new if anything changes and they can use the sale of the car to deal with the personal credit - if they want to. I think they need further professional, financial advice before going into such a large purchase. Good luck,


Laura
@natdebtline

chanz4

TheSock wrote: »

Hi all

Thanks for the replies.


The PCP deal is exactly as it is stated on the paper. The £5725 seems to be a random number.

My parents have savings that are fairly close to maturing but they would like to change car now.


The latest deal from the garage is HP with an APR of annual flat rate 3.99%, monthly payment around £195. They tried to add extended warranty and two services to the amount to finance but they did not take it. That is something like I was expecting. The trade in is not in good condition, it's a good time to change! They are happy, the have search for the exact car in the spec and colour for the last 6 months it's all good.

Double the flat rate amount to get the actual apr. A garage trick!


Don't go for pcp get a bank loan, you are always in negative until the last month of the pcp which case you have zero deposit. Look on the fos complaints for pcp

TheSock

Thanks for all the feedback, most helpful.