Understanding PCP

Car_54

motorguy wrote: »

I think ultimately new cars will move to a leasing model here whereby you lease a car for three years and just get another one. Then finance rate / depreciation / discount are taken out of the negotiations entirely and it because a flat repayment.

You can already lease a car over 3 years.

How do you imagine that could be done without considering interest rates and depreciation?

motorguy

Car_54 wrote: »

You can already lease a car over 3 years.

You missed my point - i think leasing will become the prevalent way of driving a new car, not PCP and that will result in the default choice being leasing for typically (2 or) 3 years and handing the car back, rather than all the kerfuffle associated with buying a car now.

Its the default model in the US for example.

Car_54 wrote: »

How do you imagine that could be done without considering interest rates and depreciation?

The interest rate that the leaser is paying, the depreciation that the leaser is going to pay, and the discount received by the leaser is of no concern whatsoever to the leasee.

Thats not how i imagine it could be done, thats how it IS done

How do you imagine it to be otherwise?

Mobeer

motorguy wrote: »

The interest rate that the leaser is paying, the depreciation that the leaser is going to pay, and the discount received by the leaser is of no concern whatsoever to the leasee.

Thats not how i imagine it could be done, thats how it IS done

How do you imagine it to be otherwise?

All those factors are not directly relevant to the leaser, but will affect the lease rate:

For example a 20k new car loses 50% of its value in 3 years, with a 2k discount available if buying. Selling the car gets the dealer 18k now, leasing the car gets the dealer 10k in 3 years time. The lease rate needs to compensate the dealer for 8k lower selling price, and 18k financed over 3 years (plus costs and profit).

Whereas consider a 20k new car that loses 40% in 3 years with a 4k discount available if buying. Selling now gets the dealer 16k, selling the car used in 3 years time gets the dealer 12k. So the lease rate needs to compensate for the 4k lower selling price, plus 16k financed over 3 years (plus costs and profit).

In either case a higher interest rate to the dealer increases the lease rate, because by leasing the dealer is effectively tying up the selling price of the car for the duration of the lease.

[This is all a simplification - the lease might not be from a dealer, there are cashflow implications, the dealer\finance company may well sell the lease on etc]

motorguy

Mobeer wrote: »

All those factors are not directly relevant to the leaser, but will affect the lease rate:

For example a 20k new car loses 50% of its value in 3 years, with a 2k discount available if buying. Selling the car gets the dealer 18k now, leasing the car gets the dealer 10k in 3 years time. The lease rate needs to compensate the dealer for 8k lower selling price, and 18k financed over 3 years (plus costs and profit).

Whereas consider a 20k new car that loses 40% in 3 years with a 4k discount available if buying. Selling now gets the dealer 16k, selling the car used in 3 years time gets the dealer 12k. So the lease rate needs to compensate for the 4k lower selling price, plus 16k financed over 3 years (plus costs and profit).

In either case a higher interest rate to the dealer increases the lease rate, because by leasing the dealer is effectively tying up the selling price of the car for the duration of the lease.

[This is all a simplification - the lease might not be from a dealer, there are cashflow implications, the dealer\finance company may well sell the lease on etc]

Yes, of course, however it matters not one jot to the leasee as to whats happening behind the scenes to make a particular 3+33 deal viable.

A leasee wont give a stuff as to how the deal has been structured.

If you rent a car when your on holidays for a fortnight, you dont concern yourself with how / if the supplying company are making money or how they have geared their finances / structured the deal. You're just interested in deposit and payment cost across the duration of the rental.

Dealers dont do the leasing BTW - its usually the manufacturers finance arm, or an independent leasing company. Dealers arent geared up for self financing leasing deals.

They may well provide the car to the finance / leasing company, but they wont provide the finance itself.

Nasqueron

motorguy wrote: »

Many do do 0% loans - however its not a popular model as a £20K car purchase would have a monthly repayment of £555 a month over 3 years, which is unpalatable.

0% PCP deals are appearing, and manufacturer incentivised PCP offers are common.

I think ultimately new cars will move to a leasing model here whereby you lease a car for three years and just get another one. Then finance rate / depreciation / discount are taken out of the negotiations entirely and it because a flat repayment.

Mine was about £24.5k

£500 deposit
£4000 upfront
£259 a month over 42 months
£8000 at the end

(all figures approximate)

0% finance. The money in my bank from not paying up front earns me interest (was 3% before Santander cut it so I have a couple of other savers)

Works for me, not for all

People need to do the sums first

Zola.

Maybe I am weird but I wouldn't be motivated at all to wax and shine up a rented/leased/pcp car as opposed to one I bought outright, or on 0% finance.

neilmcl

Zola. wrote: »

Maybe I am weird but I wouldn't be motivated at all to wax and shine up a rented/leased/pcp car as opposed to one I bought outright, or on 0% finance.

Why wouldn't you. If you so inclined to be driving around in a nice new car then surely you'd be taking the time to keep it looking good. However, there are those who just view cars as tools and couldn't care less about their appearance, if that's you then fair enough. Some of us take a bit of pride in what we drive around in and that doesn't change just because it's been financed or leased.

BeenThroughItAll

neilmcl wrote: »

Why wouldn't you. If you so inclined to be driving around in a nice new car then surely you'd be taking the time to keep it looking good. However, there are those who just view cars as tools and couldn't care less about their appearance, if that's you then fair enough. Some of us take a bit of pride in what we drive around in and that doesn't change just because it's been financed or leased.

Indeed. I'd be much more inclined to polish a car I was intending to hand back after several years, in order to minimise the likelihood of ending up paying a fortune for minor paintwork repairs.

andrewf75

Transformers wrote: »

The motor industry employs thousands of workers and generates millions for the UK economy and there's nothing wrong with that.

If you look at it from a purely capitalist viewpoint then yes

But looking at the bigger picture, we are "consuming" far more cars than we really need and this is not only bad for the planet but with real incomes falling and housing costs increasing and a massive pensions and healthcare crisis looming as we all live longer, is it sustainable that people on low incomes can afford to run new cars? I would suggest not.

motorguy

Zola. wrote: »

Maybe I am weird but I wouldn't be motivated at all to wax and shine up a rented/leased/pcp car as opposed to one I bought outright, or on 0% finance.

If you've a mortgage do you not bother then keeping your home in good repair - it does after all belong to the Mortgage company until its fully paid off?

OR if you've ever had a car on regular dealer HP do you not bother washing it as it belongs to the finance company?

Likewise actually, if you've bought a car on 0% finance it doesnt belong to you, so why would you look after it? Lots of people will have traded the car back in before the end of the term of a 0% agreement, so it never belonged to them either?