PCP Financing Advice

AdrianC

bpk101 wrote: »

Theres a number of reasons PCP appeals to me more than buying (unless I’m completely missing something)...

1. I get to change vehicles for another new vehicle at any time during the contract i.e. if I need to size up due to an additional family member for instance.

NO, YOU DO NOT.

Your financier will allow you to terminate the contract early, and the costs of doing so can be rolled transparently into whatever finance contract you take out to replace it...

2. The car offered includes all the specifications i’m looking for (petrol, automatic transmission, heated seats, preferred colour etc). Finding a second hand car that ticks all these boxes might be tricky.

Which is nothing to do with how it's financed. You can buy THAT car for cash or on another type of finance deal.

3. This is my first car (I’m 40+ but living in London never needed one!)

So what's changed that you're looking to splooge the thick end of £5k/year on renting a brand-spankin' car?

"My first car" is a good reason not to get a brand spanker. You WILL scrape it or kerb the wheels at some stage. In London, it's going to get parking dinked.

If it's for trips out of town, would it make more sense to just rent when you need?

so the thought of becoming a second hand car expert and trapsing round the country looking at used cars before Xmas is just a non-starter.

So buy a few years old approved-used from a dealer. Not all "second-hand cars" are sub-grand sheds with dodgy Arfur Daley back-street dealers.

Leasing would be the other option and slightly cheaper but then i’m stuck in the deal with no chance of changing the car. Also from what I understand leasing deals are a lot more costly to end early.

Either way, it's costly to buy out of a contract early.

motorguy

bpk101 wrote: »

Theres a number of reasons PCP appeals to me more than buying (unless I’m completely missing something)...

1. I get to change vehicles for another new vehicle at any time during the contract i.e. if I need to size up due to an additional family member for instance.

2. The car offered includes all the specifications i’m looking for (petrol, automatic transmission, heated seats, preferred colour etc). Finding a second hand car that ticks all these boxes might be tricky.

3. This is my first car (I’m 40+ but living in London never needed one!) so the thought of becoming a second hand car expert and trapsing round the country looking at used cars before Xmas is just a non-starter.

Leasing would be the other option and slightly cheaper but then i’m stuck in the deal with no chance of changing the car. Also from what I understand leasing deals are a lot more costly to end early.

1. No. This is wrong. At any point other than extremely close to the end of the agreement you are likely to be in negative equity (perhaps many £,£££s) which you would be liable for.

2. I would try Broadspeed.com and see what they can do. The broker will put you in touch with the dealer offering that price.

3. Why not lease over a shorter term?

PCP over 4 years is a big commitment in terms of time. I'd be cautious of that, relative to response 1 above.

AdrianC

DrEskimo wrote: »

PCP is one of the most misunderstood finance packages I can think of.

It's a loan. No more, no less. Look at how much it will cost to borrow the money in terms of actual interest paid, and compare that with other methods of financing.

Yup.
PCP is very simple, OP.

You borrow the entire purchase price of the car.
You then repay it over a longer period than you'll have the car for. At the end of the contract, you still owe what they think the car'll be worth - but, of course, you've been borrowing that for the entire duration.

And then you can buy the car for what it's worth, or you can hand it back and walk away. They are the only choices. The "buy" option is muddied because dealers can "buy it for you", making you think you're taking some kind of third option.

If you hand it back, it has to be in good condition and with mileage within the contracted amount.
If you want to get out early, for whatever reason, then you will be paying the difference between what it's worth at that time and what you still owe - and that will be substantial, because depreciation is steepest at the start. If it's because you're PXing, that'll be transparent because it's rolled into your replacement finance. If it's because it's been written off, gap insurance would cover that gap.

So the deal is £4k + (£300 x 48) for 10k/yr.

You are paying £18,400 for 40k total in four years. If you do exactly 40k, it'll cost you 46p/mile plus fuel plus insurance plus maintenance plus parking permit plus whatever other costs. If you do less, it'll cost you more per mile - if you do 7,500/year, it'll cost you 61p/mile plus. If you do 5k/year, it'll cost you 92p/mile plus.

If you do more, you'll pay an additional amount per mile over the contract. If it's 8p/mile, and you do 12,500/year, then it'll cost you £19,200 in total, over 38p/mile plus. Then you hand it back and walk away at the end of the contract.

And remember that there's deals out there to buy for <£20k. You own the car at the end of the contract. What's the balloon on your PCP? £8k? £9k?

You haven't had a car before - so how do you have the first clue what mileage you'll be covering?

motorguy

£18,400 sounds like an awful lot for a four year agreement on what must be a £22K car after discounts...

Big deposit too which is hiding the real ammortised monthly cost of £383 a month.

DrEskimo

motorguy wrote: »

£18,400 sounds like an awful lot for a four year agreement on what must be a £22K car after discounts...

Big deposit too which is hiding the real ammortised monthly cost of £383 a month.

Yea I don't think the dealer stock discount is anything special.

If it's a Tekna petrol model, then guessing it's the 1.3DiG 160 model, which with no options is £29,695. Coast2Coast will give me 21% discount on a factory order, so £23,405.

Nissan's finance calculator gives a GFV of £10,392 on a 48month term and 10k miles. With a £4k deposit you would be financing £19,405, which would give you £250 in monthly payments.

OP, even if you did want to go brand new, the stock car is not the best price you can get. That's the problem with only quoting finance numbers. Look at the discounted price.

For comparison, this PCP deal would cost you just shy of £3,000 in interest payments over the term to borrow £19,405. A bank loan at the same 4.99% APR over the same 48months would cost you £2,000 (but of course, higher monthly cost). Interestingly, I get the same discounted price on Coast2Coast whether it's PCP or cash, so no need to worry about losing out on finance deposit contributions if you went for a straight cash (/bank loan) purchase.

AdrianC

DrEskimo wrote: »

For comparison, this PCP deal would cost you just shy of £3,000 in interest payments over the term to borrow £19,405. A bank loan at the same 4.99% APR over the same 48months would cost you £2,000 (but of course, higher monthly cost).

And for clarity, OP, the reason for that is that you're repaying the full purchase price in the 4yrs, so at the end of the time you own the car instead of handing it back or paying nearly £11k to buy it from the finance.

motorguy

DrEskimo wrote: »

Yea I don't think the dealer stock discount is anything special.

If it's a Tekna petrol model, then guessing it's the 1.3DiG 160 model, which with no options is £29,695. Coast2Coast will give me 21% discount on a factory order, so £23,405.

Nissan's finance calculator gives a GFV of £10,392 on a 48month term and 10k miles. With a £4k deposit you would be financing £19,405, which would give you £250 in monthly payments.

OP, even if you did want to go brand new, the stock car is not the best price you can get. That's the problem with only quoting finance numbers. Look at the discounted price.

For comparison, this PCP deal would cost you just shy of £3,000 in interest payments over the term to borrow £19,405. A bank loan at the same 4.99% APR over the same 48months would cost you £2,000 (but of course, higher monthly cost). Interestingly, I get the same discounted price on Coast2Coast whether it's PCP or cash, so no need to worry about losing out on finance deposit contributions if you went for a straight cash (/bank loan) purchase.

A £19K (£23K-4K deposit) loan can be got for 2.9% APR so thats coming in at £419 a month. Over 5 years though its coming in at £340 a month which may be more palatable to the O/P.

https://www.money.co.uk/loans/unsecured-loans.htm

Personally - i'd be getting a bank loan over either 4 or 5 years.

DrEskimo

motorguy wrote: »

A £19K (£23K-4K deposit) loan can be got for 2.9% APR so thats coming in at £419 a month. Over 5 years though its coming in at £340 a month which may be more palatable to the O/P.

https://www.money.co.uk/loans/unsecured-loans.htm

Personally - i'd be getting a bank loan over either 4 or 5 years.

Indeed. I was just showing how like for like, PCP finance can work out more expensive due to the deferred payment. Why it's important to look at the actual amount of interest paid, rather than just the APR. As you say though, if you can get accepted for the lower headline rates, then obviously more savings to be had!

If the increase of £196 in monthly payments is not viable, my preferred advice is to borrow less, rather than increase the term. Whilst this does require more capital (and potentially delaying purchase until enough is saved), it further reduces the interest substantially and reduces financial risk. As a personal rule of thumb, I would advise against borrowing more than 50% of the total value due the depreciating nature of cars. That way, you never owe more than the value of the asset over the term of the finance agreement. If circumstances change, you don't have to worry about finding additional funds to clear the finance when you may need access to them most.

If time is not on your side, then an alternative solution may be to buy a cheaper car....!

bpk101

motorguy wrote: »

£18,400 sounds like an awful lot for a four year agreement on what must be a £22K car after discounts...

How can i negotiate a £29k list price down to £22k with a dealer, what are these discounts i'm asking for or am i simply just calling up cold and asking what their best price is?

If i'm to look at alternative financing options other than PCP which some have mentioned, i need to find the best price for the car first then look at financing options i presume.

What's considered a good discount on a £29k listed price and how do i get this discounted price?

DrEskimo

bpk101 wrote: »

How can i negotiate a £29k list price down to £22k with a dealer, what are these discounts i'm asking for or am i simply just calling up cold and asking what their best price is?

If i'm to look at alternative financing options other than PCP which some have mentioned, i need to find the best price for the car first then look at financing options i presume.

What's considered a good discount on a £29k listed price and how do i get this discounted price?

Online brokers. CarWow is a good start. There is also Coast2Coast, Broadspeed and OrangeWheels (probably more).

You can detail your car and specification, and you will get discounted offers. You can then take those to your local dealer and say "if you can beat this, I'll order a car from you".

Alternatively, you use those discounted prices as a benchmark for looking at dealers and private sales used car listings. That will give you an indication of what a good price is, depending on it's condition/age/spec/etc.

Once you know what sort of price you can achieve, it's a case of working out how much money you have saved and want to put towards to the car, and what the cheapest way to finance the remainder (if there is any) given what your budget allows.

Some of this will be very subjective. I am loathed to paying interest and hate having monthly payments coming out of my bank account each month, so I will only ever seek solutions that don't require credit.