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Car leasing/PCP. Am I missing something?

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13

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  • treeroy
    treeroy Posts: 160 Forumite
    100 Posts Second Anniversary Name Dropper
    sebtomato said:
    It seems that leasing a personal car is fashionable nowadays, but I don't really get it.
    Are there any financial incentives compared to cash buying?
    Surely, leasing a car (or PCP) is a loan and more expensive than buying the car upfront?
    If I wanted to get a £25K car and have the cash to buy it upfront, are there any benefits of leasing it instead? If I consider the opportunity cost of not investing the £25K in something else, isn't leasing always more expensive?
    You will usually get a bigger discount on the car if you finance it rather than if you pay cash where you'll have to pay the RRP.

    For instance.
    I bought a car 3 years ago that had a £21K RRP.

    My lease had me pay £7,200 over three years on a 12,500 mile agreement.

    The car three years old is now worth around £9,000.

    If I had paid cash, and sold the car after 3 years, then it would have cost me £12,000. Because I leased, it cost me £7,200. 

    That is a not insignificant saving.
  • Jonesya
    Jonesya Posts: 1,823 Forumite
    Part of the Furniture 1,000 Posts Name Dropper Combo Breaker
    I think there's a lot of smoke and mirrors in these deals, people look at the list prices which are just a number, invented by the manufacturer and then use it as a reference point for how good a deal they are getting, when there's no competition applied to those prices because so few are sold outright, most go to finance providers at a discount.

    When most people bought their cars outright that list price mattered, but now most people rent new cars and never pay that price, it's pretty meaningless.

    It's easy marketing, take a car worth £16k, stick an inflated £24k list price on it, let the leasing companies and finance houses buy it for £18k, hey presto aren't those leasing and PCP offers a great deal !
  • MalMonroe
    MalMonroe Posts: 5,783 Forumite
    Ninth Anniversary 1,000 Posts Name Dropper Photogenic
    I got a car on PCP last year because I could get a fairly new car (4 years old) with only 20,000 miles on the clock. It's 0% interest and the monthly payment is relatively small, as is the car. It's all been extremely affordable, which is great as I'm a pensioner. 

    I'd certainly recommend it in the short term, mine expires next year and then I can either return the car, swap it for another or pay the amount owing and own it. I was given all the relevant figures at the outset. 

    It's a great scheme if you can't afford to buy outright, which I couldn't - and also if you want a decent car. I was fed up of having old bangers. I owned them outright but they were not much good! 
    Please note - taken from the Forum Rules and amended for my own personal use (with thanks) : It is up to you to investigate, check, double-check and check yet again before you make any decisions or take any action based on any information you glean from any of my posts. Although I do carry out careful research before posting and never intend to mislead or supply out-of-date or incorrect information, please do not rely 100% on what you are reading. Verify everything in order to protect yourself as you are responsible for any action you consequently take.
  • bigadaj
    bigadaj Posts: 11,531 Forumite
    Ninth Anniversary 10,000 Posts Name Dropper
    MalMonroe said:
    I got a car on PCP last year because I could get a fairly new car (4 years old) with only 20,000 miles on the clock. It's 0% interest and the monthly payment is relatively small, as is the car. It's all been extremely affordable, which is great as I'm a pensioner. 

    I'd certainly recommend it in the short term, mine expires next year and then I can either return the car, swap it for another or pay the amount owing and own it. I was given all the relevant figures at the outset. 

    It's a great scheme if you can't afford to buy outright, which I couldn't - and also if you want a decent car. I was fed up of having old bangers. I owned them outright but they were not much good! 
    It's very unusual to get a 0% finance deal on a car that isn't new, would be interested to know the model and monthly cost and maybe sticker price, dealer needs to make their money somewhere after all.
  • Dr_Crypto
    Dr_Crypto Posts: 1,211 Forumite
    Part of the Furniture 1,000 Posts Name Dropper
    I've been offered a PCP deal on a new car. I usually take the finance and then pay it off but given that this car is more expensive than my previous ones I'm considdering letting the PCP run. 
    Price of new car £42k 
    Cotst to change: £30k 
    GMFV: £19k 
    48 x £267 
    APR 2.9% 
    If I let the PCP run it'll cost £12,848 over the 4 years. Cost of credit is £1,336. 
    The advantage of letting it run is that I don't have to take £30k out of my own money. The disadvantage is that I have to pay the £1.3k for that. 
    WWYD?
  • If you're talking about savings held in a bank account then it's a no brainer use you savings and replenish monthly by the amount  of your equivalent monthly payment (or better still a bit more).
  • DrEskimo
    DrEskimo Posts: 2,432 Forumite
    Seventh Anniversary 1,000 Posts Name Dropper
    edited 9 September 2020 at 2:22PM
    Dr_Crypto said:
    I've been offered a PCP deal on a new car. I usually take the finance and then pay it off but given that this car is more expensive than my previous ones I'm considdering letting the PCP run. 
    Price of new car £42k 
    Cotst to change: £30k 
    GMFV: £19k 
    48 x £267 
    APR 2.9% 
    If I let the PCP run it'll cost £12,848 over the 4 years. Cost of credit is £1,336. 
    The advantage of letting it run is that I don't have to take £30k out of my own money. The disadvantage is that I have to pay the £1.3k for that. 
    WWYD?
    I can't get those numbers to add up...?
    On a calculator I get a monthly payment of £289. That makes the cost of credit ~£2,800?

    In any case, why pay any finance company money to borrow money you already have? If you want to pay to have money sitting in your account, just get a personal loan afterwards. That will be much cheaper than £2,800 in interest charges....
  • Ganga
    Ganga Posts: 4,253 Forumite
    Part of the Furniture 1,000 Posts Name Dropper
    treeroy said:
    sebtomato said:
    It seems that leasing a personal car is fashionable nowadays, but I don't really get it.
    Are there any financial incentives compared to cash buying?
    Surely, leasing a car (or PCP) is a loan and more expensive than buying the car upfront?
    If I wanted to get a £25K car and have the cash to buy it upfront, are there any benefits of leasing it instead? If I consider the opportunity cost of not investing the £25K in something else, isn't leasing always more expensive?
    You will usually get a bigger discount on the car if you finance it rather than if you pay cash where you'll have to pay the RRP.

    For instance.
    I bought a car 3 years ago that had a £21K RRP.

    My lease had me pay £7,200 over three years on a 12,500 mile agreement.

    The car three years old is now worth around £9,000.

    If I had paid cash, and sold the car after 3 years, then it would have cost me £12,000. Because I leased, it cost me £7,200. 

    That is a not insignificant saving.
    Am i reading this right ,you have paid £7,200 but you do not own the car! you have only rented it. Apologies if i am wrong.
  • ontheroad1970
    ontheroad1970 Posts: 1,695 Forumite
    1,000 Posts Fourth Anniversary Name Dropper
    edited 9 September 2020 at 2:59PM
    Ganga said:
    treeroy said:
    sebtomato said:
    It seems that leasing a personal car is fashionable nowadays, but I don't really get it.
    Are there any financial incentives compared to cash buying?
    Surely, leasing a car (or PCP) is a loan and more expensive than buying the car upfront?
    If I wanted to get a £25K car and have the cash to buy it upfront, are there any benefits of leasing it instead? If I consider the opportunity cost of not investing the £25K in something else, isn't leasing always more expensive?
    You will usually get a bigger discount on the car if you finance it rather than if you pay cash where you'll have to pay the RRP.

    For instance.
    I bought a car 3 years ago that had a £21K RRP.

    My lease had me pay £7,200 over three years on a 12,500 mile agreement.

    The car three years old is now worth around £9,000.

    If I had paid cash, and sold the car after 3 years, then it would have cost me £12,000. Because I leased, it cost me £7,200. 

    That is a not insignificant saving.
    Am i reading this right ,you have paid £7,200 but you do not own the car! you have only rented it. Apologies if i am wrong.
    In many cases it would be more expensive on a PCP...and still they don't own the car until the bubble is paid.
  • If you're talking about savings held in a bank account then it's a no brainer use you savings and replenish monthly by the amount  of your equivalent monthly payment (or better still a bit more).

    Not as simple as that, depends on savings interest rate relative to PCP rate (2.9%).
    Assume current savings = £50,000 earning 1% and sufficient income for the PCP monthly payment without dipping into savings. Then

    Buy outright by taking £30,000 from savings
    - savings decreases to £20,000 immediately and increases to £20,812 after 4 years
    - the 48*£267 PCP payments are saved giving £13,070 after 4 years
    - savings amount after 4 years = 20812+13070 = £33,882

    PCP
    - savings remains at £50,000 and increases to £52,030 after 4 years
    - savings amount after 4 years = 52030 - 19000 (balloon) = £33,030
    Thus PCP more expensive by £852.
    But if interest rate = 4% (achievable pre-covid with stocks and shares), PCP is cheaper by £2,222.
    Above uses the OP’s PCP value of £267 but like DrEskimo, I calculate £289.
    Using this, PCP is more expensive by £1,880 @ 1% and cheaper by £1,131 @ 4%.


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