Lease new vs PCP nearly new

mothemoneysaver

Hi,
I'm looking into our next family car, which is around £35,000 new, or around £27,000 nearly new/slightly used.
For the new car, I could lease it for 36 mths with an initial payment of approx £3000, and then £340 a month.
Or I could PCP it (after a nice deposit contribution already offered by dealer, so price now £31,500) for 36 months with an initial payment of £3000, and then £375 a month. (5.9% APR).
For the used car, which is 2 years old and £8000 cheaper, for the same deposit (£3000), it's £412 a month for the same mileage and for 3 years. I'm guessing this is because the optional balloon payment is lower than for the new car.

Assuming that I definitely plan to keep the car for 3 years only (and not buy it out thereafter), it makes most sense for me to lease the brand new car, right? Or am I missing something? Is leasing generally always cheaper than PCP if you only want a car for 3 years?

DrEskimo

Depends how accurate the balloon payment is. Used PCP balloon payments are typically more pessimistic, so if the car is worth more than you need to factor any positive equity into your total cost equation at the end of 3yrs.

What is the GFV on the new PCP? If you had £31,000 cash, then you could take the PCP then settle straight away. As long as its worth more than £16,600 it would be cheaper. 

Likewise what's the balloon payment on the used model? Again, pay cash and as long as thats worth more than £12,100 after 3 yrs trade that would be cheaper too. 

Also gives you the flexibility to keep it as long as you like and drive it as much as you like with no contractual obligations.

Grumpy_chap

The OP needs to be sure that they have all the information relating to the finance on both the new and the used car options.  That may be the case, but the OP does use the phrases "I'm guessing" and "Assuming" - that may be in a context other than incomplete data.

For the used car, before assessing the finance, the OP should be comfortable that the price is fair for the make/model/year/mileage/condition etc, then seek the best finance.

For the new car, before getting into the finance, the OP should verify that the price being offered is a good one - use the internet broker sites to see what types of deals are available.  Once best price is agreed, then look at the finance options and any additional manufacturer incentive for the finance.

For example, I just looked online at a "typical" £35k car -  Audi A4 30 TDI Technik Saloon Auto S tronic - and it is immediately available at £28k.  If the car the OP wants has this type of discount, it may be possible to bag the discount plus the finance incentive.  Possible, not guaranteed. 

If the OP is comparing new car versus "pre-reg" or similar used, then sometimes the overall costs can go in the favour of new - only facts will tell.

If the OP has any cash available, then it is sometimes possible to take the PCP and gain the finance incentive, but then pay off the finance so avoiding the interest charges.  (As @DrEskimo said.)

BrookBond

If you have no intention to keep then yes, lease is the better option on the face of it.... But please consider that its much harder to get out of a lease mid term. Ok, with a PCP it's still hard but there is a clause in the consumer credit act that allows voluntary termination which isn't in a lease agreement. 
You MAY get an option to purchase the lease end of term (a friend or family member) but no guarantee. 

neilmcl

mothemoneysaver said:

Hi,
I'm looking into our next family car, which is around £35,000 new, or around £27,000 nearly new/slightly used.
For the new car, I could lease it for 36 mths with an initial payment of approx £3000, and then £340 a month.
Or I could PCP it (after a nice deposit contribution already offered by dealer, so price now £31,500) for 36 months with an initial payment of £3000, and then £375 a month. (5.9% APR).
For the used car, which is 2 years old and £8000 cheaper, for the same deposit (£3000), it's £412 a month for the same mileage and for 3 years. I'm guessing this is because the optional balloon payment is lower than for the new car.

Assuming that I definitely plan to keep the car for 3 years only (and not buy it out thereafter), it makes most sense for me to lease the brand new car, right? Or am I missing something? Is leasing generally always cheaper than PCP if you only want a car for 3 years?

It's nothing to do with the balloon payment but everything to do with the fact the APR for your used car PCP will be significantly higher than that of a new car purchase via finance. PCPs are never a good way to finance a used car purchase.

sheslookinhot

If your new car is available at £31,500, then the 2 year old car is overpriced at £27,000.

mothemoneysaver

Thanks for all the comments. I think I will have a look at new cars and try to get a good deal on PCP eg good deposit contribution or low/no interest rate. Unfortunately I'm not in a position to buy out after financing which would seem to be the best financial decision. Lease may work out a bit cheaper but I'm a bit wary of the difficulty in getting out should I run into problems, and also extra hidden charges for small damage, admin fees etc.

neilmcl

mothemoneysaver said:

Thanks for all the comments. I think I will have a look at new cars and try to get a good deal on PCP eg good deposit contribution or low/no interest rate. Unfortunately I'm not in a position to buy out after financing which would seem to be the best financial decision. Lease may work out a bit cheaper but I'm a bit wary of the difficulty in getting out should I run into problems, and also extra hidden charges for small damage, admin fees etc.

If you're worried about running into problems along the line should you take a lease and can't envisage that you could afford to pay off the balloon at the end of a PCP then perhaps you should look again at trying to get a car you clearly can't afford and perhaps look closer at something within your means. No offence intended.

DrEskimo

mothemoneysaver said:

Thanks for all the comments. I think I will have a look at new cars and try to get a good deal on PCP eg good deposit contribution or low/no interest rate. Unfortunately I'm not in a position to buy out after financing which would seem to be the best financial decision. Lease may work out a bit cheaper but I'm a bit wary of the difficulty in getting out should I run into problems, and also extra hidden charges for small damage, admin fees etc.

Getting out of a PCP early can be just as difficult. If the cars value falls faster than than the amount you owe (i.e. typical on a new car where the upfront deposit you pay is low) then you have to pay the shortfall to exit the agreement. You can also pay to voluntary terminate the agreement, but that requires 50% of the total amount payable and typically doesn't occur 'naturally' in the agreement until near the end.

My advice is as above. Buy something you can afford. Don't spend more than 50% of your total annual income and don't borrow more than 50% of the cars total value. Those are my rules of thumb (although I make a habit of not using any finance at all).

Grumpy_chap

DrEskimo said:

My advice is as above. Buy something you can afford. Don't spend more than 50% of your total annual income and don't borrow more than 50% of the cars total value. Those are my rules of thumb (although I make a habit of not using any finance at all).

These seem like sensible guides - indeed I have always worked on the basis that a car should be no more than 50% income as well.
There are many people who fall into the trap of "must have" the latest car, TV, etc and no thought as to whether that is sensible or realistic.
It would, IMO, be helpful if "influencers" in the realms of personal finance were to put typical "rules of thumb" into their regular jargon.  It is not something I have seen - the only "cap" is relating to purchasing a house where lenders impose salary multiples.  Similar guide-line levels on larger purchases would help so many people to just be more contented.

sheslookinhot

Agree with the above advice, but ignored by so many. A few hundred pounds get most employed people behind the wheel of a brand new car. It is why PCP was designed. People only think about the monthly payment, not the overall cost of ownership.