Struggling over lease or PCP for new electric car - help would be great

jumeriah64

Morning all.
Drove an old car (proper old ... 1995, 230k miles and still going ) for the last 12 years but find ourselves in a position to get a new one and at last seen one that appeals.
Understand the options basics but still struggling know which best for us. If I just outline our situation, maybe it helps? ....

•  We can buy, lease or PCP but after years of owning & maintaining, I think we will go for change every 3/4 years from now on so less likely buy.
•  Don't want to be wedded to one make of car we are choosing now. As I understand it, PCP is good if you are looking to replace with same? But the residual is only of benefit if you take another model in the same stable or sold by same organisation. I can't just take the money and go get another one elsewhere. Is that right?
• We are going electric! Good but I sense there will be a lot of change the next 7+ years so don't want to lock into anything.
• Car chosen is at the higher end cost wise, is a new model as well as a new car and we get sense the residual will be strong.
• It's a full on electric model

We are modelling based on 4 years 10k miles  .... but might reduce that to 3 years 10k miles
Appreciate any advice that leads us to the most cost effective way to financially pay for the car. And come to that (if it's allowed under site rules) can anyone recommend a lease/pcp company that is significantly more cost effective?
Many thanks in advance for your help

AdrianC

jumeriah64 said:

•  Don't want to be wedded to one make of car we are choosing now. As I understand it, PCP is good if you are looking to replace with same? But the residual is only of benefit if you take another model in the same stable or sold by same organisation. I can't just take the money and go get another one elsewhere. Is that right?

No.

Once you reach the end of your term, you have two options with a PCP.
Pay the balloon to buy the car, or hand it back and walk away.
If the value is higher than the balloon, the first is a no-brainer. Whether you pay it, or whether a dealer pays it to buy the car in as a PX...

If you want to change before the end of the term, there will be a settlement value from the financier. That will almost certainly be higher than the value of the car - and any dealer for any brand will gladly hide that in a new deal for you...

The one thing to remember is that with both lease and PCP, you're effectively paying the depreciation over the term plus interest on the remainder. Whether you're doing so explicitly in a PCP, or hidden in a lease, that's what you're paying for...

BOWFER

I feel lease/PCP is the way to go with electric.
They're expensive to buy, but PCP/lease deals are as competitive as ICE cars
And the tech is changing so fast with EVs.
With regard to PCP, you're not tied into staying with the same brand/organisation at all.
You could settle the balloon payment yourself and sell it privately, or trade it in elsewhere.
If trading it in elsewhere, that garage will even settle the balloon payment for you as part of the deal.

DrEskimo

There is absolutely no difference to buying on PCP or outright if you want to change cars every 1, 2 or even 5yrs.

PCP is a loan to buy a car. That is it. It therefore has additional charges in the form of interest. Buying without a loan will be cheaper than buying with a loan.

The only point it gets complicated is that the finance company in effect gives you a guaranteed trade in price that's agreed up front for what the car in X-years and X thousand miles in the form of a final balloon payment. It's only if this valuation is high enough and the additional interest the loan add is low enough where you may want to consider PCP over buying. 9/10, buying would save you money.

Leasing is an entirely different kettle of fish, as you can't see how the purchase price, residual value or interest has been set up. You can only infer it from looking at the total cost of the lease and trying to determine if you bought a brand new one and sold it after the same period, whether you would expect it to be more or less.

The whole EV thing about it moving quick is a misnomer IMO. We know exactly what's on the horizon for the next 3-5yrs and older EVs still have maintained good values despite advances in the last 10.

Herzlos

PCP just allows you to finance the car whilst deferring some of the capital repayment, on the assumption the vehicle is worth a certain amount at the end of the term. At that point you pay the agreed value and buy the car from them or you return it and walk away.

You can pay it off or sell the car at any point in the term.

BOWFER

DrEskimo said:

The whole EV thing about it moving quick is a misnomer IMO. We know exactly what's on the horizon for the next 3-5yrs and older EVs still have maintained good values despite advances in the last 10.

They've held their value up to a point, because the tech didn't really advance much.
It was still pretty much the same cars for years on end.
I doubt a 24KW Leaf is holding its value as much now as it was 2-3 years ago, for example.

Grumpy_chap

jumeriah64 said:

•  We can buy, lease or PCP but after years of owning & maintaining, I think we will go for change every 3/4 years from now on so less likely buy.
•  Don't want to be wedded to one make of car we are choosing now. As I understand it, PCP is good if you are looking to replace with same? But the residual is only of benefit if you take another model in the same stable or sold by same organisation. I can't just take the money and go get another one elsewhere. Is that right?

It is incorrect that PCP ties you into the same make next time around.  PCP does not even tie you to changing the vehicle at the end of the agreed term.

Apart from lease, all the options you set out are means of financing the purchase:

• "BUY" - I assume you mean cash outright
• PCP - loan with lower monthly payments by deferring a chunk of the capital until the end of the agreed term
• Loan / HP - loan where the car is fully yours at the end of the agreed term

All things being equal, PCP would be the most expensive as it comes with the interest through the whole term on the balloon payment.  Various "incentives" can mean that all things are not equal.

With PCP, at the end of the term you can:

• hand the car back and walk away, then do whatever you wish
• pay the balloon and keep the car, after which the car is yours and you can do whatever you wish
• trade the car in, or sell, and settle the finance leaving you to do whatever you wish

Lease is different as you really are simply paying to use the car for a period of time and have not "right" to buy the car if you wish to keep it.  That does not mean that the lease company may not still agree to sell you the car, it's just they don't have to.

The best approach is to:

1. Choose the car you want
2. Negotiate the best price for purchase outright (use the online brokers to assist)
3. Get the finance that allows you to do the purchase at the lowest overall cost
4. Remember, if there are finance "incentives", you can still take the finance and then repay early if you would otherwise have paid cash.  This is the "best of both worlds" as it avoids the interest charges but gets the benefits of the incentives.

Good luck and hope you really enjoy the new car.
Out of interest, which EV are you going for?

BOWFER

Don't know where you live but, if Scotland, I think the Scottish government is still doing interest free loans up to 60 months for electric cars up to £28K new.
AFAIK new includes demonstrators or pre-registered cars.

DrEskimo

BOWFER said:

DrEskimo said:

The whole EV thing about it moving quick is a misnomer IMO. We know exactly what's on the horizon for the next 3-5yrs and older EVs still have maintained good values despite advances in the last 10.

They've held their value up to a point, because the tech didn't really advance much.
It was still pretty much the same cars for years on end.
I doubt a 24KW Leaf is holding its value as much now as it was 2-3 years ago, for example.

The question is how effective has buying on PCP or leasing reduced the impact of depreciation?

There were some cases of people with the early Leaf ending up saving a couple of grand by the fact the GFV was inflated, but once you factored in interest costs it was lower.

In all other examples people have been getting trade in values far higher than the GFV. I've seen that on most Zoe's were the GFV on leased 40kWh models was set to £5k, but they are still worth around £9k today. Battery owned was £8k, but still worth north of £12k today.

I even saw examples of things like the first edition e-Niro where brand new depreciation was only around £2k after 30k miles due to the fact the price increased and the PiCG grant was slashed. A lease would have been substantially more over 1yr 30k miles, not to mention early repayment fees for wanting to change after 1yr. Buying was way cheaper and more flexible.

The problem is you can only know with hindsight, so whilst buying on finance or lease may save you £1-2k every so often, it more often than not ends up costing you around £2k more. So over many cycles of cars you likely loose more than you save.

My advice. Buy used and pay outright. Use finance if you have to in order to get the best discounts, but no need to keep it running.

jumeriah64

AdrianC said:

jumeriah64 said:

•  Don't want to be wedded to one make of car we are choosing now. As I understand it, PCP is good if you are looking to replace with same? But the residual is only of benefit if you take another model in the same stable or sold by same organisation. I can't just take the money and go get another one elsewhere. Is that right?

No.

Once you reach the end of your term, you have two options with a PCP.
Pay the balloon to buy the car, or hand it back and walk away.
If the value is higher than the balloon, the first is a no-brainer. Whether you pay it, or whether a dealer pays it to buy the car in as a PX...

If you want to change before the end of the term, there will be a settlement value from the financier. That will almost certainly be higher than the value of the car - and any dealer for any brand will gladly hide that in a new deal for you...

The one thing to remember is that with both lease and PCP, you're effectively paying the depreciation over the term plus interest on the remainder. Whether you're doing so explicitly in a PCP, or hidden in a lease, that's what you're paying for...

Many thanks Adrian, I think I'm getting that.

So PCP from a dealerships point of view is more interesting to them as it creates a replacement cycle that sounds beneficial to them .... you are more likely to stay with them for replacement?

jumeriah64

BOWFER said:

I feel lease/PCP is the way to go with electric.
They're expensive to buy, but PCP/lease deals are as competitive as ICE cars
And the tech is changing so fast with EVs.
With regard to PCP, you're not tied into staying with the same brand/organisation at all.
You could settle the balloon payment yourself and sell it privately, or trade it in elsewhere.
If trading it in elsewhere, that garage will even settle the balloon payment for you as part of the deal.

So if the car value was higher than expected, it 'could' be better pay the end payment (the balloon) and sell it on yourself?

It's a very new model and it's possible that could occur. 

Am I understanding that right?

And I agree, I think there is a huge amount of change about to unfurl tech wise that will make these being sold now look and feel very V.2 in but a very short period of time .... especially the battery tech itself.