New Car - PCP or Lease

isplumm

Hi

Before Christmas my car was written off - so am in the market for a new car - decided to buy a new one, not 2nd hand.

Anyway I have been looking at the Hyundai Tucson 1.6 TGDi Premium 5dr 2WD Petrol.

Looking at either leasing or PCP - but am slightly confused as to which is better?

I can lease this car for about 12k over 3 years, pcp is coming in at around £17.5k - 10k miles per year.

That is a massive difference in price - so trying to understand what the catch is!

Thanks Mark

Goudy

Leasing it just that, you are effectively renting it for the contract.

PCP is a way of financing.
It's a loan, though the repayments aren't evenly spread. To keep the monthly payments lower than a straight loan a portion of the loan is deferred until the end of the contract,  called the GFV (guaranteed future value).

You have options on the GFV.
1. You can pay it and keep the car.
2. Hand it back and pay nothing more (subject to contract mileage and condition)
3.Trade in it (you will likely roll the difference between GFV and actual trade in value into the next contract, if it's more it counts towards a deposit. If it's worth less you will no doubt have to refinance that difference or clear it with cash, though why you would do this when you can just choose option 2 and hand it back).

Typically manufacturers will offer deposit contributions towards a PCP deal and as cash in no longer king, more often than not it's worth taking a PCP deal for this deposit contribution and settling the contract within the first month or even cancelling the PCP contract within 14 days if you have the cash and clearing the finance. 
This deposit contribution is now a discount.

motorguy

As per what Goudy's excellent summary said, and i'd add - 

There is very little flexibility with leasing.  You make the payments, you hand the car back.  You have no easy option to get out of the deal because of a change of circumstances - eg, no longer need the car, change of circumstances, require a different type of car.  

Theres a fair chance there will be equity in the deal at the end of the term with a PCP, particularly the way the market is right now, but there is no guarantee of that.

You will have the option to buy the car at the end of the term with a PCP.  With leasing you might be able to, but its not guaranteed and you'd need to ask.

You have more consumer rights with a PCP deal.  You can voluntary terminate the deal at any time and they can only pursue you for half the total transaction cost.  So basically once you've paid 50% of the total transaction cost you can hand the car back if needs be, with nothing more to pay.  (that figure will be on your agreement and your deposit, any finance incentive and monthly payments all contribute to that).

If you go for a PCP deal, at the end of term most people trade the car in or buy it outright.  Very very few end up being handed back to the finance company, so you're less likely to have to face any potentially expensive charges for repairs above fair wear and tear (stone chips, dings, scuffed alloys, scratches) than you would with a lease agreement.  

So it depends really.  If you think you might want to buy the car outright during / at the end of the term then PCP is probably the way to go (with a view to converting it to a cheap loan at some point or paying it off with cash).  If you're certain you only want the car for the term and your circumstances are not going to change, then leasing may well be the answer.

Anywhere in between, then its a judgement call.

Jenni_D

motorguy said:

You have more consumer rights with a PCP deal.  You can voluntary terminate the deal at any time and they can only pursue you for half the total transaction cost.  So basically once you've paid 50% of the total transaction cost you can hand the car back if needs be, with nothing more to pay.  (that figure will be on your agreement and your deposit, any finance incentive and monthly payments all contribute to that).

And just to add to the above good advice ... the 50% point is not after half of the PCP term has expired, it's after half of the total value has been paid. (As @motorguy says - half of the total transaction cost, which includes the "balloon" payment / GFV). Over a 3 year term you'll likely have made payments for 2.5+ years before you reach that point - the finance is very end-loaded.

Flight3287462

The problem or benefit with PCP deals is you are gambling with market when the PCP expires with a lease all costs are known (and usually include VED).

Penelopa.Pitstop

With PCH, only total cost of monthlies go onto your credit report. With PCP, whole cost of the contract (with baloon payment) goes onto your credit report, so it looks like you have huge unsecured debt.

Goudy

Flight3287462 said:

The problem or benefit with PCP deals is you are gambling with market when the PCP expires with a lease all costs are known (and usually include VED).

I'm not sure it's much of a gamble.

If the car is worth more than the GFV you can trade it in and the equity goes towards your new car.

If it's worth less than the GFV, you just hand it back to the finance company and that's their problem.

Of course you could just pay the GFV and keep the car, then neither matters.

Most owners at the end of a PCP contract will find if they shop around they will get a dealer to sweeten the trade in value as they know you'll probably not sign for a new car if you are taking over some negative equity and they also know you can just hand the thing back to the finance company.



It's worth noting at the end of a lease you are bound by the terms and conditions of that lease in regards to mileage and condition (usually based on BVRLA's Fair Wear and Tear guidelines) and you are liable to pay for excess mileage, damage outside of the terms, missed servicing etc.

Their will be similar terms in your PCP contract though how they are settled depends on what you do with it at the end of the contract.
If you hand the car back to the finance company they will hold you liable for the same things and charge you for them.

Trade in it and it might not be worth as much with excess mileage/damage/missing service history as it normally would, so you have a bit of work ahead, shopping around to get a decent trade in value.

Again, pay the GFV and keep the car and you won't have to stump up (but may own a car worth less than it really should. just like everyone else!)

Sandtree

Goudy said:

Flight3287462 said:

The problem or benefit with PCP deals is you are gambling with market when the PCP expires with a lease all costs are known (and usually include VED).

I'm not sure it's much of a gamble.

If the car is worth more than the GFV you can trade it in and the equity goes towards your new car.

If it's worth less than the GFV, you just hand it back to the finance company and that's their problem.

It is a gamble @goudy if you are paying more on a PCP in the hope of having equity in the end you could find the vehicle is well under the GFV and so whilst you can sidestep the negative equity by handing it back you've now simply paid more for the car than you would have on PCH

For me it was a no brainer as PCP was cheaper than PCH so win win but have looked at cars where PCH could be £3-£4k cheaper in total monies paid over the 3 years and so then its more of a gamble

isplumm

Well I am looking at the Tuscan - I can get that on PCH for about £12.5k - 10k miles per year, 3 years, 3 months deposit.

The PCP is coming in at about £16k - same mileage / time frame, but £4k deposit - so its a massive £3.5k difference!

I just don't see how going down the PCP route is worth it at that price.

Of course the next issue is I might have to wait for months to get the car! Which is a slight issue, as I don't have a car now - due to the kind person who drove in the back of it before Christmas!!

Mark

DrEskimo

isplumm said:

Well I am looking at the Tuscan - I can get that on PCH for about £12.5k - 10k miles per year, 3 years, 3 months deposit.

The PCP is coming in at about £16k - same mileage / time frame, but £4k deposit - so its a massive £3.5k difference!

I just don't see how going down the PCP route is worth it at that price.

Of course the next issue is I might have to wait for months to get the car! Which is a slight issue, as I don't have a car now - due to the kind person who drove in the back of it before Christmas!!

Mark

What is the GFV of the PCP? You need to bear in mind that due to tax implications, the GFV is now typically set lower than the expected market value. Obviously hard to gauge in the current market, but how does the GFV stack up against what you could reasonably expect to get as trade value for a 3yr old/30k miles version?

Secondly, have you checked what the best discount is you can get on the PCP deal? Have you used the likes of CarWow, etc? It may be you can save a couple of grand on the list price and bring down that differential.

Finally, what is the total interest charges? If you have the capital you could take the PCP deal then settle next day to save on the interest charges.

Higher value than the GFV, reduced purchase cost and saving on interest charges could result in a lower cost of ownership than the lease, with the benefit that you own the car out of any contract and are free to trade it in after 3yrs, or keep it a day, week, month or years longer if you so choose.

ontheroad1970

I wondered what car it was then realised that autocorrect had taken over:  you mean the Tucson...