PCP v Lease

DrEskimo

Jvnolan said:

No I can get the car via cash, or PCP/Lease. I would of course pay cash if I had such finances. However, finances dictate that I need to borrow. A bank loan - your looking at a marginally better rate but the monthly payments are too much for my liking. PCP rate is 5.9, and the monthly payments are where I want them. I can up the initial by a few more thousand - thoughts? 

The rates may be similar, but the PCP will cost you more because of the balloon payment. You are paying less per month, so the balance is reducing slower, therefore you pay more interest, even at the same term and rate as a personal loan. This is why you need to look at total cost.

The car is £19,500, and it's anticipated to be worth £12,500 in 3yrs time. So if you bought with cash, you could trade in at the same time as the PCP deal and its cost you just £7k. That's your baseline depreciation cost.

As you say you need to borrow, so now it's just about the additional interest costs on top of that depreciation cost. For the PCP, the interest is £2425, bringing the total cost to £9,425.

The interest of a personal loan for borrowing the same amount, at the same rate over the same 3yr term is ~£1,500, so a saving of nearly £1,000. Of course you can possibly get a better rate, around 3%, which will only cost you about £800 in interest. A £1,600 saving.

As you say, the personal loan is higher monthly, so to achieve the same monthly of £230 on a personal loan over 3yrs at 3% would be to borrow only £8k. This would add only £300 in interest charges.

If you could put down £11k and borrow the rest on a low rate personal loan you take the total cost over the 3yrs from £9,450 with the PCP, to £7,300 with a personal loan. A pretty big saving imho.

Obviously It depends on how much you are willing to spend per month (higher the better) and how much you can afford upfront, but you can see how finding a middle ground with a personal loan and a larger upfront payment will result in a decent saving overall.

You also own the car and have no contractual obligations.

Goudy

Upping your initial deposit will reduce your monthly payments and also reduce the total interest you pay as you haven't had to borrow a larger amount from the finance company.

The GFV (balloon payment) will stay the same as this is worked out on the predicted value of the car at the end of the contract.

There is usually a maximum amount you can put down as a deposit though it's usually between 30 and 35% (I think with Ford it's around 35%).

You can also over pay if you have some spare cash as a "Lump Sump" payment. This will further reduce your monthly payments and shave interest off the loan. (though it doesn't effect the GFV)
This is handy if you have more than the allowable deposit (but not enough to clear the loan in total) or your monthly payments are well below what you can afford, just save the extra for a month or two and pay it in one (then repeat).


It's worth noting that if you trade in your car at/near the end of a PCP contract before settling the GFV it's worth shopping around and haggling.
The GFV is what you still owe on the car and the dealers know this, so you can make this work for you if you let them know clearly no deal will take place if there's no equity to take forward.
They might umm and arh a bit but if your car isn't a total wreak one will usually up the trade in value to include something to take forward to close a deal.

On a similar note, I also qualify for some of these work discount deals via different NHS schemes and it's best to mention it last with the dealer.
Work out the trade in details first before you hit them with the I qualify for a special work place discount deal!

motorguy

Jvnolan said:

No I can get the car via cash, or PCP/Lease. I would of course pay cash if I had such finances. However, finances dictate that I need to borrow. A bank loan - your looking at a marginally better rate but the monthly payments are too much for my liking. PCP rate is 5.9, and the monthly payments are where I want them. I can up the initial by a few more thousand - thoughts? 

As per what i'd posted above, you can get a Tesco Loan or similar at 2.8% for the full amount financed via the PCP (so £18,500) for 60 months, you get a payment of £330.

If you were to drop in an extra £1250 and borrow £16,750 the payments would be £299 a month.

Whilst its over a longer timeframe (and i put this above also) at the 3 year point with it you'd probably owe around £7.5K, not £12K.

You'd also save around £1,000 in interest charges.

SouthLondonUser

motorguy said:

As per what i'd posted above, you can get a Tesco Loan or similar at 2.8% for the full amount financed via the PCP (so £18,500) for 60 months, you get a payment of £330.

Precisely. The loan doesn't need to be 3 years. You can get a 6 to 8 year loan with monthly instalments in the £250-300 range and rates between 2.8% - 3.3% - as long as your credit history is decent. So you can ensure your monthly outgoings are within your budget, without paying an interest rate that's 2+ times higher.

scrappy_returns

Jvnolan said:

I have looked at bank loans and it would be more then I want to pay out monthly. It’s either PCP or lease I believe. 

Have you considered HP? It seems out of fashion these days but usually a better option.

motorguy

scrappy_returns said:

Jvnolan said:

I have looked at bank loans and it would be more then I want to pay out monthly. It’s either PCP or lease I believe. 

Have you considered HP? It seems out of fashion these days but usually a better option.

I dont see how HP would solve the problem he is describing, and i dont see how its usually the better option?

Can you elaborate?

scrappy_returns

motorguy said:

scrappy_returns said:

Jvnolan said:

I have looked at bank loans and it would be more then I want to pay out monthly. It’s either PCP or lease I believe. 

Have you considered HP? It seems out of fashion these days but usually a better option.

I dont see how HP would solve the problem he is describing, and i dont see how its usually the better option?

Can you elaborate?

You own the vehicle outright once payments are complete which is a huge bonus over leasing (and some PCP deals). You pay out monthly with variable lengths of repayments meaning the terms may be more "affordable" on a monthly basis and so on.

motorguy

scrappy_returns said:

motorguy said:

scrappy_returns said:

Jvnolan said:

I have looked at bank loans and it would be more then I want to pay out monthly. It’s either PCP or lease I believe. 

Have you considered HP? It seems out of fashion these days but usually a better option.

I dont see how HP would solve the problem he is describing, and i dont see how its usually the better option?

Can you elaborate?

You own the vehicle outright once payments are complete which is a huge bonus over leasing (and some PCP deals). You pay out monthly with variable lengths of repayments meaning the terms may be more "affordable" on a monthly basis and so on.

"I have looked at bank loans and it would be more then I want to pay out monthly. It’s either PCP or lease I believe."

His problem is he prefers the monthly payments of a PCP or lease deal over the monthly payments of a personal loan, hence he was ruling out a cheap personal loan.

I dont see how HP resolves that or offers any advantages over a cheap loan?

What myself and others have proposed is take the personal loan out over a longer term and / or pay a larger cash amount up front.  He'll still save significantly in interest charges and own the car from the outset.  I dont think HP deals would be at a lower APR than 2.8%?

scrappy_returns

motorguy said:

scrappy_returns said:

motorguy said:

scrappy_returns said:

Jvnolan said:

I have looked at bank loans and it would be more then I want to pay out monthly. It’s either PCP or lease I believe. 

Have you considered HP? It seems out of fashion these days but usually a better option.

I dont see how HP would solve the problem he is describing, and i dont see how its usually the better option?

Can you elaborate?

You own the vehicle outright once payments are complete which is a huge bonus over leasing (and some PCP deals). You pay out monthly with variable lengths of repayments meaning the terms may be more "affordable" on a monthly basis and so on.

"I have looked at bank loans and it would be more then I want to pay out monthly. It’s either PCP or lease I believe."

His problem is he prefers the monthly payments of a PCP or lease deal over the monthly payments of a personal loan, hence he was ruling out a cheap personal loan.

I dont see how HP resolves that or offers any advantages over a cheap loan?

What myself and others have proposed is take the personal loan out over a longer term and / or pay a larger cash amount up front.  He'll still save significantly in interest charges and own the car from the outset.  I dont think HP deals would be at a lower APR than 2.8%?

The hp is a loan. It doesn't appear the Apr is key here, just monthly outlay.

motorguy

scrappy_returns said:

motorguy said:

scrappy_returns said:

motorguy said:

scrappy_returns said:

Jvnolan said:

I have looked at bank loans and it would be more then I want to pay out monthly. It’s either PCP or lease I believe. 

Have you considered HP? It seems out of fashion these days but usually a better option.

I dont see how HP would solve the problem he is describing, and i dont see how its usually the better option?

Can you elaborate?

You own the vehicle outright once payments are complete which is a huge bonus over leasing (and some PCP deals). You pay out monthly with variable lengths of repayments meaning the terms may be more "affordable" on a monthly basis and so on.

"I have looked at bank loans and it would be more then I want to pay out monthly. It’s either PCP or lease I believe."

His problem is he prefers the monthly payments of a PCP or lease deal over the monthly payments of a personal loan, hence he was ruling out a cheap personal loan.

I dont see how HP resolves that or offers any advantages over a cheap loan?

What myself and others have proposed is take the personal loan out over a longer term and / or pay a larger cash amount up front.  He'll still save significantly in interest charges and own the car from the outset.  I dont think HP deals would be at a lower APR than 2.8%?

The hp is a loan. It doesn't appear the Apr is key here, just monthly outlay.

OK....

And how would a higher APR rate HP loan be better than a cheap personal loan over the same timeframe?

The only way to reduce the monthly payment on HP is to extend the loan term, just like you would on a cheap loan.  So i'm not sure how a higher APR HP deal would benefit the O/P?