PCP v Lease

iwb100

motorguy said:

iwb100 said:

Been looking for a while for new cars and looking in depth at leasing VS PCP finance. So thought I’d contribute - sorry it’s a bit late.

Bottom line is that comparing deals like for like, as far as is possible, it’s usually cheaper purely as a sunk cost to get the same car on PCH than it is on PCP. It will be cheaper over that 3 or 4 year period in most cases. But there are some times when a PCP incentive will mean that’s not the case. But this is rare. Especially now.

So if you want a new car every three or four years then PCH is cheaper each time. BUT you need a deposit (and days of lots of low PCH deposits are slipping away) every time of 3 to 6 months readily available and you need to include maintenance really to avoid heavy penalty costs, or drive very very carefully and have very good reputable servicing garages. So it’s very good but limits itself to those with thousands of pounds available every 3 or 4 years for a deposit.

PCP is more expensive over the term. But the term isn’t fixed, you can at any point sell and pay off the settlement. Understanding this and the market trends for second hand cars is also very important. PCP only works IF you either take the deal to get the manufacturer incentives then pay it off….OR if you are careful and pick cars that are likely to retain their value and leave you with equity in the deal. SUVs have been a PCP buyers dream in recent years as their values have retained leaving equity in the deal towards the end letting people just trade in and get a new car on a better deal. But you have to accept that there is a gamble. This won’t always happen or always be the same. But there are lists of cars that depreciate more than others. Saloons and estates in general have suffered more as their popularity declines. PCP only works if you are successful in beating the negative equity trap.

Finally, never, ever, ever ever keep a car by paying the fee at the end of a PCP. This is literally the worst and most expensive way to buy a car. PCP only works as a way to ‘trade the car markets’. Trading in at the right point when value to settlement ratio is highest. Picking the right cars is critical in a PCP. And obviously sometimes that needs foresight. I imagine EVs in 5 years will be goldust on the second hand market and those picking them up new now will have huge equity to swing into a new deal. 

Eh?

I dont agree with you there.  

The residual price could be £9,000 on a car and the car at that point could be worth an easy £12K.  You'd be literally giving away thousands.

If you are buying a car to keep then you’ve been robbed entering into a PCP deal for it. There are far cheaper ways to buy the car. That’s the point. Yes at the end you can choose to buy the car when it’s worth more than the GFMV, but better to use said equity to roll into a new deal. That’s how a PCP works. The only advantage to a PCP over either PCH or a loan or cash is that you can get a new car every three or four years and with luck not need to put a single penny in and sometimes even end up paying less per month. Obviously can go the other way but I always see it as a gamble. But if you calculate depreciation and work out equity in the car during the deal you have a chance of maximising your equity for a trade.

When that happens PCP makes sense for the consumer. It’s happening for people right now with the way the market is. But if you want to buy a car for the long term simply finance it using a cheaper method than PCP. I guess I should add that this is like cheaper for those with access to cheaper bank loans and that in fairness won’t be everyone. 

Even then PCH If you want a new car is often cheaper overall. The downside of course being at the end you need to find another deposit always, whereas for PCP sometimes you can simply use your equity as down payment. 

motorguy

iwb100 said:

motorguy said:

iwb100 said:

Been looking for a while for new cars and looking in depth at leasing VS PCP finance. So thought I’d contribute - sorry it’s a bit late.

Bottom line is that comparing deals like for like, as far as is possible, it’s usually cheaper purely as a sunk cost to get the same car on PCH than it is on PCP. It will be cheaper over that 3 or 4 year period in most cases. But there are some times when a PCP incentive will mean that’s not the case. But this is rare. Especially now.

So if you want a new car every three or four years then PCH is cheaper each time. BUT you need a deposit (and days of lots of low PCH deposits are slipping away) every time of 3 to 6 months readily available and you need to include maintenance really to avoid heavy penalty costs, or drive very very carefully and have very good reputable servicing garages. So it’s very good but limits itself to those with thousands of pounds available every 3 or 4 years for a deposit.

PCP is more expensive over the term. But the term isn’t fixed, you can at any point sell and pay off the settlement. Understanding this and the market trends for second hand cars is also very important. PCP only works IF you either take the deal to get the manufacturer incentives then pay it off….OR if you are careful and pick cars that are likely to retain their value and leave you with equity in the deal. SUVs have been a PCP buyers dream in recent years as their values have retained leaving equity in the deal towards the end letting people just trade in and get a new car on a better deal. But you have to accept that there is a gamble. This won’t always happen or always be the same. But there are lists of cars that depreciate more than others. Saloons and estates in general have suffered more as their popularity declines. PCP only works if you are successful in beating the negative equity trap.

Finally, never, ever, ever ever keep a car by paying the fee at the end of a PCP. This is literally the worst and most expensive way to buy a car. PCP only works as a way to ‘trade the car markets’. Trading in at the right point when value to settlement ratio is highest. Picking the right cars is critical in a PCP. And obviously sometimes that needs foresight. I imagine EVs in 5 years will be goldust on the second hand market and those picking them up new now will have huge equity to swing into a new deal. 

Eh?

I dont agree with you there.  

The residual price could be £9,000 on a car and the car at that point could be worth an easy £12K.  You'd be literally giving away thousands.

If you are buying a car to keep then you’ve been robbed entering into a PCP deal for it. There are far cheaper ways to buy the car. That’s the point. 

How would you be?

Many PCP deals are at a very low APR.  If someone wants to buy the car outright they could avail of whatever subsidised PCP deal that is on offer, either let it run its term then clear it with a cheap loan, or convert it to a cheap loan as soon as possible.

I dont get why you think anyone getting a car at a heavily discounted and incentivised deal via PCP has been robbed?

There are some awful used car PCP deals but (pre covid at least) there were many 0%, 1.9% and 2.9% APR deals around.  Even currently, both Ford and Toyota are offering 0% APR.

What cheaper way would there be to buy the car?

motorguy

iwb100 said:

The only advantage to a PCP over either PCH or a loan or cash is that you can get a new car every three or four years and with luck not need to put a single penny in and sometimes even end up paying less per month. Obviously can go the other way but I always see it as a gamble. But if you calculate depreciation and work out equity in the car during the deal you have a chance of maximising your equity for a trade.

There are many advantage of PCP over lease.  Heres some of them -

• With PCP you have the option to own the car at the end of the term, or to clear the remaining finance at any point and owning the car.  You do not have that guaranteed option with a lease.
• With PCP you have additional consumer rights, so if your circumstances change you can hand the car back with nothing further to pay once 50% of the total transaction has been paid.  More importantly if you havent reached that 50% point, they can only pursue for the difference between what you've paid and that 50% point.  With lease they could bill you for all the remaining payments due.
• With PCP if the car is worth more than was predicted, you can get that equity out in various easy ways.  With leasing you dont.  If its worth more than they predicted they benefit, not you.
• With PCP you almost never hand the car back to the finance company.  Most people either trade it in or clear the finance and keep it.  That way you dont have to worry about potentially punitive excessive wear and tear charges from the finance / lease company.
• If your circumstances change part way - for example an expected job location or family size change, you are free to trade the car in against another car at any point (subject to any potential negative equity).  You cant do that with a lease.  
• You are also free to sell the car at any point and clear the finance.  You cant do that with a lease.

motorguy

iwb100 said:

When that happens PCP makes sense for the consumer. It’s happening for people right now with the way the market is. But if you want to buy a car for the long term simply finance it using a cheaper method than PCP. I guess I should add that this is like cheaper for those with access to cheaper bank loans and that in fairness won’t be everyone. 

Where are getting this idea that PCP on a new car must be more expensive than a cheap loan?

Lets try a worked example and you can explain it to me.

Ford are doing 0% finance PCP on a new Puma, with a residual value of £13,384.  I can avail of any discounts that a cash, HP or personal loan customer can, so the purchase price is a moot point.  Most importantly they are lending me £20,000 ish for 2 years at 0% APR, i make the payments interest free, then at the two year point i take out a personal loan for the £13,384 at 2.9% APR.

How is that more expensive than taking out a personal loan for the full amount at 2.9% APR?

(i've no intentions of buying this car, but its a fairly typical new car purchase these days).

motorguy

iwb100 said:

Even then PCH If you want a new car is often cheaper overall. The downside of course being at the end you need to find another deposit always, whereas for PCP sometimes you can simply use your equity as down payment. 

Yup.  A PCH deal could be cheaper overall, but as per my comments above there are a lot of constraints with it.

If someone wants just a rental for 4 years and knows there is absolutely no chance of their personal circumstances / car requirements changing over those 4 years (i wonder how many people thought that 3 years ago?) then yup PCH is great.  BUT as i said, there are a lot of constraints with it.

iwb100

motorguy said:

iwb100 said:

When that happens PCP makes sense for the consumer. It’s happening for people right now with the way the market is. But if you want to buy a car for the long term simply finance it using a cheaper method than PCP. I guess I should add that this is like cheaper for those with access to cheaper bank loans and that in fairness won’t be everyone. 

Where are getting this idea that PCP on a new car must be more expensive than a cheap loan?

Lets try a worked example and you can explain it to me.

Ford are doing 0% finance PCP on a new Puma, with a residual value of £13,384.  I can avail of any discounts that a cash, HP or personal loan customer can, so the purchase price is a moot point.  Most importantly they are lending me £20,000 ish for 2 years at 0% APR, i make the payments interest free, then at the two year point i take out a personal loan for the £13,384 at 2.9% APR.

How is that more expensive than taking out a personal loan for the full amount at 2.9% APR?

(i've no intentions of buying this car, but its a fairly typical new car purchase these days).

Yeah it’s fair to point out that you can find new cars with PCP deals that are competitive with other borrowing rates. Sure. But not all even for new cars are. A lot, I’d say the majority right now aren’t. Even new. But yes I meant where PCP is worse than an available loan you are far better off only doing PCP if you want the advantages it offers as a scheme. 

motorguy

iwb100 said:

motorguy said:

iwb100 said:

When that happens PCP makes sense for the consumer. It’s happening for people right now with the way the market is. But if you want to buy a car for the long term simply finance it using a cheaper method than PCP. I guess I should add that this is like cheaper for those with access to cheaper bank loans and that in fairness won’t be everyone. 

Where are getting this idea that PCP on a new car must be more expensive than a cheap loan?

Lets try a worked example and you can explain it to me.

Ford are doing 0% finance PCP on a new Puma, with a residual value of £13,384.  I can avail of any discounts that a cash, HP or personal loan customer can, so the purchase price is a moot point.  Most importantly they are lending me £20,000 ish for 2 years at 0% APR, i make the payments interest free, then at the two year point i take out a personal loan for the £13,384 at 2.9% APR.

How is that more expensive than taking out a personal loan for the full amount at 2.9% APR?

(i've no intentions of buying this car, but its a fairly typical new car purchase these days).

Yeah it’s fair to point out that you can find new cars with PCP deals that are competitive with other borrowing rates. Sure. But not all even for new cars are. A lot, I’d say the majority right now aren’t. Even new. But yes I meant where PCP is worse than an available loan you are far better off only doing PCP if you want the advantages it offers as a scheme. 

Theres quite a few companies doing 0% APR PCP deals (Renault, Ford, Toyota), some of BMWs offers are at 2.9% APR too which is still good.

Obvs if the rate is higher than a cheap loan then someone would be better going for the cheap loan, but a broad brush statement that "there are cheaper options to buy a new car than with PCP" is not correct.

SouthLondonUser

My experience is that very competitive finance tends to be offered on the least desirable models. And never on used ones.

Good luck finding 0% PCP deals on something like the Tesla Model 3, which has been one of the most sold cars in the UK (across both electric and non-electric).

Also on motorcycles: Honda had 0% PCP deals on the NC750S, which no one wanted, but not on the X, which has been selling quite well.

Sure, do you research and, if you find a very low APR rate and you absolutely want/need to buy new, go for a PCP deal. Just don't be surprised if, in most cases, a personal loan will be cheaper.

iwb100

SouthLondonUser said:

My experience is that very competitive finance tends to be offered on the least desirable models. And never on used ones.

Good luck finding 0% PCP deals on something like the Tesla Model 3, which has been one of the most sold cars in the UK (across both electric and non-electric).

Also on motorcycles: Honda had 0% PCP deals on the NC750S, which no one wanted, but not on the X, which has been selling quite well.

Sure, do you research and, if you find a very low APR rate and you absolutely want/need to buy new, go for a PCP deal. Just don't be surprised if, in most cases, a personal loan will be cheaper.

Yeah agreed. I wasn’t looking at Teslas but the cars that are well reviewed and in demand don’t have that competitive a PCP option. And indeed mainly seem to throw the manufacturer deposits in but higher aprs so if someone wanted to own outright they could pcp then pay off with a bank loan in 28 days to get the benefits of both lower apr and the manufacturer offer.

But most people looking for pcp are trying to trade their car after 3 years, 

DrEskimo

iwb100 said:

SouthLondonUser said:

My experience is that very competitive finance tends to be offered on the least desirable models. And never on used ones.

Good luck finding 0% PCP deals on something like the Tesla Model 3, which has been one of the most sold cars in the UK (across both electric and non-electric).

Also on motorcycles: Honda had 0% PCP deals on the NC750S, which no one wanted, but not on the X, which has been selling quite well.

Sure, do you research and, if you find a very low APR rate and you absolutely want/need to buy new, go for a PCP deal. Just don't be surprised if, in most cases, a personal loan will be cheaper.

Yeah agreed. I wasn’t looking at Teslas but the cars that are well reviewed and in demand don’t have that competitive a PCP option. And indeed mainly seem to throw the manufacturer deposits in but higher aprs so if someone wanted to own outright they could pcp then pay off with a bank loan in 28 days to get the benefits of both lower apr and the manufacturer offer.

But most people looking for pcp are trying to trade their car after 3 years, 

It doesn't matter if you are wanting to trade in in 3yrs. Whether you have PCP owing on the car or own it outright, you can trade the car in after 3yrs in exactly the same way. Either as P/X or just straight sale to the garage (or dealer, or WBAC, or whoever is paying the most).

Of course you can't hand back to the finance company, but that is not the commonly done, and certainly isn't worth paying thousands to get as it becomes a false economy.

Paying less in interest costs will save you money, regardless if you want to keep it only for 2/3yrs, or 10/20yrs.