PCP v Lease

DrEskimo

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).

It's worth checking what discounts are available and whether this applies on the 0% deal. I know of a few examples where you got a lesser discount on the 0% deal relative to the interest bearing deal, so in effect the interest cost was just payable under a different guise.

I don't think that is the case with the Ford deal above, but it is only available for 2yr deals. 3-yr PCP is charged at 3.9%, which when you factor in the different payment structure with the GFV, is more expensive in terms of actual interest charged than even a personal loan at the same 3.9% APR.

SouthLondonUser

DrEskimo said:

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).

Exactly! This is what people don't get! Even if you are a petrolhead who wants to buy a new car every 3 years, buying with a private loan is often cheaper than with PCP, unless you are lucky enough to want one of the cars which no one else wants and which they try to offload with competitive finance options. Sure, there may be cases where PCP works out better but i) you need to do your homework and ii) don't expect that to be the norm.

I get it that many people focus on monthly outgoings, and that repaying a significant chunk at the end of the 3 years reduces the monthly outgoings. BUT you can still get a personal loan over a longer period, say 6-8 years, lower interest rate, comparable monthly outgoings, lower overall cost. And most of these personal loans allow prepayment without penalties at any time.

You don't need to be an accountant, a trader or a maths PhD to figure this out. No wonder the Financial Times has been promoting a campaign on the importance of financial literacy - the level of financial illiteracy is shocking.

iwb100

DrEskimo said:

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.

Yeah that’s absolutely true. Most PCP deals will throw in cheap dealer servicing which matters if you want to maximise your trade in so taking the PCP and paying off with a loan will work out cheaper.

It is much cheaper generally with new cars to do via PCP than cash since dealers are incentivised on selling finance contracts so try and negotiate a cash price equivalent and you will struggle. So PCP then pay it off within 28 days is the way to go. 

Herzlos

iwb100 said:

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

I think we can only assume that most people looking for PCP are trying to keep their monthly payments down. Trading after 3 years is just part of the set up and pushed by the sales staff. There's no reason anyone with a PCP couldn't keep the car as long as they want, they may just need to refinance at 3 (or whatever) years.

motorguy

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.

I think you're confusing desirable with aspirational, and polarising anything not in that category to least desirable.

Tesla is an aspirational brand for most, and those who do buy them tend to buy through their own companies or get them as a company car.  Those who personally drive them do so almost certainly through lease schemes.  Tesla doesnt have to offer incentivised personal finance schemes as (a) its not a big part of their business and (b) they've other options available.

Tesla also sold well last year because of supply issues.  They dont typically make the top seller list.

The Top 10 cars in the UK give a much clearer picture of whats "desirable" to people out there.  

Top 10 best sellers according to AutoExpress for Jan 22 were

1. Kia Sportage - 3.9% APR offer, 0% offers on other cars in the range
2. Ford Puma - 0% APR offer, 0% offers on other cars in the range
3. Kia Niro - 3.9% APR offer, 0% offers on other cars in the range
4. MINI Hatch - 5.9% APR offer
5. Vauxhall Corsa - 4.9% APR offer, lower % offers on other cars in the range
6. Hyundai Tucson - 0% APR offer, 0% offers on other cars in the range
7. Vauxhall Mokka - 4.79% APR offer, lower % offers on other cars in the range
8. Ford Focus - 0% APR offer, 0% offers on other cars in the range
9. VW T-Roc - 5.9% APR offer, lower % offers on other cars in the range
10. Toyota Corolla -  0% APR offer, 0% offers on other cars in the range

So 0% is available across many of the top 10 sellers, and across most manufacturers in the top 10.  Where they dont offer 0%, pretty much all of them have low rate APR offerings.

And 0% is rarely available on 0% APR because the new car deals are manufacturer backed and incentivised to sell new cars.  That is their purpose.  They dont give a monkeys about used cars on a dealers forecourt, so why would they spend their money incentivising them?

motorguy

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, 

I totally disagree with that.  You only have to look at the top 10 sales for Jan i've included above to see what the offers are.  I'd say you'd struggle to find a "bad" independent review of any of those cars.

Another example is the Yaris GR.  Sold out for 2 years, Toyota doing 0% APR on it.  

motorguy

DrEskimo said:

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.

Hes really struggling to grasp that.

Its quite simple - actually go to the trouble of finding out what the offers are on the specific car you want.  If you can get a lower rate personal loan (and bear in mind a lot of people dont get the cheapest headline rate), then great, go for a personal loan.  I totally recommend that - just dont "assume" and broad brush all PCP deals on new cars to be at an awful rate, because they're usually not.

motorguy

DrEskimo 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).

It's worth checking what discounts are available and whether this applies on the 0% deal. I know of a few examples where you got a lesser discount on the 0% deal relative to the interest bearing deal, so in effect the interest cost was just payable under a different guise.

I don't think that is the case with the Ford deal above, but it is only available for 2yr deals. 3-yr PCP is charged at 3.9%, which when you factor in the different payment structure with the GFV, is more expensive in terms of actual interest charged than even a personal loan at the same 3.9% APR.

That used to happen in the past when the dealer was offering 0% themselves on used car or specific stock. 

Used to be quite common in home furnishings.  We went to buy a new suite at a small independent store.  They offered us 0% finance as part of their sales pitch but then quietly said they could give us a better discount if we didnt take it as they had to pay the interest.

Its actually now illegal to do that anyway.

Any discount you get on a new car will be independent of the 0% or otherwise deal offered.

motorguy

SouthLondonUser said:

DrEskimo said:

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).

Exactly! This is what people don't get! Even if you are a petrolhead who wants to buy a new car every 3 years, buying with a private loan is often cheaper than with PCP, unless you are lucky enough to want one of the cars which no one else wants and which they try to offload with competitive finance options. Sure, there may be cases where PCP works out better but i) you need to do your homework and ii) don't expect that to be the norm.

I get it that many people focus on monthly outgoings, and that repaying a significant chunk at the end of the 3 years reduces the monthly outgoings. BUT you can still get a personal loan over a longer period, say 6-8 years, lower interest rate, comparable monthly outgoings, lower overall cost. And most of these personal loans allow prepayment without penalties at any time.

You don't need to be an accountant, a trader or a maths PhD to figure this out. No wonder the Financial Times has been promoting a campaign on the importance of financial literacy - the level of financial illiteracy is shocking.

Please, you are embarassing yourself now.  

motorguy

SouthLondonUser said:

DrEskimo said:

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).

Exactly! This is what people don't get! Even if you are a petrolhead who wants to buy a new car every 3 years, buying with a private loan is often cheaper than with PCP, unless you are lucky enough to want one of the cars which no one else wants and which they try to offload with competitive finance options. Sure, there may be cases where PCP works out better but i) you need to do your homework and ii) don't expect that to be the norm.

I get it that many people focus on monthly outgoings, and that repaying a significant chunk at the end of the 3 years reduces the monthly outgoings. BUT you can still get a personal loan over a longer period, say 6-8 years, lower interest rate, comparable monthly outgoings, lower overall cost. And most of these personal loans allow prepayment without penalties at any time.

You don't need to be an accountant, a trader or a maths PhD to figure this out. No wonder the Financial Times has been promoting a campaign on the importance of financial literacy - the level of financial illiteracy is shocking.

You're concluding that PCP is more expensive without actually bothering to check.

Many manufacturers offer incentivised deals on new cars at better than personal loan rates.  Thats a fact.  Its not just on undesirable cars, its a selling tool for them on a good percentage of the top cars sold.

And its also worth checking on whether or not someone can actually get the headline cheap loan rate.  They only have to "offer" that to 51% of people, so half the people will get offered a higher rate.

I totally agree with the "find the cheapest funding source" mantra - i preach it all the time, however please stop saying that "all pcp offers are bad unless they are on cars that nobody wants", thats simply untrue and cringeworthy.

On the Petrol Head note, i see Toyota were doing 0% finance on the new Yaris GR - you know, the one thats got a 2 year waiting list to order one new, and people are asking over list price for year ones and is one of the most desirable petrol head hot hatches out there?  Hard to see how that would be described as "undesirable".

BMW - 2.9% APR on roughly half the models in its range, 3.9% APR on the rest, including all their M cars.