Advice on car purchase HP or PCP

Fozzie_Bear

I have put down a deposit on a new Kia car for my wife and I can pay the balance in three ways

·      Cash

·      HP ; or

·      PCP

The latter (PCP) is the cheapest monthly amount as at the end of the 36 months I have a balloon payment of circa £20k to purchase the car outright. However, my concern with signing with a Kia PCP finance plan is that I may be locked into purchasing another Kia at the end of the plan, when I may decide to go for another make.

The Kia salesman assured me they cannot lock me into buying another Kia and at the end of the term I can approach another car maker who can offer one of their cars on PCP and take mine (Kia) as down payment.

1.        Is this correct and is it as easy as going to another company at the end of the plan?

2.        Also I read somewhere that I should put down as little deposit as possible as I won’t get a return on a large deposit? In this case should I stick to the trade in value of my existing vehicle which is £4k?

The alternative of paying by HP is obviously more expensive monthly but I am paying for the car outright so expect to pay more. In this case I could put down another £10k making it a £14k deposit this reducing the monthly payments.

Kia are offering 3.9% APR on both HP and PCP which seems to be very reasonable compared to many companies offering plans of 8.5% APR.

3            Are there any advantages of PCP over HP or do you pay the same amount overall?

Any advice greatly received.

born_again

The Kia salesman assured me they cannot lock me into buying another Kia and at the end of the term I can approach another car maker who can offer one of their cars on PCP and take mine (Kia) as down payment.

Yes that is correct.

Arunmor

Can you pay the car off in 3-4 years on HP?  Run the sums.

Fozzie_Bear

Arunmor said:

Can you pay the car off in 3-4 years on HP?  Run the sums.

Yes I can at £870 p/m over 36 months as opposed to PCP £324 p/m over 36 months with £20,856 balloon payment at end.

DullGreyGuy

1. You can go to any company to get your next car however if you want to trade your current car in (rather than sell it yourself or surrendering it to the finance company) then a Kia dealer may offer you the best trade in value as they will probably sell it themselves where as, for example, a BMW dealer would just sell it off to trade so have no future profit from it to consider. 

2. Not sure who told you that... what APR are they charging?  Unless your savings are earning more interest than the APR they will charge on the debt then its generally not a good idea to borrow money when you've got money in the bank

3. PCP and HP are the same product, legally, PCP is just a marketing name for HP with a balloon. Add up the total cost of both inc any fees and the balloon. In most cases the HP will be cheaper because you are paying off the whole car over the 3 years whereas with PCP even with the last payment you are still paying interest on the £20k balloon.

If you plan to get another vehicle on finance after and basically perpetually never own your vehicle then PCP can seem cheaper. Lets say your car is worth £24k in 3 years time, on PCP you trade it in, they pay £20k to the finance company and £4k as a deposit on the next car whereas with HP the finance is paid off so its £24k towards the next car. 

The one thing PCP does do is guarantee your vehicle price in 3 years time. The sales guys will say it normally ends up like the above with a small amount of positive equity but it doesn't always work like that. Our balloon was £40k, the sticker price for a similar car would be £35k and so trade in was clearly going to be £30k if lucky. Because we had PCP we could just surrender the car and the negative equity was the finance company's problem but we'd for all intents and purposes borrowed the car. 

daveyjp

Fozzie_Bear said:

Arunmor said:

Can you pay the car off in 3-4 years on HP?  Run the sums.

Yes I can at £870 p/m over 36 months as opposed to PCP £324 p/m over 36 months with £20,856 balloon payment at end.

PCP is £324 plus the cost of replacing any deposit you may have paid.

Fozzie_Bear

daveyjp said:

Fozzie_Bear said:

Arunmor said:

Can you pay the car off in 3-4 years on HP?  Run the sums.

Yes I can at £870 p/m over 36 months as opposed to PCP £324 p/m over 36 months with £20,856 balloon payment at end.

PCP is £324 plus the cost of replacing any deposit you may have paid.

Agreed, that was what I clumsily outlined in question 2 about keeping the deposit as low as possible

DrEskimo

Whilst both the same APR, as you are deferring a large amount of the payment on the PCP to the end (in the form of the balloon payment) and paying lower monthly cost, you still pay interest on the full amount. As such you will incur substantial more in interest charges on the PCP than HP.

Reality is, whether you pay on PCP or HP, you are free to trade the car in and move to any other car whenever you like during the term or at the end of the term. The only advantage with PCP is you get the guaranteed value at the end of the term in the case that the car is worth less. But as above, that comes at a cost.

In effect, I personally do whatever method means paying minimal amount of interest, so cash.

Don't get swayed by the dealer on the whole lower deposit nonsense. As with any loan, the less you borrow and the quicker you pay it back, the less you pay in interest. What you save in the monthly cost by putting down higher deposit will out weight the 'equity' you make at the end, since you save on interest.

angrycrow

Are those numbers correct 

£324 x 36 plus £4000 deposit plus £20856 balloon comes to £36520 to own the car after three years.

£870 x 36 plus £14000 deposit comes to £45320 to own the same car. 

£8800 more for HP can't be right unless I am missing something.

Mildly_Miffed

Fozzie_Bear said:

The latter (PCP) is the cheapest monthly amount as at the end of the 36 months I have a balloon payment of circa £20k to purchase the car outright. However, my concern with signing with a Kia PCP finance plan is that I may be locked into purchasing another Kia at the end of the plan, when I may decide to go for another make.

The Kia salesman assured me they cannot lock me into buying another Kia and at the end of the term I can approach another car maker who can offer one of their cars on PCP and take mine (Kia) as down payment.

1.        Is this correct and is it as easy as going to another company at the end of the plan?

The end of a PCP is a simple binary choice...
1. Hand the car back and walk away.
2. Buy the car for the balloon figure.

If the car is worth more than the balloon but you want to change, then you can basically ask any dealer to pay the balloon for you and apply the excess value towards your next car.

So...
End of deal:
Balloon £20k, car value £15k - you simply hand the car back to Kia and walk away.
Balloon £20k, car value £25k - you hand the car to the <say> Ford dealer, who pay £20k to Kia finance, and put £5k towards the car you're getting from them.

It might be that a Kia dealer will give you a better deal than another dealer. It might not be.

2. Also I read somewhere that I should put down as little deposit as possible as I won’t get a return on a large deposit?

The smaller the deposit, the more you finance, the more you repay over the term, and the more interest you pay.

Car £40k. Balloon £20k.
Deposit £5k - you finance £35k, and pay £15k back over the term.
Deposit £15k - you finance £25k, and pay £5k back over the term.
Obviously, there's interest on the full outstanding amount - including the balloon.

Frozen_up_north

Fozzie, as others have mentioned, you need to do the maths and beware of dealers pushing finance... they make a tidy sum themselves out of the finance arranged through them.

As an example, I bought a new Seat at the end of November 24, the cash price was £29K. The cost to buy it with VW group finance was around an extra £4K overall.

I bought it outright, there were various "fiddle factors" the salesman included... £3930 "discount" (loyalty and cash alternative amounts), plus 2 services, alloy wheel insurance and paintwork treatment, all for "free", yet were added to the bill before the discount. Talk about smoke and mirrors.

It really boils down to checking the overall cost to yourself and ignoring the sales pitch.