Buying a car with finance

Veteransaver

Philipp_Bach said:

I was looking for HP (hire purchase) instead of PCP (lease), the last one falls apart though. And what I found, that interest is incredibly high so far. As an example, BMW X5 '20 comes with HP type of finance at Cinch.
I've put the following parameters into car loan calculator to figure out the prices in-depth:
https://publicalculator.com/car-loan-calculator?cprice=40709&intrate=14.7&months=60&dpay=8000&discount=0&tinvalue=0&tinleft=0&addto=0&regfees=0&taxrate=0

The car comes with the following specs:
- Price: £40709
- Deposit: £8000 I'm able to pay towards the finally mine car
- Interest rate: 14.7% (estimated)
- Monthly payment: £773

An overall interest to paid, buying this way, is £13,671.. Too much, isn't it??

You are paying over £62k for a 5 year old car over 5 years. That is over £1k a month. What's a 10 year old X5 going to be worth?
You can lease a brand new X5 for c£850 a month over 4 years. Maybe not the same model though equivalent but it's 5 years newer and under warranty 

Goudy

Philipp_Bach said:

&taxrate=0

The car comes with the following specs:
- Price: £40709
- **Deposit: £8000 I'm able to pay towards the finally mine car**
- Interest rate: 14.7% (estimated)
- Monthly payment: £773

An overall interest to paid, buying this way, is £13,671.. Too much, isn't it??

This £8000 doesn't look like the deposit, more like the GFV or final balloon payment.

PCP is just another form of car finance, it's not a rental or lease.
It's just the payments aren't linear like normal HP or loan repayments would be.

With any loan, HP or PCP you borrow capital, they add the interest and you pay it back over the length of the contract.

The difference with a PCP there is a deferred payment called the GFV.
The loan is still for the whole price of the car plus the interest but a portion of the repayment is deferred.
This keeps (or is meant to keep) the month payments lower.

As an example a normal £40k loan in total (including interest to keep it simple) over 60 month would be around £666 a month.
A similar PCP for £40k with a GFV of £8000 would be 59 x £542 and 1 x £8000.
 
You have some options with this GFV but in essence it's the final payment of the deal. If you don't take up the other options, you pay it as the final payment and the finance is cleared.

The GFV is worked on the predicted value that car will be in around the time this payment is due, so as long as you have kept within the mileage and other terms of the contract like fair wear and tear, you can just hand it back to the finance company at this time and walk away from it.

PCP never seems to be very cost effective when used to by used cars.
There's obviously a cost to deferring this payment in terms of higher interest rates and with used cars you don't usually get a deposit contribution.
Most new cars on PCP come with a contribution to the deposit rather than money off. This helps offset some of the interest yet doesn't alter the invoice prices which later alter the used prices (which lower GFVs).