VWFS PCP contract confusing

Mildly_Miffed

Grey_Critic said:

Originally you bought a car on HP - You could not as an individual *Lease* a vehicle, that option was only open to companies. You could as an alternative rent a car long term - companies could but not individuals.

That changed and PCP was introduced which enabled the individual to basically lease a vehicle

The best way to think of a PCP is akin to a mortgage on a house that you're planning as a stepping stone.

You take out finance for the full value, less whatever you've paid up front.
That finance is structured to repay over a long period... but you plan not to be repaying for that full period.
In X years, you plan to either move house or change cars - the remaining loan gets repaid.

It's not a perfect analogy, because the term is fixed with the PCP, and because you actually own the house during the period. But it helps people to understand how it's simply a longer amortisation period than the expected ownership.

facade

Mildly_Miffed said:

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It's not a perfect analogy, because the term is fixed with the PCP, and because you actually own the house during the period. But it helps people to understand how it's simply a longer amortisation period than the expected ownership.

Hence the "option to purchase" fee that comes at the end of a PCP or HP agreement, it remains their car (and you are hiring it) until that fee is paid, and they can simply take it back at any time if you break the terms of the agreement.

A mortgage is a loan with the house as security. You own the house from the start, but have agreed that the lender can take it in lieu of the loan if you default.

An unsecured bank loan at a low rate is a good way to fund a car, you can sell the car and arrange your affairs so that you have no assets then if you default on the loan you don't have to pay!

DullGreyGuy

Grey_Critic said:

Originally you bought a car on HP - You could not as an individual *Lease* a vehicle, that option was only open to companies. You could as an alternative rent a car long term - companies could but not individuals.

That changed and PCP was introduced which enabled the individual to basically lease a vehicle

It's not effectively a lease, there is different VAT treatment on leases to PCP/HP. A personal lease is a PCH. 

You generally cannot buy a lease car at the end of the process because that would invalidate the VAT treatment that was in place, hence why many lease companies will suggest a "friend" buys it and then you buy it from the friend for the price they paid.