Agility finance

[Nemo20]

I can't do quotes on tapatalk but it's not personally aimed at you orb.

I concur that for many people it does allow them to own a much newer car than their financial circumstances dictate. The younger generation have been raised to live on credit and to desire things way beyond their means instead of saving or waiting until your career perhaps affords you these luxuries. That is certainly the case in our neck of the woods.

 

[Alex M Grieve]

I can't do quotes on tapatalk but it's not personally aimed at you orb.

I concur that for many people it does allow them to own a much newer car than their financial circumstances dictate. The younger generation have been raised to live on credit and to desire things way beyond their means instead of saving or waiting until your career perhaps affords you these luxuries. That is certainly the case in our neck of the woods.

seems to have affected much of Greece too?

 

[hawk20]

Thank you everyone for being so patient and understanding with my questions I've never took out a PCP deal before and this discussion has really enlightened me.

I think for me, in the end of the day I would prefer a traditional HP deal. I feel I will have more control over the payments and I have the option to settle large chunks or even settle early as I wish.

PCP is interesting as well as I can afford a much newer car however I think I will only be tempted with much lower APR

Think carefully about this. PCP is ideal for someone like you who likes to chnge evry couple of years or so. And why not if you can afford it and prefer to spend on cars rather than something else.

You are wrong to think that you cannot settle early with a PCP. You can. I have done that and so have many others. You ask for a settlement figure (which is fairly calculated according to the law) and you ask for a part ex figure from your chosen dealer. If the part ex figure equals or betters the settlement figure, they pay it off for you and you move on to the next deal. If the part ex figure is below the settlement figure as it often is, you pay the difference. So settlement figure, for example, £15,000 and part ex figure £14,000 - this will cost you £1,000 to settle early.

BTW it costs almost exactly the same as it would have cost you to change early if you had bought the car for cash. Depreciation happens whichever way you buy a car. Only the interest is different with different methods. Except of course that with the PCP you are guaranteed a value for the car at the end of the 3 year period. A safeguard that many like to have.

BTW HP has almost disappeared in the UK because most people prefer PCP.

If you want to buy without PCP Tesco and many others do loans you can use to buy a car at excellent rates around 6% APR or so.

 

[hawk20]

Rory, I have found, if you want to pay cash, that you can often get discounts on new cars not that different from what you get via the PCP deals. But given the often economical interest rates, and the convenience of a guaranteed residual, many choose a PCP even if they could buy outright. I have done that myself sometimes.

And given that you can go on and purchase the car at the end of a PCP (either for cash or with refinancing), if it still suits your purposes, as my daughter has done, or you can give it back if it doesn't, it offers a nice degree of flexibility.

With ISA's paying up to 4% or even 4.5% and MB offering finance often around 4.9%, there is not much gain drawing down savings to finance car purchase, compared with a PCP. And buying for cash you have no firm idea of what residual you may one day get. With PCP's you don't need to worry about being told, pity about the colour sir, or nobody wants petrol nowadays etc etc.

 

[hawk20]

Forgive me adding a completely separate point, but it seems to me a shame that almost all PCP threads invite rather patronizing comments from those who say people on PCPs are driving round in cars they cannot afford.

In fact it is those who buy for cash who get the cheaper motoring, not those on PCPs.

Anyone who over the next ten years, for example, keeps buying new cars on PCP’s will almost certainly pay more for their motoring than someone who buys new with cash. And someone who buys secondhand with cash will probably pay even less.

PCP’s are not a cheap way of owning cars. You pay the full cost of the depreciation that occurs while you ‘own’ the car and you pay interest on all the capital tied up at an agreed rate.

What PCPs do is allow people to pay the full cost of the car they choose in roughly even monthly installments. Instead of leaving depreciation to be paid for in one big lump when the car is sold.

Not really much different from a mortgage which allows people to buy their house with equal monthly mortgage payments. Those who buy on mortgage pay more over the life of the loan than those who pay cash. Same with cars.

Few are they who can buy their home for cash. More numerous but still fairly few are those who can buy cars new for cash. And many do want new especially for the convenience of the manufacturers warranty. Roll on the day when German car makers follow the trend to 5 and 7 year warranties.

 

[Rory]

As to "no real assets" and "can't actually afford" - what a load of utter ****! If I wanted a new one I'd buy one.

Many people who use PCP are making an informed choice, and that's absolutely fine. However a lot of people using PCP do not fully realise what they're getting into.

The guy who started this recent discussion has freely admitted that he didn't realise he would be left with nothing at the end of it and I have direct experience of other people in the same position.

Also, to be fair, the PCP/lease deals on the SLK were nothing short of amazing so taking that car on finance makes a lot of sense. I guess that's down to the residuals expected. Same thing happens on most cars in the US were resale values are much higher - personal leasing for people with good credit ratings is astonishingly cheap there.

 

[Rory]

What PCPs do is allow people to pay the full cost of the car they choose in roughly even monthly installments. Instead of leaving depreciation to be paid for in one big lump when the car is sold.

Well, arguably if you pay cash you're paying the depreciation in advance, when the car is bought.

Not really much different from a mortgage which allows people to buy their house with equal monthly mortgage payments. Those who buy on mortgage pay more over the life of the loan than those who pay cash. Same with cars.

PCP would be more like an interest only mortgage, and they've fallen into dis-repute.

..And many do want new especially for the convenience of the manufacturers warranty. Roll on the day when German car makers follow the trend to 5 and 7 year warranties.

As someone who has usually bought new, run for 5 years, and then replaced, that would suit me fine. Except I'm now finding that even 5 year old cars are worth so little that it's becoming a ridiculous step to replace them. You're also almost giving someone a perfectly good car. So I've thought - 'why not keep it myself?' Hence my MB is nearly 8yrs old and we have another car which is in its 7th year.

 

[wi-fi]

PCP would be more like an interest only mortgage, and they've fallen into dis-repute.

Hardly!! interest only mortgage you have the same money outstanding fom the start ! . The end of term on PCPs(gvf) is far less to settle than new car price?!

 

[Rory]

Hardly!! interest only mortgage you have the same money outstanding fom the start ! . The end of term on PCPs(gvf) is far less to settle than new car price?!

I said "more like". The GFV is outstanding throughout the deal - it doesn't magically appear at the end - and you only pay interest on it.

 

[hawk20]

Yes but the important point is that the payments on a PCP are not interest only. They are only partly interest on capital tied up, while it is tied up; normally the biggest part of the payments is for depreciation from the after- deposit etc price.

 

[Andy.M]

So for the uneducated in these matters can someone give a side by side comparison of PCP v HP v Cash sale of owning a new car or is it entirely down to personal circumstances?

 

[lwbnick]

As to "no real assets" and "can't actually afford" - what a load of utter ****! If I wanted a new one I'd buy one.

If anyone could actually afford a new car, they'd not be messing about hiring one via PCP.

It saddens me that the country is in deep recession due to people living beyond their means, yet the solution seems to be yet more borrowing...

 

[Alex M Grieve]

So for the uneducated in these matters can someone give a side by side comparison of PCP v HP v Cash sale of owning a new car or is it entirely down to personal circumstances?

I think it is as much a matter of personal choice Andy. In the same way as you see debates on the Forum as to whether people buy warranties or choose to pay as they go (self insure), or whether they choose main dealer servicing/repairs or use an Independent Specialist.

Similarly people will choose to buy a new car (which will give the option to choose spec, 3 years warranty but horrible depreciation) or a nearly new car (much reduced price but "take what you get spec" and less less warranty).

When you take account of all these factors, some people run their cars on a totally different budget to others. I wonder what the perceptible differences are for the user?

I prefer to use cash (which you can consider is "written off" when you spend the money), no warranty, Independent from day one. That way there are no regular monthly payments (or charges for credit) and what the car is worth when you come to trade it or sell it, is what it is worth.

Works for me.

 

[hawk20]

If anyone could actually afford a new car, they'd not be messing about hiring one via PCP.

It saddens me that the country is in deep recession due to people living beyond their means, yet the solution seems to be yet more borrowing...

I think you missed my earlier post which said: -

it seems to me a shame that almost all PCP threads invite rather patronizing comments from those who say people on PCPs are driving round in cars they cannot afford.

In fact it is those who buy for cash who get the cheaper motoring, not those on PCPs.

Anyone who over the next ten years, for example, keeps buying new cars on PCP’s will almost certainly pay more for their motoring than someone who buys new with cash. And someone who buys secondhand with cash will probably pay even less.

PCP’s are not a cheap way of owning cars. You pay the full cost of the depreciation that occurs while you ‘own’ the car and you pay interest on all the capital tied up at an agreed rate.

What PCPs do is allow people to pay the full cost of the car they choose in roughly even monthly installments. Instead of leaving depreciation to be paid for in one big lump when the car is sold.

Not really much different from a mortgage which allows people to buy their house with equal monthly mortgage payments. Those who buy on mortgage pay more over the life of the loan than those who pay cash. Same with cars.

Few are they who can buy their home for cash. More numerous but still fairly few are those who can buy cars new for cash. And many do want new especially for the convenience of the manufacturers warranty. Roll on the day when German car makers follow the trend to 5 and 7 year warranties.
__________________

 

[wi-fi]

The grapes in Tesco may be sour but most certainly the grapes at Mercedes so sweet

 

[Rory]

So for the uneducated in these matters can someone give a side by side comparison of PCP v HP v Cash sale of owning a new car or is it entirely down to personal circumstances?

That's tough to answer as it really depends on where you're starting from.

Most privately purchased new cars are bought with finance. If you go to buy a new car these days then the salesman will generally ask you how much you're looking to pay per month. Bear in mind the salesman couldn't give a toss about selling you a car, what he really wants to sell is finance - the car is almost irrelevant.

The best bang for a given monthly payment is on a PCP, as the monthly payments are less than HP because a significant proportion of the cost (the GFV) is held over until the end of the deal.

Mercedes distorts the cash sale vs PCP calculation because they make contributions (sometimes hefty) towards the PCP deposit. So if you've got your heart set on a particular new car, it could potentially work out cheaper to take the PCP than pay cash as you probably can't get the same level of discount for a cash purchase.

Of course you've also got to think about things like lost interest on your savings if you pay cash. If you were on Pistonheads then they'd talk about "opportuity cost" and recommend that instead of paying £50K cash for a new ML, you should use the money to buy 2 flats in Glasgow and use the rental income to cover the monthly payments on the car. But that's probably not for everyone.

 

[Rory]

PCP’s are not a cheap way of owning cars. You pay the full cost of the depreciation that occurs while you ‘own’ the car and you pay interest on all the capital tied up at an agreed rate.

That's correct, of course. So why do you then say:

What PCPs do is allow people to pay the full cost of the car they choose in roughly even monthly installments. Instead of leaving depreciation to be paid for in one big lump when the car is sold.

...which is wrong. You don't pay the full cost at all, all you do is cover the depreciation on a 'PAYG' basis. The lump at the end (which is usually never paid) is the value of the car at 3yrs old, not its depreciation.

Not really much different from a mortgage which allows people to buy their house with equal monthly mortgage payments. Those who buy on mortgage pay more over the life of the loan than those who pay cash. Same with cars.

It's quite a lot different. HP is the same as a mortgage. PCP is what an IO mortgage would like like if house prices were in free-fall mode!

 

[lwbnick]

It's quite a lot different. HP is the same as a mortgage. PCP is what an IO mortgage would like like if house prices were in free-fall mode!

PCPs are like an interest only mortgage...

 

[hawk20]

That's correct, of course. So why do you then say:


...which is wrong. You don't pay the full cost at all, all you do is cover the depreciation on a 'PAYG' basis. The lump at the end (which is usually never paid) is the value of the car at 3yrs old, not its depreciation.



It's quite a lot different. HP is the same as a mortgage. PCP is what an IO mortgage would like like if house prices were in free-fall mode!

Sorry to say that almost everything you have said is wrong here.

For example PCP is just not like an interest only mortgage. Not even remotely. With an interest only mortgage you pay only interest and the total debt remains -you still owe the full cost of the house however long you go on paying the 'interest only'. By complete contrast with a PCP you are paying interest on capital tied up while it is tied up AND you are paying all the depreciation that occurs over the three year term. After three years with MB you have typically at least halved the amount owing. All that is left owing is the guaranteed residual and that debt is covered by the return of the car.

Try asking a mortgage company or bank for a guaranteed future value for the house in a market where house prices are falling -like we have now! Then when you have negative equity, and having paid only interest, tell them you want to give the house back and owe nothing! With a PCP you get a guarantee for your future value and the GFV covers the remaining debt after only 3 years. No negative equity.


Second you do pay the full cost of owning the car over the period of the PCP. You pay interest and depreciation as set out by me before. And you pay all the running costs. What else is left? Nothing.

It is the person who buys for cash who ends up with depreciation in a big lump. The PCP buyer pays the depreciation monthly. The cash buyer gets an almighty shock when he finds what it costs to change to another new car, some years later. OK he has only running costs to pay once he has bought the car, and these outgoings are massively less than someone with a PCP is paying. But when he comes to replace the car, he finds he needs a huge lump sum to cover all the depreciation that has occurred.

 

[Rory]

Sorry to say that almost everything you have said is wrong here.

For example PCP is just not like an interest onl;y mortgage. You are not only paying interest on a PCP you are paying interets on capital tied up while it is tied up AND all the depreciation that occurs over the three year term.

I think it was invalid for you to compare a PCP to a mortgage when you first did it. It's not like either a repayment or an IO mortgage, but of the two, it can be thought of as most similar to IO as there's a balance to pay at the end.

Second you do pay the full cost of owning the car over the period of the PCP.

You didn't say "owning" - you said the full cost of the car.

You have often made clear your dislike of PCPs but you don't usually mislead.

I don't have a problem with PCPs per se - I have a problem with the way car manufacturers incentivise people to buy on PCP over other forms of purchase, particualry as there are many members of the public who don't understand what they're getting into. I'm also unhappy that buying cars has become all about finance, to the extent that to get any interest from a dealer these days you have to pretend to be penniless!