PCP finance questions

[RDG 40]

Ive been searching all day on here and the web and i found out some stuff.

Basically can anyone say from personal experiences say if it is better or worse than normal finance.

Ive always done normal finance but by looks of it this PCP seems really good have a car for 3 years then hand it back unless you want to buy it or pay balloon payment.

My questions are do they do it on used cars? Are there hidden costs?

Im looking to change cars this year when i find a good deal or someone buys mine so im trying to do my homework first.

It seems with this you can get a better spec car for same monthly payments.

Tilly you may know best but might as well ask everyone

Thanks in advance

[churchwa]

having just done this, the first thing is to shop around. Tilly was really helpful and honest and told me that some of the deals i had got were very good and that i was to snap them up.

PCP is good, but dont be fooled by reducing your payments by increasing the baloon. You will want to get your deposit back by having a low GFV and then buying it for that price off the finance house, then selling it for a profit.

Example. BMW 535d after 3 years and 30k miles had a GFV of £18k, now the book says that car would be worth about £24k (Given the car new was £45k). This means you can get about £6k back if you sell it later.

[huzi7]

i agree with churchwa, speak to tilly

[Davidch]

My advice is if you can afford it, don't go with PCP, pay the extra each month.

[Tilly]

PCP sounds great on the surface, take the car on a contract of x months, pay your payments and hand it back at the end if you like...

Things that sound too good to be true usually are. Like anything, good things come at a cost, a higher finance rate and a list price car usually although dealers sugar coat PCP saying the manufacturer will "contribute £1k to the finance" for example, when actually they're just subsidising the finance rate without giving discount on the car and it makes the APR look pretty (which doesnt mean anything anyway when final payments are involved)

Plus with dealer finance they won't think twice about putting mahoooosive balloon prices on cars because if you walk away they have the ability to retail them on their forecourts at full whack, in which case why would you want to pay a silly price for the car anyway and in most cases hand it back so why not just contract hire in the first place and have your road tax included for the term?

Next up... PCP's tie you into the contract for the full duration, yes there is all this b*llocks about early terminating after making half the payments but it goes down on your credit file. I know it's not meant to affect you but put yourself in the shoes of a finance underwriter. If someone comes to you looking for finance but you see they early terminated on a previous vehicle handing the car back mid contract causing a loss for the finance company because of negative equity they had to cover, how would you feel? What is to stop them doing it again? And who's head would it be on if they did? Think about it...

Next up, in my opinion there are two ways to go about it:

1. If the car you want is available on a good contract hire deal, do it but be prepared to keep the car for the full contract duration, 24 months is usually the best choice if you get bored easily but want a reasonable budget.

2. If you have your heart set on a particular car or you want it heavily spec'd up then lease purchase all the way. I would always recommend 48 months not because you intend to keep the car that long but it is the most manageable term and allows depreciation to be spread over a longer term.

Lease purchase will give you a much better finance rate than a PCP and you're better to do it outside of a dealership, either arrange your own finance or through a broker. Brokers will happily get you a decent discount and a low finance rate as they don't have to work to anywhere near a dealerships profit margins which is better for the customer because obviously it makes things cheaper. They're more flexible than a PCP in the way that at any point you can request a settlement figure and sell/part ex the car and settle the finance off, paying the difference between the settlement figure and the vehicle value so obviously the longer you stay in a car the cheaper it is to come out of it. Regardless of what your monthly payments are you WILL pay the depreciation of the car which is fair enough. If you want to come out of a car after 12 months and only put a minimal deposit down then you more than likely will have negative equity, its not rocket science though is it :p Unless it is a car that people are still paying silly premiums for, ie. Range Rover Sports if you get a good enough deal you're away, you can get discounts on UK 07MY HSE's from the right place combined with the right payment profile and you're onto a winner because numpties are still paying silly money for used motors as if they're like rocking horse sh*t or summet.

Deposits can be varied on a lease purchase, obviously the more you put down the sooner you can come out of the car because you will have a headstart against depreciation. Don't be scared when you're quoted stupidly low balloon payments in comparison to dealers, they're scary but realistic. The balloon payment should always be based on your particular annual mileage and at its future trade value, on average travelling 10-12k miles per annum on a four year contract the balloon should be approx 35% of the list price of the car WITHOUT options, add £500 for leather and £500 for top bollock sat nav.

Anyway I have to go into a meeting now, I'll add a bit more later :)

[Chaos]

Nice write-up Mark. :)

[Afif]

Nice write-up Mark. :)

Yea nice explanation as usual (damn that RRS comment ;p >.<).

[churchwa]

Just to contradict Tilly a little, i found that you could get very competitive rates and also the dealers were willing to knock loads off the cars. I got 10% off the Lexus i ended up ordering and was offered 12% off a 5 series. Apr os about 7%.

[Tilly]

Bit more now...

Business users: If you're a director of a limited company. If you finance a car in your personal name and use it for business miles, you can charge the miles to the company and reclaim 40p per mile for the first 10000 per annum and 25p thereafter, without company car tax to sting you. If your accountant for example could show 15k as business miles that is £5250.00 per year which is the equivalent of £437.50 a month, that is a big lump to knock off your monthly payments!

The other option is if a business user finances a car on a lease purchase through the company itself they can reclaim 25% of the monthlies against depreciation (up to a maximum of £3500 per year) which is great... but then again you get company car tax so it's swings and roundabouts really!

Obviously the whole finance job can be a minefield and relative to the subject itself my posts only scratch the surface, it is a vast subject so if anyone has any questions relating to a specific part of an agreement or quote that they need answering or clearing up just let me know

[Tilly]

Just to contradict Tilly a little, i found that you could get very competitive rates and also the dealers were willing to knock loads off the cars. I got 10% off the Lexus i ended up ordering and was offered 12% off a 5 series. Apr os about 7%.

12% is easy done, 17% is available from the right dealers ;) In relation to APR, if the agreement has a final payment, ignore it. ALWAYS work off flat rate in this case. By increasing the balloon you in effect lower the APR, something which dealers will "accidentally" forget to tell you ;) The APR changes with a matter of things, length of contract, varying deposits, admin fees, balloon payments. They sugar coat it like hell. People are so used to seeing adverts on TV for personal loans relating to APR to compare rates and dealers use it as a sort of propaganda because their customers are brainwashed, on HP (hire purchase ie. no final payment) yes it's fine to use the APR if you wish but remember... does a personal loan have a balloon payment like a lease purchase? The flat rate does not change regardless of deposits and balloons etc. It will only change if the salesman builds commission into the finance by increasing the rate. Hope this helps.

[Moe]

Mark you have pm mate

[Tilly]

I don't... :s lol

[RDG 40]

Cheers mate thats reaaly informative, i thinkinking of a swap sometime in 2007 so its all good info.

Choice is what car lol

[rahrah]

give that man a pint!...great info there fella..and answered alot of questions for me!