PCP VERSUS HP. A view

[IanA2]

Bought on PCP, cash, bank loan or HP

Cash.

 

[raymont]

Say you get to the end of your PCP with a GFV of £25k and the car is actually valued by the market at £20k.

Clearly you’re not going to pay £25k for something that’s only worth £20k, but you like the car and want to keep it.

If you give the car back to the dealer / finance organisation they can only realise £20k for it so wouldn’t it be a win win situation if you offered to buy it for £21k? They are £1k better off and you have the car you want and have benefitted from the larger than expected depreciation.

 

[Rory]

Buying the GL320, PCP was the ONLY way to go. I got a Guaranteed future value of £33,100 after two years on a car with a list price of £57K, an APR of 5.9% and a £7K dealer deposit contribution. I also didn't pay VAT, as the car had a wheelchair hoist fitted. So I paid £41,000 on the road. To my mind, as has already been mentioned, the financial risk is all MB's. With the current anti 4x4 climate I would be gobsmacked if I have any equity in two years time. If I do, it's a huge bonus, if the car is only worth £25K (which is a figure most internet brokers quoted after 2 years on a PCP) then I give it back and walk away, MB pick up the tab. I cannot believe I am driving around in a £57K car, having only paid a £1K deposit and £478/month!

In your case, having decided you wanted that car, I think PCP is a no-brainer. It could be *very* hard to shift a giant SUV in a couple of years time.

However the price is very misleading. Don't think you're getting one over on MB. It is not a £57K car - the £7K "off" helps make that point. That car (built in the US, of course) *lists* at $54K over there. It will be transferred to MB Finance at a price where MB is still making money out of the deal at every step, including at the GFV.

 

[hawk20]

I think the term is 'horses for courses'! I am very happy to be driving around in the most luxurious car I have ever owned for £12.5K over 2 years! The last car was a Discovery 3 on the Motability contract hire car, scheme I paid £11K advance deposit and £7K in installments over 3 years, admitedly that included Insurance and maintenance. Motability is supposed to represent a good deal to disabled drivers/families - I beg to differ. The car goes back in May and I have nothing to show for it! Motability even had the audacity to offer it to me for FULL retail price of £21.5K!

When you say full retail price, what exactly are you referring to? Glass's Guide? Part ex value from dealer? His asking price for it? Sounds incredible that a two year old GL from £57k new is only worth £21.5k retail after only two years. That is over £17k depreciation per year! Thank goodness you did a PCP deal. What a bargain.

 

[6CylinderMerc]

Say you get to the end of your PCP with a GFV of £25k and the car is actually valued by the market at £20k.

Clearly you’re not going to pay £25k for something that’s only worth £20k, but you like the car and want to keep it.

If you give the car back to the dealer / finance organisation they can only realise £20k for it so wouldn’t it be a win win situation if you offered to buy it for £21k? They are £1k better off and you have the car you want and have benefitted from the larger than expected depreciation.

This is extremely unlikely to happen. The dealer doesn't come into the equation as the agreement is between you & the finance company. Remember that the dealers are merely franchises & are trading as seperate entities from the manufacturers.

If you want to buy it from the finance co it's £25k - end of. That's the price you agreed to pay when you signed on the agreement. The finance co can possibly sell it to the dealer but they'll probably want more than the dealer is willing to pay. End result - you hand it back & the car goes to auction for the finance co to recoup as much as they can by means of disposal. If you can find out which auction it's going to then you could possible turn up & bid on it but they're often closed auctions by invitation only.

 

[6CylinderMerc]

When you say full retail price, what exactly are you referring to? Glass's Guide? Part ex value from dealer? His asking price for it? Sounds incredible that a two year old GL from £57k new is only worth £21.5k retail after only two years. That is over £17k depreciation per year! Thank goodness you did a PCP deal. What a bargain.

Peterberg1965 is referring to the Disco, not the GL on PCP. Motability do offer the cars back to their leasors for them to purchase but they don't do them any favours. The full retail price will refer to the forecourt windscreen price.

 

[raymont]

Is the Peterg1965 deal a good example to use for this discussion as I think, pse correct me if I’m mistaken, that there is no VAT cost here as the vehicle is being is adapted for disabled use? If this is the case it could distort the numbers considerably.

Went the second hand route when buying my GL420 CDI, three months old 3 or 4 k miles (can’t remember exactly) and paid £47k for a car with a new list of £67k. I know doesn’t bode well for future value but will probably keep it for a number of years.

Having negotiated what I hope was a good price I asked for a PCP quote to see if I could lock in the future (lack of) value. Quotes were very expensive because, I suspect, I’d already taken all the fat out of the deal. Suspect good PCP deals are only another form of discount. Only reason for me to take one would be to lock inGFV.

 

[hawk20]

Then what? You have to find another deposit & seeing as the real value is £3400 less than the GMFV, on a new deal the GMFV will no doubt be less. This means higher monthly payments without taking into account any list price rises in the last two years.

Obviously if depreciation figures for cars go up, then the cost of motoring will be higher and so the PCP deal should get dearer to reflect this. And if you buy on HP the higher depreciation will still hit you, just in a different way.

 

[raymont]

This is extremely unlikely to happen. The dealer doesn't come into the equation as the agreement is between you & the finance company. Remember that the dealers are merely franchises & are trading as seperate entities from the manufacturers.

If you want to buy it from the finance co it's £25k - end of. That's the price you agreed to pay when you signed on the agreement. The finance co can possibly sell it to the dealer but they'll probably want more than the dealer is willing to pay. End result - you hand it back & the car goes to auction for the finance co to recoup as much as they can by means of disposal. If you can find out which auction it's going to then you could possible turn up & bid on it but they're often closed auctions by invitation only.

I did mention finance company. If they send it to auction and get £20k why wouldn't they sell it to you for £21k?

 

[hawk20]

I did mention finance company. If they send it to auction and get £20k why wouldn't they sell it to you for £21k?

And wouldn't it be different if you bought an MB car from an MB dealer with an MB deal?

 

[6CylinderMerc]

Obviously if depreciation figures for cars go up, then the cost of motoring will be higher and so the PCP deal should get dearer to reflect this. And if you buy on HP the higher depreciation will still hit you, just in a different way.

Only if you sell it, which you do not have to do.

 

[raymont]

And wouldn't it be different if you bought an MB car from an MB dealer with an MB deal?

and your point is................

 

[Rory]

Second, yes the bank loan at that rate would be £390 per month or £4680 per year. Add £500 per year for the cost of the deposit of £1500 and the annual cost is £5,180. Fine if that is what you want and you own the car outright and take the risk on depreciation.

My PCP on the same car costs under £2,900 per year - a huge saving big enough to let you buy the car outright at the end of three years if you want to. But you do not have to. You can keep the saving and have another new one if you prefer. And you have no risk on depreciation. Looks good to me.

(my bold)

You have an unusual way of looking at these things! Perhaps it's a professional thing?

I don't see it as saving anything - surely that's a bit like the people who have interest only mortgages and think they're saving money by not paying the principal?

What you are doing is hedging the depreciation risk. A good idea on Mercedes GL, or the new Jag XF, but a bit pointless if, as you've stated, you're set on keeping the car.


I do agree with 6CylinderMerc that PCP deals are designed to trap you - that's why they're heavily supported. However if you know what you're doing then there's no harm in using that to your advantage.

You've stated that you could have bought the A Class's outright. I bought my car for cash - the interesting thing is that once I'd told the dealer that, he absolutely threw finance deals at me. It ended up where they were cheaper than using my own cash. I was set in mind to pay cash and I went ahead and did that and they were really *not* happy. You have to wonder what's going on behind the scenes.

 

[hawk20]

and your point is................

It is a query?

 

[6CylinderMerc]

Is the Peterg1965 deal a good example to use for this discussion as I think, pse correct me if I’m mistaken, that there is no VAT cost here as the vehicle is being is adapted for disabled use? If this is the case it could distort the numbers considerably.

Went the second hand route when buying my GL420 CDI, three months old 3 or 4 k miles (can’t remember exactly) and paid £47k for a car with a new list of £67k. I know doesn’t bode well for future value but will probably keep it for a number of years.

Having negotiated what I hope was a good price I asked for a PCP quote to see if I could lock in the future (lack of) value. Quotes were very expensive because, I suspect, I’d already taken all the fat out of the deal. Suspect good PCP deals are only another form of discount. Only reason for me to take one would be to lock inGFV.

The adaptations needed would be VAT free but not the car itself.

Why were quotes expensive on a used car? Because the manufacturers want you to buy a new one & lock you in as a repeat customer.

They won't sell it to you for less than the GMFV because you sign a legal document agreeing to buy it (should you wish to do so) at a set price. Not good business sense but PCP's aren't designed to do customers any favours. They want you to hand it in & start a new agreement on a new car. That's where they win the most.

 

[6CylinderMerc]

It ended up where they were cheaper than using my own cash. I was set in mind to pay cash and I went ahead and did that and they were really *not* happy. You have to wonder what's going on behind the scenes.

Finance targets to meet, the chance of selling you Life, Accident, Unemployment or Sickness insurance cover with it, more commission from the finance & insurance, more profit for the dealership, more bonuses payable on achieving finance targets, manufacturer backed incentive schemes payable to the sales staff on successfully selling finance & insurance & finally, the satisfaction of virtually guaranteeing your repeat business. And that is probably not a complete list....

I've probably spilled too many beans on this subject already & will probably find a horses head in my bed tomorrow courtesy of the Society of Motor Manufacturers & Traders

 

[hawk20]

(my bold)

You have an unusual way of looking at these things! Perhaps it's a professional thing?

I don't see it as saving anything - surely that's a bit like the people who have interest only mortgages and think they're saving money by not paying the principal?

What you are doing is hedging the depreciation risk. A good idea on Mercedes GL, or the new Jag XF, but a bit pointless if, as you've stated, you're set on keeping the car.


I do agree with 6CylinderMerc that PCP deals are designed to trap you - that's why they're heavily supported. However if you know what you're doing then there's no harm in using that to your advantage.

You've stated that you could have bought the A Class's outright. I bought my car for cash - the interesting thing is that once I'd told the dealer that, he absolutely threw finance deals at me. It ended up where they were cheaper than using my own cash. I was set in mind to pay cash and I went ahead and did that and they were really *not* happy. You have to wonder what's going on behind the scenes.

Yes you are hedging dpreciation and that is a very valuable thing to do in these uncertain times. It is for many by far the biggest cost of motoring and being able to get a firm and fixed figure for it is beneficial to many.

But that is not all. You are also, often, being offered remarkably good finance deals at advantageous APRs. Always check the APR.

As for the saving I refer to, if we buy something for £2 that costs £3 elsewhere we correctly say in common parlance that it offers a saving of £1. Similarly, I pointed out that one benefit of PCPs is that you pay much less each year over the three years and the reduced outgoing or saving is beneficial to many.

If you do buy the car after 3 years the total outgoing will be a few hundred more, in my example, than if you had bought it outright on HP. But there is still a saving in outgoings each year for the first 3 years. And those savings very nearly give you enough to buy the car outright if you wish. But the great joy is you don't have to. Walk away if you like and have another new car, fully guaranteed for three years. It is one way of motoring and I for one am glad we are offered that choice.

I have bought cars for cash, bought on HP and bought on PCP and all have pros and cons. But just at the moment while the world is turning itself upside down, I like the PCP deal I got.

 

[Rory]

And wouldn't it be different if you bought an MB car from an MB dealer with an MB deal?

I would imagine not - they're three separate entities.

MB car is MB UK

MB dealer is an independant franchise

MB deal is Mercedes-Benz Finance: the finance and leasing company of DaimlerChrysler Financial Services AG

 

[raymont]

Did a bit of research and a quote from the man (peterg1965) himself

'List price is a whopping £56,652. The deal is that I put a £1K deposit down. The dealer/MB finance give £6250 towards the deposit. I get the VAT removed (as it will be disabled registered with an adaption). VAT amounts to £8825. (I don't pay VED) Therefore balance to finance is £40ish. The PCP deal is over 2 years (suits me because servicing costs/tyres will be minimal) and is £466/month with a Guaranteed value after two years of £33,100. APR 6%. These figures are huge but the monthly payment is the same as I am paying on my BMW (which may have to go - but needs must)'

 

[raymont]

And wouldn't it be different if you bought an MB car from an MB dealer with an MB deal?

It doesn't really matter which it is, MB UK, MB Finance, Dealer etc. Why would whichever entity it is sell something for £20k when they can sell it for £21k?

The clause in the contract can easliy be dispensed with if the parties agree.