PCP VERSUS HP. A view

[Rory]

If I decided to sell the car after, say, 6 months, how much would I have got for cash as a settlement if I were to trade in? £22K?, £21K?, maybe less - who knows?

You're confusing multiple scenario's though - "sell", "settlement", "trade in". Which one is it?

So, even if I did pay the full £8K to cover the entire rental period, I was in no way worse off than if I had bought it for cash, or on HP and decided to sell up early. Plus I get the car for the entire two years regardless.

I said earlier that some deals are a no-brainer. If you can really PCP a £28K car for £333/mth then it would be insane to do anything else.

 

[Will]

You're confusing multiple scenario's though - "sell", "settlement", "trade in". Which one is it?

I said earlier that some deals are a no-brainer. If you can really PCP a £28K car for £333/mth then it would be insane to do anything else.

Any really - just a way of liquidising the car value. Let's go for sell to a dealer for cash.

Yes the Audi deal was a great offer, that's why I went for it

Like I said way back on page 2:

Not all PCPs are better than HP and vice-versa. It depends entirely on the deal that is being offered. I reckon that because (as 6-cyl has pointed out) car manufacturers/dealers get a reasonable amount of repeat business through PCPs they do tend to offer 'incentives' and decent deals, hence they are sometimes better value for most people.

Will

 

[Rory]

If you had been the original owner of this car, and had bought it on HP how much would you have lost, bearing in mind the £23.5K that you paid was the selling price from MB and not what I imagine the trade price would have been? Ignoring the MB Direct margin, that's still a whopping drop of £10K+ on list in less than 6 months.

The thread title is PCP vs HP.

Hold on a minute - do you think that, if I'd bought the car new on PCP that I could have just walked away at 6mths? If that's the case then you're very much mistaken - PCP are normally (much) more expensive to get out of than HP.

 

[Will]

The thread title is PCP vs HP.

Hold on a minute - do you think that, if I'd bought the car new on PCP that I could have just walked away at 6mths? If that's the case then you're very much mistaken - PCP are normally (much) more expensive to get out of than HP.

It's a perfectly reasonable example.

Someone obviously bought that car new and then decided to sell it after less than 6 months. Who knows how they funded it but they've taken a massive hit in the depreciation sense. If that was on HP I pity them more because they obviously couldn't afford to buy it outright, and have probably lost whatever equity they put into it, probably left with a debt also in the form of the shortfall (unless they stumped up £10K+ as a deposit?)

My example with the Audi was there to illustrate my point, you lose so much in the first few months that it can work out almost as cheap to hang onto, ignoring the fact that you have the benefit of the vehicle over that period. 'Getting out' of the PCP wouldn't be neccesary, compared to what it would cost to 'get out' of the HP deal you'd still break even if you paid it in full.

Simplified figures:

£28K car, 6 months depreciation plus dealer's margin. Sell for around £20K. Total cost around £8K

£28K car, 24 month's rental charges - around £8K. Even if you want out at 6 months, you're no worse off, plus you keep the car for free for the remainder

Will

 

[Rory]

£28K car, 6 months depreciation plus dealer's margin. Sell for around £20K. Total cost around £8K

£28K car, 24 month's rental charges - around £8K. Even if you want out at 6 months, you're no worse off, plus you keep the car for free for the remainder

Which perfectly makes the point that the PCP is not a "real" deal!!!

Think about it - on the face of it, the deal you got makes *no* economic sense to Audi.

So why is it being done? It's a "trap", that's why. You run your Audi for 2yrs for £333/mth then at the end of it, your only (real) option is to hand it back. You then have nothing, and Audi's hope is that you will take another PCP and so the cycle continues.

Now you probably fully realise what's going on so you you won't fall in to the "trap" and you might decide to do something different at the end of the deal, but the majority will just take another PCP.

 

[hawk20]

Of course it's not a myth. In reality you only lose money when you've got the £ notes in your hand once you've disposed of the car. If you never sell the car you've lost nothing.

Clearly you do not know how to value assets.

BTW very few people indeed NEVER sell the car. And the moment you do the horrible truth about the depreciation that has been happening is revealed.

 

[hawk20]

Which perfectly makes the point that the PCP is not a "real" deal!!!

Think about it - on the face of it, the deal you got makes *no* economic sense to Audi.

So why is it being done? It's a "trap", that's why. You run your Audi for 2yrs for £333/mth then at the end of it, your only (real) option is to hand it back. You then have nothing, and Audi's hope is that you will take another PCP and so the cycle continues.

Now you probably fully realise what's going on so you you won't fall in to the "trap" and you might decide to do something different at the end of the deal, but the majority will just take another PCP.

You are quite clearly determined not to like PCP despite the many posts on this thread pointing out all the advantages. If you go back to posting number one the figures show clearly that there is no trap; it is just a different financial product with some pros and some cons.

BTW APR is your friend not your enemy. It was defined by experts to help you make the right decisions. If the APR is higher you are paying more; if lower you are paying less. And virtually all those myths car finance guys tell you when trying to get you to accept flat rate finance are wrong.

 

[hawk20]

I don't believe it's valid to compare APR's across different types of finance. However PCP APR's actually appear higher than other kinds of finance because of the way a chunk of the original price is deffered and because of the extra charges.
.

APR is specifically designed by experts so that you can make valid comparisons across different types of finance. It works for mortgages, loans, HP, PCP and so on.

You say APRs appear higher on PCPs because "a chunk of the original price is deferred" That has no effect on the APR. As I have posted many times the APR is a decision variable. The finance provider has to decide what rate to charge and feed that into the programme. (BTW my APR is 5.7% on a PCP. Surely not appearing higher than other kinds of finance is it?).

Extra charges are all taken into account- just as they should be- by the calculation to see what APR they are charging you (unlike with flat rate calculations which like to ignore them). But you are paying the admin fee, any "arrangement fees" and "final purchase fees". All such fees are just as much a cost as interest and so are included when calculating what APR you are being charged. If that were not so, they would all pretend to have a low interest rate and instead have lots of charges.

How often do you see 5% mortgage (but the APR is 7%). And that is because the headline rate is wrongly calculated to give a nice low figure but the APR rate is the correct figure and includes all the charges they make for the money you've borrowed.

 

[6CylinderMerc]

Hi again,

The sarcasm was only mentioned because of the careful selection of your quote (the wrong one) which wasn't referred to, and the sarcastic smilie (the rolleyes).

I don't think you've really demonstrated anything here that explains why NEGATIVE EQUITY is ok? This is the unofficial trap that I am very keen to point out and you seem very keen to try and hide?

Why shouldn't we talk about people either selling their car, or wanting to change their car who could well be stuck part way into a finance agreement (HP) due to this negative equity?

I have made a very valid point, and I will stand by it. No one is certain of the future. I don't care about what you think of PCPs or anything else for that matter, but if you have bought yourself a car on finance, and you needed to sell or change your vehicle (for whatever reason), you could very well be caught out by this. Don't try and argue that it's ok if you don't sell - that's not what I am talking about, and you know it.

Will

Will, I think you're completely missing the point & going off at a tangent here. Please explain where I am saying negative equity is ok & where I'm trying to hide it. If this is a major concern then the advice is simple - don't finance by any means. PCP's don't offer any protection over that either until the agreement has finished, exactly the same as HP.

I'm not asking you to care what I think about PCP's or "anything else for that matter" & I wasn't aware that I had inflated your ego enough for you to think so. I post because I think others would be interested to hear about manufacturer backed finance deals (specifically PCP's) from a perspective other than from a purchasers viewpoint. I'm sorry if you don't care for this information but you don't have to read or heed it & no, I have no idea what you're talking about as the same applies to whatever form of finance you're on.

I've written it before but I'll write it one last time. At the end of an HP agreement you don't have to sell or do anything thereby you are not forced to actually lose any cash. At the end of a PCP agreement you have to do something whether you want to or not thereby you are forced into an action. I don't enforce it, I don't write the T & C's, that's just the way it is pure & simple. I can't write it any simpler than that.

 

[peterg1965]

At the end of the day, its what you are happy with that counts. So long as you go into a finance deal (PCP/HP/Bank loan/Extended mortgage or whatever) knowing excatly what you are getting into and are content with the risks and costs then so what. I have lost £1000's (if not £10,000's) on cars over the last 5 years, I've had 9 cars of which 7 were brand new and paid the financial penalty on selling after a short period. I knew what I was doing, cars are a passion, and I enjoy(ed) driving some of the best (in my opinion) mainstream cars on the market (Audi A4 cab, BMW 530i, Mondeo ST TDCi, BMW 320d M Sport Touring, Focus ST3, BMW 335d M Sport Coupe, Discovery 3 TDV6, Mini Cooper and the GL320CDI.) I have used all forms of finance buying and selling these cars and PCPs have always worked fine for me. I note that the latest regulated and unregulated PCP deals also have to give example settlement figures at certain points over the finance term.

 

[6CylinderMerc]

Clearly you do not know how to value assets.

BTW very few people indeed NEVER sell the car. And the moment you do the horrible truth about the depreciation that has been happening is revealed.

So, are we valuing or selling? Back to the million pound house with the starving, penniless owner who can't eat the bricks it's made from. Knowing it's worth a million isn't going to feed him.

 

[Deleted member 6183]

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

A BLACK horses head?

 

[del320]

You are quite clearly determined not to like PCP despite the many posts on this thread pointing out all the advantages. If you go back to posting number one the figures show clearly that there is no trap; it is just a different financial product with some pros and some cons.

Who is living in a parallel universe here? You and Will have indeed been at pains to point out the various "advantages" and your arguments have been rebutted by Rory, 6Cyl and myself. Far from being "unable to value assets", the concept is abundantly clear to us. That is why we argue that PCPs are simply a convenient financial instrument whereby one can enjoy a brand new car in perpetuity but at cost.

For the priviledge you are, as I stated previously, locked in, one way or another to a scheme which, I agree, allows you to know the future "value" of the vehicle. However that value is artificially created by manufacturers and their finance wizards. It is based on some guesstimate which always ensures the odds are always stacked in the "banks'" favour. They would be out of business if it was otherwise.

As 6Cyl has pointed out, a loss or gain, only becomes real on liquidation but with PCP you are effectively being locked into unknown future events - and I don't just mean the GFV but the risk of suffering subsequent hits by being obliged to renew the contract time after time.

Your initial post comparing PCPs with HP was couched to look like sound financial sense. I sense you've back-tracked slightly - the deal undoubtedly suits you - but the concept remains a costly luxury.

 

[Rory]

As I have posted many times the APR is a decision variable.

No it's not - it's a calculated value that derives from all the other variables. And, if I recall correctly (and you will know more about this than I do) there's not even complete agreement over how it should be calculated!

I dare say you could start with a known APR and work backwards but that isn't the key factor in marketing PCP's anyway. The key factor is the monthly payment - that's why so many of them are £x99/mth.


There's nothing wrong with PCP's for people who clearly know what they're getting into, but I would say most people getting into their first PCP do not realise that they'll come out of the end if it with nothing. I also have a problem with PCP's that are funded by the fat gross margins that vehicle manufacturers make when they sell cars to customers in the UK.

Additionally, they must have a negative impact on already depressed used car prices - after all, why would someone pay £7 or £8K for for a 3yr old A Class when they can have a new one for £199/mth?

 

[6CylinderMerc]

The finance provider has to decide what rate to charge and feed that into the programme. (BTW my APR is 5.7% on a PCP. Surely not appearing higher than other kinds of finance is it?).

Extra charges are all taken into account- just as they should be- by the calculation to see what APR they are charging you (unlike with flat rate calculations which like to ignore them). But you are paying the admin fee, any "arrangement fees" and "final purchase fees". All such fees are just as much a cost as interest and so are included when calculating what APR you are being charged. If that were not so, they would all pretend to have a low interest rate and instead have lots of charges.

How often do you see 5% mortgage (but the APR is 7%). And that is because the headline rate is wrongly calculated to give a nice low figure but the APR rate is the correct figure and includes all the charges they make for the money you've borrowed.

Hawk20, you are a car salemans dream. If only I could have had more customers like you.

Rate setting is no more done by the finance provider than pigs can fly, other than supplying the dealer a zero commission base rate to work upwards from. For those that truly understand the finance products, flat rates & total charges are the best comparison. APR's were designed purely to simplify the comparison for consumers who don't fully understand the whole picture.

The easy answer to all of this is - never buy new! Let someone else do it, get yourself a bargain, get yourself a bargain loan if needed & let someone else take ALL the risk & financial hit! It works for me

 

[6CylinderMerc]

A BLACK horses head?

 

[hawk20]

I've written it before but I'll write it one last time. At the end of an HP agreement you don't have to sell or do anything thereby you are not forced to actually lose any cash. At the end of a PCP agreement you have to do something whether you want to or not thereby you are forced into an action. I don't enforce it, I don't write the T & C's, that's just the way it is pure & simple. I can't write it any simpler than that.

You have indeed written this before and it is still just as misleading as ever.

At the end of an HP deal you are forced to keep the car or to sell it for whatever you can get. The depreciation from whatever you paid for it is your risk. You may find the dealer won't want it in part exchange (especially if you choose to go for a different make this time). You may find they will take it but at an awful price. You may end up with tthe hassle of selling privately in an attempt to get reasonable depreciation. It is all yours.

By contrast, at the end of a PCP deal you have the free choice of either
a) buying the car for cash or by refinancing
b) part exchange it for another car (and if it is worth more than the GFV you get the benefit. But if it is worth less that costs you nothing).
or c) you can walk away, no more to pay.

Great deal, great choice. An excellent way to have a new car every three years if you wish. Or you can keep the car longer if you would rather.

 

[del320]

Hawk20, you are a car salemans dream. If only I could have had more customers like you.

You're not wrong! someone's brainwashed him.

It's rather amusing that 6Cyl and myself have earned some "dishonest" wedge flogging this stuff, yet no-one is listening to our pleas not to do it.

 

[6CylinderMerc]

You have indeed written this before and it is still just as misleading as ever.

At the end of an HP deal you are forced to keep the car or to sell it for whatever you can get. The depreciation from whatever you paid for it is your risk. You may find the dealer won't want it in part exchange (especially if you choose to go for a different make this time). You may find they will take it but at an awful price. You may end up with tthe hassle of selling privately in an attempt to get reasonable depreciation. It is all yours.

By contrast, at the end of a PCP deal you have the free choice of either
a) buying the car for cash or by refinancing
b) part exchange it for another car (and if it is worth more than the GFV you get the benefit. But if it is worth less that costs you nothing).
or c) you can walk away, no more to pay.

Great deal, great choice. An excellent way to have a new car every three years if you wish. Or you can keep the car longer if you would rather.

I'll give you this, you're good at spin. Don't work for Gordon Brown do you?


At the end of an HP deal you are not forced into anything. No letters saying "do something", no calls from the dealer saying "your deal has ended & you must decide what to do", no arm up your back.

At the end of a PCP deal you will get at least one of the above. You will no doubt argue that you have a free choice to make. Free it may be, but you still have to make a choice out of three options.

 

[6CylinderMerc]

You're not wrong! someone's brainwashed him.

It's rather amusing that 6Cyl and myself have earned some "dishonest" wedge flogging this stuff, yet no-one is listening to our pleas not to do it.

Ironic, isn't it.

How does it go?
You can lead a horse to water........