PCP VERSUS HP. A view

[hawk20]

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.

There is just so much nonsense being talked here. Pretend all you like but depreciation is occuring all the time whether you like it or not.

My initial post is not couched to look like sound financial sense it is a precise calculation under stated conditions of exactly how much PCP and HP cost to buy a particular car. It shows -as many have found- that PCP is hardly dearer than HP even if you decide to buy the car at the end of the 3 years. That is the first myth it explodes.

Secondly I, and many others here, have pointed out the many benefits of PCP which we like. Much lower outgoings for the first 3 years is one of them. A guaranteed final value with MB taking the risk on depreciation is another and probably the most valuable. Lots of good deals around at excellent APR's and with good GFVs is another.

Why are you so heated, so vehement, so determined that nobody should like PCPs. Free country. Free choice. Some of us like them. They offer what we want. At the moment despite all my financial training I cannot think of any reason why I should want to do HP rather than PCP. If you offered me £500 to change my PCP deals on my two A's into HP deals , I would refuse you. Can't say fairer than that.

 

[C240Sport97]

surely this is incorrect. At the end of the HP, you have paid for the car, and it is yours to do with as you wish. You can sell or keep it. You are not 'forced' to do anything.

On PCP, you have to do something .. give the car back, buy it, trade it.

At the end of an HP deal you are forced to keep the car or to sell it for whatever you can get.

 

[hawk20]

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.

Some of us have earned an honest wedge teaching this stuff and much more besides at MBA level and know only too well how wrong practioners can often be.

 

[Rory]

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

Perhaps I should point out that you're in a discussion with somebody who thinks Mercedes main dealer servicing is good value and that the Mercedes warranty should cut-off sharp at three years.

 

[hawk20]

surely this is incorrect. At the end of the HP, you have paid for the car, and it is yours to do with as you wish. You can sell or keep it. You are not 'forced' to do anything.

On PCP, you have to do something .. give the car back, buy it, trade it.

Yes you are. You are in your language 'forced' to sell it or keep it.

I would prefer to put it that you have a choice with HP and with PCP. PCP you have three choices as I set out. HP you have two: -sell or keep.

But what you cannot do with HP is give it back to MB and get the GFV for it, which is what effectively happens with PCP and that is why it is so good. No risk on depreciation. I just cannot believe that you cannot see that this is a real advantage and one that some people will think worth having. Me, I love it.

 

[hawk20]

Perhaps I should point out that you're in a discussion with somebody who thinks Mercedes main dealer servicing is good value and that the Mercedes warranty should cut-off sharp at three years.

That is not true.

I have posted elsewhere that there is 'goodwill' available after year three, and I am a great fan of Service Plus which gives cover up to 6 years or 120,000 miles. I have never posted what I think the guarantee should be. But then I have almost never been correctly quoted by Rory or seen many others correctly quoted either.

On servicing I have said -and still believe- that FMBSH is worth having, that relatively new cars 'should' use MB dealers to get all the service campaigns, updatings and recalls done. And I have said that given an A service on my S class had only 1 hours labour in it -at £100 inc vat- it was good value considering that it gave me free breakdown cover under MobiloLife in UK and Europe which would cost for me and my wife £150 from the AA plus another £100 for the Euro cover.

 

[Mr E]

I've "learned" three things from this thread:

1. Finance deals are there to derive benefit to the provider; the consumer benefit is a nice upshot, but they always think of themselves first and will pull a deal that doesn't suit them.

2. One particular deal doesn't always suit everyone - hence a large number of products.

3. Everyone is always right (or wrong).

It's all got a bit too evangelical for me - say it as it is and then leave it, it all goes downhill from there.

 

[Rory]

That is not true.

I know the B service is more. Typically on the diesel S class it is about 2 hours labour. Normal private mileage is 10/12k miles per annum. One service per year is all such a person needs. Small beer in the total order of things. And good value.

Oh really. So how long is the 36 month warranty then? Three years and three weeks? Three years and six weeks? Three years and nine weeks? Or just another chance to dig at Service Plus.

 

[hawk20]

Do tell me just what you think those quotes are supposed to prove?

Do they, for example, in any way contradict what I have posted?

 

[del320]

Some of us have earned an honest wedge teaching this stuff and much more besides at MBA level and know only too well how wrong practioners can often be.

Can't disagree with that - perhaps that's why I'm retired. Could see the consequences of bad lending emerging ten years ago as well as the consequences of less than accurate loan applications. I concur with the old-fashioned view of the CEO of an American subsidiary who said "If you can't drive to it, don't lend to it" (He was not my old sergeant... )

Also saw the consequences of greed cut across the entire social spectrum - footballers, priests, teachers, directors, doctors. I commonly dealt with defaulters with £100k unsecured debt on a weekly basis - and several of a million. (One of them got to the papers, a guy on the south coast somewhere - didn't even know where it had gone but he remembered buying his wife a washing machine...)

I'm neither vehement nor on a mission - but it's all a sad indictment of the country and the times.

 

[hawk20]

I've "learned" three things from this thread:

1. Finance deals are there to derive benefit to the provider; the consumer benefit is a nice upshot, but they always think of themselves first and will pull a deal that doesn't suit them.

2. One particular deal doesn't always suit everyone - hence a large number of products.

Surely manufacturers need to come up with products that consumers enjoy/value/thinkworthwhile if they are to get good sales. PCP and HP are two such products. And I agree with your second point. Some like one; some prefer the other. Freedom of choice.

 

[Will]

Why won't people read properly?

Not all PCPs/contracts are more suitable/cheaper/better than all HP agreements, and vice versa. I said this on my first post on this thread. It's down to the individual and the deal that is being offered.

My deal on the Audi A4 Cabriolet that I took was by far the very best possible deal that could be had at the time, and I'm very confident about that. I was 110% aware of the the facts and knew exactly what the terms of the agreement were - I did after all sign the paperwork. There was no possible cheaper deal out there, and I did spend a pretty long time exhausting all avenues.

I'm certainly under no illusions, all of the cars I own have been bought for cash, and I'm pretty good at avoiding depreciation (very rarely have I lost much money on my personal cars, most have appreciated or lost very little )

I still think that Hawk's first post is pretty fair, he's certainly not tried to hide any facts - with his example, you pay a fairly small charge of £470 for a £15K car to guarantee your financial position in 3 years time. If you're willing to take a chance, you could save that £470. If you don't want to guess the depreciation (and hence, the future value), you can pay the £470 for piece of mind in the future value should you be keen not to be stuck with the car.

I don't see the problem here? That's hardly difficult to understand?

No doubt people do get 'stuck' in the cycle if that's what they want to do, and the dealer gets plenty of repeat business - I don't see this as a problem personally, the choice is still up to the individual. Certainly didn't 'catch' me.

Will

 

[Piff]

PERSONAL CONTRACT PLANS PCP versus HP
Here is a comparison of PCP and HP on the same basis. Real numbers– no simplification.

The current MB PCP deal (see current offers on website) on the A150 Classic SE 5 door listed at £15,282 is a dealer contribution (discount) of £1,304 and a customer deposit of £1,499. The final value of the car is guaranteed at £6,750 (GFV). With this and an APR of 5.9% the payments work out at £199 per month.

At the end of 3 years you can give the car back and owe nothing –and own nothing.
Or you can buy it for £6,750 for cash or by refinancing.
Or you can put it in for part-ex against another car and if it is worth more than the Guaranteed Final Value of £6,750 you get the benefit. If it is worth less that is MB’s bad luck.

So the approx cost of the car PER YEAR is one third of the deposit plus twelve monthly payments (£500 plus £2,400 = £2,900 per year). That covers all depreciation plus interest on capital. For that you get a brand new car for three years, fully guaranteed, and no need to find the £14/15k purchase price.

The alternative that many favour is HP where you buy the car outright. No smokes or mirrors. Take the same price, the same discount, the same APR, the same customer deposit, and so on –to get a really fair comparison.

On HP under these conditions the payments would be £373.44p per month with a deposit of £1,499.

Which is best? The PCP deal costs:-
Deposit £1499 Admin fee £150, option to purchase £75 and monthly payments of £199 times 36. If you decide to buy at the GFV of £6,750 the grand total cost including interest etc is £15,638. If you decide not to buy, total outgoings have been £8,813

If you go the HP route and we keep the deposit and fees the same, the payments are £373.44 times 36 making £13,444 of payments and a grand total inc deposit and fees of £15,168.

So for full ownership, the HP deal is about £470 cheaper. But you have paid out well over £6,000 more in the first 3 years than are required on the PCP deal and that is what has given full ownership. And you are committed to full ownership.

So what is good about PCP? First, the payments are much lower, which may suit some. And those savings add up to well over £6,000 over 3 years which is almost enough to buy the car outright if you wish (£470 short). But you do not need to take full ownership unless you wish to. After 3 years you have the choice to give the car back, or part-ex it (maybe at a small profit?), or buy it. Having that choice is worth something.

But most of all, you have passed all risk on depreciation to MB and got a guaranteed residual. In these uncertain times that is worth having IMO.

IF the value after 3 years is only a few hundred less than the GFV, you have gained. And no hassle selling either.

personal view, figures subject to checking etc.

Guys - the posts here are appearing faster than I can read (and understand) them.
Back to the original post - and I have no axe to grind in either direction - if the difference in monthly payments HP £373 less PCP £199 = £174 were invested each month at say 5% (less a bit of tax) the interest made would surely cover the "saving" made on the HP deal over the 3 years in question.

 

[Rory]

Guys - the posts here are appearing faster than I can read (and understand) them.
Back to the original post - and I have no axe to grind in either direction - if the difference in monthly payments HP £373 less PCP £199 = £174 were invested each month at say 5% (less a bit of tax) the interest made would surely cover the "saving" made on the HP deal over the 3 years in question.

You'd be there or thereabouts covering the GFV (£6599 at 3.5% net) but interest rates are falling so you'd do well to get 5%. If you're a 40% tax payer then you'll only get 3% net unless you have a lower tax rate partner whose name you can park the money in.

If you're going to do the above you might as well use the HP route. The main problem for many people is that they may not have the discipline to save every month for 36mths.

 

[Piff]

You'd be there or thereabouts covering the GFV (£6599 at 3.5% net) but interest rates are falling so you'd do well to get 5%. If you're a 40% tax payer then you'll only get 3% net unless you have a lower tax rate partner whose name you can park the money in.

If you're going to do the above you might as well use the HP route. The main problem for many people is that they may not have the discipline to save every month for 36mths.

40% tax payer - if only!!! (or perhaps the result of a good accountant)

And, I agree, it is unlikely that without a fixed plan that a savings regime would be put in place. I only suggested this to try to balance the debate.

 

[hawk20]

40% tax payer - if only!!! (or perhaps the result of a good accountant)

And, I agree, it is unlikely that without a fixed plan that a savings regime would be put in place. I only suggested this to try to balance the debate.

And a perfectly valid point you made too.

By the way someone with a PCP need not bother to invest the money which he saves by having lower payments on a PCP instead of having higher ones on HP. Even if he wants to buy the car at the end of the 3 years. He can save it if he wishes, of course, but equally he can simply refinance it and buy it over the next 3 years (or more or less as he chooses). Lots of choices.

 

[Rory]

By the way someone with a PCP need not bother to invest the money which he saves by having lower payments on a PCP instead of having higher ones on HP. Even if he wants to buy the car at the end of the 3 years. He can save it if he wishes, of course, but equally he can simply refinance it and buy it over the next 3 years (or more or less as he chooses). Lots of choices.

Generally speaking, it would be daft to refinance the car at 3yrs old. If you refinance for 3yrs then it would be a very similar cost to a PCP on a new one. And you have the risk of running a 3-6 yr old car. OK, you can buy ServicePlus, but if you take the cost of that into account then taking a new PCP becomes a no-brainer.

Oh look - the trap is sprung!!

 

[del320]

Even if he wants to buy the car at the end of the 3 years. He can save it if he wishes, of course, but equally he can simply refinance it and buy it over the next 3 years (or more or less as he chooses). Lots of choices.

Hawk20 man, you’re trotting out these figures willy-nilly and as everyone knows these can be used to prove or disprove anything.

We are all agreed that PCP allows you to acquire a brand new car every three years. At the end of that period you can:

1 – Walk away with nothing
2 – Renew the contract
3 – Keep the car and find the wherewithal to cover the GFV.

For me, 1 is a non-starter and 2 represents all that is objectionable to the concept – i.e. you’re locked in.

That leaves point 3. Using your original figures, that is a small matter of £6750. Now, I’ve already stated car purchase and disposal is an ongoing process which in itself blasts any attempt at realistic quantifying out of the water.

But, for the sake of simplicity we’ll take it from a standing start. So, you’ve found the deposit (£1499) and then fork out 36 monthly payments of £199 at which point you “own” half a car. Cost: £2888 per year, £240 per month, total, £8663 (half a car)

HP cost more - £373 pm. Including deposit, 36 monthly payments of £421 at which point you’ve lashed out £15168 but own the car entirely.

Now, ‘cos he can easily afford it, the wise punter looks ahead and places the difference - £181pm in a reasonable savings account paying 4.5% net. And lo, he will have accumulated c £6900 - ample to cover the GFV and throw in a years’ tax.

But how many are about to do that – remember, saving is anathema to the UK psyche? Answer: get a bank loan. Fixed 10%, 36 x £216, total £7786. So, at the end of six years your £13978 A-Class is entirely yours for a total outlay of £16449 - and is worth squat.

If the difference, £2471, was placed on a FRB for six years, it could have grown to anything over £3300. Now extrapolate all these figures 'cos I don't want a crummy A-Class, I want a CLK55!

That was an example of the benefits of saving and a lesson on manipulating figures to justify a point of view!

 

[6CylinderMerc]

surely this is incorrect. At the end of the HP, you have paid for the car, and it is yours to do with as you wish. You can sell or keep it. You are not 'forced' to do anything.

On PCP, you have to do something .. give the car back, buy it, trade it.

Absoutely correct. By not taking any action whatsoever at the end of the agreement you are keeping the vehicle. I don't know how others can arrive at the conclusion that by doing nothing you are being forced into doing something. Surely a paradox?

If you buy a car using cash then decide to sell it after a couple of years are you being forced to do so? Of course not. You do so because you want to not because you have to.

 

[recycled]

My philosophy is if i cannot pay for it, then i cannot afford it.
A bank loan is the best way to go.If you lose your income in 1 yr you can always sell up and pay back most of it.
N/A with PCP or HP where the car does not belong to you and PPI stops after 1 year.
PCP good for business users but i am not sure for private individuals.
if the car is repossesed and auctioned it will be for a much lesser value an you still owe the difference