PCP VERSUS HP. A view

[hawk20]

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!!

The abuse, sarcasm and misquoting has been getting too much for my taste, so I was staying away from this thread. But I feel that I should just correct the errors in the quote above.

First, it is wrong to say it is a no-brainer to take a new PCP at the end of three years. I am happy with Rory's suggestion of including the cost of Service Plus in the costs for the 3-6 year old, to cover the risk of repairs as I think it is good value. But what has been forgotten is that it includes also the cost of servicing so a service contract should be added to the PCP costs of a new vehicle so that we are comparing like with like.

By the way, my brother has just had quotes for his 3 year old A class, and the Service PLus costs are about £200 per year more than the Service only costs.

So the choice after 3 years at the end of the first PCP is whether to buy the A class for the GFV of £6,750 on HP over 3 years or whether to take another PCP out.

It is not a 'no brainer' to take another PCP as has been suggested for at least two major reasons.

First, we do not know whether or not the kind of super-advantageous PCP deal on the A class that is available now, will be available in 3 years time. We have no idea at all. So we need to keep our options open and watch out for good deals with good APRs and good GFVs. If they are not around then buying the car on an HP deal, or out of capital if we have it, may be beneficial.

Secondly, even if the good PCP deals are around at the end of 3 years, it is still not a no brainer. Rory's example completely ignores the fact that the Glass's Guide part ex price for a 6 year old (2002) A class is around £3,500 to £3,800 and private sale prices will, of course be more.

So the choice at end year 3 is actually pretty interesting. Buy for £6,750 (and join Service PLus if you wish) and keep another 3 years by which time it will still be 'worth' £3500 to say £4000.

So buying the car at the end of the PCP does look quite attractive, to me at least, and that is why I plan to buy at least one of my two A class cars when the PCP runs out.

And to correct one other error that has been posted (odd one this), I may still buy one of them even if the part ex price has fallen to below the GFV and even if they will only sell to me at the GFV. Why?

Because, if I buy from a dealer another car instead (and I only ever buy from proper dealers) it will be marked up to retail price. And I can buy at GFV which is probably likely to be somewhere around the part ex price. More than that. I will be buying a car which I know the history of (it is my car) and which I know the mileage etc are genuine. And it has just the extras, colour and spec I like.

I say that I might buy one, and that I intend to buy one after the PCP, so why not buy on HP now, you might ask?

Well, I want the MB guarantee on the depreciation. I also like the low payments for the next three years. And I like the fact that for a small extra cost I can have these things. And I also have the chance to change my mind after 3 years -without having a car to sell into an uncertain market. If I wish I can buy it outight or on HP. But I may take another PCP if there are good deals around. Or I might buy another car altogether. Nice to have so many choices.

 

[hawk20]

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.

Well, actually it perfectly well could feed him and many others too. There are many ways of releasing equity from a house while still living in it -remortgaging being just one of the more obvious ones.

 

[6CylinderMerc]

Well, actually it perfectly well could feed him and many others too. There are many ways of releasing equity from a house while still living in it -remortgaging being just one of the more obvious ones.

Now you're just being pedantic, however I'll humour you. If you're penniless that means you have no income. If you have no income you can't re-mortgage

 

[Rory]

So buying the car at the end of the PCP does look quite attractive, to me at least, and that is why I plan to buy at least one of my two A class cars when the PCP runs out.

While your analysis is broadly theoretically correct, I would suggest that vehicle manufacturers rely on the fact that the average man and woman in street does not think like you do.

They will take the car at £199/mth with no thought whatsoever about what happens at 3yrs. They will get to that point and they won't even think about the value at 6yrs - they will turn the car in and take another PCP. The deals will be constructed to look (monthly payment wise) broadly similar - they *have* to, otherwise the whole game falls flat on its face.


It's all about the monthly payment for "ordinary" people. The deal peterg1965 has on his GL looks attractive - MB website headline:
"The real price of power - just £479 a month".
Sounds great for a GL - but he didn't pay VAT. Most buyers need to pay £7000 deposit - so the monthly cost is really £770/mth (never mind the lost interest on the £7K). Gulp! But there will be people leaning on bars telling friends they got a great deal - only £479/mth.

 

[raymont]

Now you're just being pedantic, however I'll humour you. If you're penniless that means you have no income. If you have no income you can't re-mortgage

Not actually true. There are several ways of releasing equity from a property. Generally only make sense as you get older but mostly don't require an income. If they did what would be the point? For example the 'Lifetime Mortgage'. You take a loan secured against your house, interest is charged and accumulated on the loan and is usually only repaid when the property is sold, which usually happens when you die or when you enter long term care. No income required. There is often provision that the loan plus costs doesn't exceed the value of the property.

 

[renmure]

I would suggest that vehicle manufacturers rely on the fact that the average man and woman in street does not think like you do.

They will take the car at £199/mth with no thought whatsoever about what happens at 3yrs.

It's all about the monthly payment for "ordinary" people.

Hopefully tho there is nobody on this site who would admit that they, as you say, finance a car purchase and give no thought to what happens at the end of the 3 yr term. Does that mean we are all better than ordinary or greater than average? I think I am pretty car / finance savvy but unless you walk into a Dealership with a bundle of notes which you just inherited that morning and speak to the salesman needing the sale on the day that the Dealership needs to meet its target then there will always be someone somewhere who gets a better deal on a car no matter which way they finance it.

 

[hawk20]

Let’s just look at that GL deal again (details on MB website) for someone who does pay VAT. Is it really so bad.? Remember we are dealing with biggish numbers here as it is an expensive beast.

The on road price is £53,032. They want a deposit of £6,999 from the customer and £479 per month. The three tests I’ve suggested for a good deal all stack up nicely.

• The APR is a modest 6% -an excellent rate nowadays.
• There is an excellent discount of 12.5% ( the ‘retailer contribution’ is £6,620 making the actual price to pay after discount a mere £46,412)
• The guaranteed residual is good (actually phenomenal at over 68% of the price paid after discount and even 60% off list price).

So the annual cost is, roughly, one third of the deposit =£6999/3 = £2,333 per year
Plus payments of £479 per month = £5,748 per year.
Total is just over £8k per year for 3 years to cover depreciation and interest on capital.

On a £50k car that really is a good deal. Taking all payments into account, the deposit, the interest, the admin fees etc and the GFV after three years EVEN IF the customer buys the car at the end of 3 years at the GFV, it still has only cost him
£50,620. So it costs less than the list price, even with interest included.

To me that is one great deal and if I wanted a GL I would grab it (and probably get some more discount from the retailer). I would be keen because MB are taking the risk on depreciation (which on big 4x4’s may change for the worse IMO).

 

[Rory]

There is an excellent discount of 12.5%

:snigger:

It's a £27K car that MB UK lists for £53K.

..and you think 12.5% is an excellent discount!!!

They must absolutely laugh themselves stupid when someone in the UK buys one.

 

[del320]

Let’s just look at that GL deal again........

AAAARRGHHHHHH..............

We're getting into the realms of the wife coming home boasting that she's bagged a bargain pair of shoes - down from £100 to £50. They are only worth £50!

 

[6CylinderMerc]

Not actually true. There are several ways of releasing equity from a property. Generally only make sense as you get older but mostly don't require an income. If they did what would be the point? For example the 'Lifetime Mortgage'. You take a loan secured against your house, interest is charged and accumulated on the loan and is usually only repaid when the property is sold, which usually happens when you die or when you enter long term care. No income required. There is often provision that the loan plus costs doesn't exceed the value of the property.

Read my post again. I said you can't re-mortgage. I never mentioned alternatives.

 

[6CylinderMerc]

Let’s just look at that GL deal again
To me that is one great deal and if I wanted a GL I would grab it

Gawd! Is there really more like you out there? I might even go back into car sales & retire early.

 

[Rory]

Gawd! Is there really more like you out there? I might even go back into car sales & retire early.

There's a reason that car manufacturers refer to the UK as Treasure Island.

 

[peterg1965]

:snigger:

It's a £27K car that MB UK lists for £53K.

..and you think 12.5% is an excellent discount!!!

They must absolutely laugh themselves stupid when someone in the UK buys one.

Isn't that true on just about every car, white good, holiday etc etc bought in Britain. We are continually ripped off by manufacturers and retailers for practically everything, they often quote exchange rate 'factors' and different market conditions - pure b****t in my opinion. Wonder what the price difference is on something like a Discovery 3 between the US , UK and say Germany. That car is BUILT here but I would bet that the UK punters pay a huge premium.

Extrapolating Rory's comment, we shouldnt buy ANYTHING new at all because retailers are laughing themselves stupid at ALL of us!

 

[Bobby Dazzler]

Wow, what a thread!!??

Don't forget there are plenty of people out there that would buy a new car every three years, whether through a PCP or otherwise, and so for them they're not locked into anything - it's a natural cycle for many people.

I don't want to stereotype here, but in my own personal experience I've come across many female teachers who have bought a new super-mini every three years, regardless of the fact that there old one had done relatively few miles. They just swapped it for a new one.

Also, it's quite difficult for someone not to realise what the deal is with a PCP. Everything I've read on leaflets and conersations with dealers, all make it clear that at the end of the PCP you can buy the car outright (and refinance if needs be), hand it back and walk away, or have another new car. That makes it fairly clear what happens at the end.

The one thing that can be a bit naughty - and is possibly the seller at fault - is the suggestion that there might be some equity to put in the next deal. Some people might believe it. It's just moving around the amount the dealer can afford to discount, like offering an optimistic part-exchange valuation - nothing more.

 

[hawk20]

Gawd! Is there really more like you out there? I might even go back into car sales & retire early.

Perhaps some proper finance training first would be helpful? And less abuse of others?

 

[del320]

Wow, what a thread!!??

I don't want to stereotype here, but in my own personal experience I've come across many female teachers who have bought a new super-mini every three years, regardless of the fact that there old one had done relatively few miles. They just swapped it for a new one.

I don't want to stereotype here, but in my own personal experience over 30 years in the industry, female teachers are amongst the most financially illiterate and naive group of individuals - closely followed by the police.

 

[renmure]

AAAARRGHHHHHH..............

We're getting into the realms of the wife coming home boasting that she's bagged a bargain pair of shoes - down from £100 to £50. They are only worth £50!

There's a reason that car manufacturers refer to the UK as Treasure Island.

I imagine if either of you went into a dealership over here, since this is actually where we live, and offered to pay the same price as you could get if you happened to live somewhere else, you may have a long walk home.

Perhaps agreeing to disagree on pcp/hp might be the way forward for this one eh?

 

[Bobby Dazzler]

I don't want to stereotype here, but in my own personal experience over 30 years in the industry, female teachers are amongst the most financially illiterate and naive group of individuals - closely followed by the police.

I wasn't suggesting that they're financially astute as a group - simply that they seem to buy a new car every three years. I don't think PCPs have driven that behaviour. I've known quite a few, and they've all done it for years - before many of them would have even heard of a PCP.

What you may perceive to be financially naivety may be them wanting a new car every three years, being able to afford a new car every three years, and so going out and buying a new car every three years.

With few exceptions, buying cars - whether new or second hand - doesn't make good financial sense. But these days many of us are in the fortunate position of being able to choose to - and sometimes that means spending money that doesn't need to be spent.

PCP is just another way of spending money that doesn't need to be spent, like HP, bank loan, bag full of cash, etc.

 

[Bobby Dazzler]

Also, it's quite difficult for someone not to realise what the deal is with a PCP. Everything I've read on leaflets and conersations with dealers, all make it clear that at the end of the PCP you can buy the car outright (and refinance if needs be), hand it back and walk away, or have another new car. That makes it fairly clear what happens at the end.

In fact that's pretty much all it says on the subject on the MB website.

Whether it's cheaper or dearer to buy the car by PCP or by other means probably no different in real terms from choosing between one finance provider and another, or deal offered by one or another.

Some combinations are cheap for some people, others are expensive for other people. Some people just go with what they feel comfortable with, others do all the sums and still go with what they feel comfortable with, and others do all the sums and go for the cheapest. Of course some do nothing.

Great thread. Helped me pass an otherwise wet and windy afternoon.

 

[del320]

Absolutely correct! It's just that we are led to believe 1 in 4 people are financially up sh!t creek.

As I mentioned a dozen pages ago, the savings ethos has passed many folks by. Teachers (as an example) would not claim to be the most prosperous yet, along with many, many others they bash on, living on the edge, keeping up appearances, bleating about unaffordable housing, cards max'd out etc.

Yet there are no end of oppertunities to be suckered into some sure-fire scheme which will undoubtedly save a fortune.

Not!