PCP VERSUS HP. A view

[Rory]

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

I think I mentioned earlier on, that we're generally stuck with these prices, and there isn't a lot we can do about it, especially on goods like cars. However what I do object to is the assertion that MB is offering us a good deal and comments like 12.5% being an "excellent" discount.

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.

Of course that's true. And car sales volumes are pretty constant in the UK, so the manufacturers don't really care - you walk away from one dealership and someone else goes into another one and buys a car. Imagine however if we all said enough is enough and stopped buying new cars for a while.

 

[6CylinderMerc]

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

Strange how an economist knows more about manufacturers finance products than the person who trains the people to sell it. Small wonder that this country is in an economic mess.

As for the abuse, I'm afraid you'll have to past a link to that one.


And as for more finance training? Errrm, no. From what I've read so far I could easily be making a packet.

 

[Piff]

As someone with limited knowledge of the finance products available to buy vehicles (I've always bought with cash) I have a couple of questions:-

On a PCP what are the pros & cons of a high or low guaranteed final value?

I'm likely to be buying a pick up truck for a new business venture in the next 3 to 6 months - tying up working capital by paying cash may not be a good idea as I will probably be borrowing money from bank anyway (1.5% arrangement fee & 2.75% above base rate). What are the pros & cons of the various finance options? (keep it simple please!!!)

ps my sister is a teacher & buys a new car every 2 to 3 years, always VW, and always gets tucked up!!!

 

[hawk20]

As someone with limited knowledge of the finance products available to buy vehicles (I've always bought with cash) I have a couple of questions:-

On a PCP what are the pros & cons of a high or low guaranteed final value?

I'm likely to be buying a pick up truck for a new business venture in the next 3 to 6 months - tying up working capital by paying cash may not be a good idea as I will probably be borrowing money from bank anyway (1.5% arrangement fee & 2.75% above base rate). What are the pros & cons of the various finance options? (keep it simple please!!!)

ps my sister is a teacher & buys a new car every 2 to 3 years, always VW, and always gets tucked up!!!

1. High or low GFV: - if you take the example I gave as posting number 1, where the payments are £199, if the GFV was higher then the payments would be lower.

And if the GFV is lower, then the payments need to be higher. Think of it this way. On a PCP you are paying the depreciation and the interest on capital. The more the depreciation, the more the payments need to be.

Take a really extreme case, purely for illustration. If MB would guarantee a residual equal to the price you pay for the vehicle (i.e. no depreciation at all) the payments would drop to about £51 per month (just to cover interest on capital).

So high GFV is good. Low GFV is not so good.

2. Which kind of finance best suits your business venture? There is no one size fits all solution here. It is much more complicated than for individuals as taxation, VAT, capital needs for other purposes and so on all need to be assessed. Usual to discuss with your accountant. But there is a pretty good summary on the MB website under financial services where they set out the main pro's and cons of leasing, HP, PCP etc etc.

Once you've chosen the right product for your business, you then need to get the best deal you can. See what APR your bank will give, and any other sources of finance open to you and then see if can get an even better deal from MB or whoever you are buying from.

 

[hawk20]

Here's a link: -
http://www2.mercedes-benz.co.uk/con...e/financial_services/Finance_and_leasing.html

As for your sister, despite what some others have said on this thread, if she likes to change her car every two or three years and can afford to do so, why not? Whatever turns you on, as they say.

For her a PCP could be ideal so long as the APR is sensible, the GFV is reasonably high and she gets a good deal on price.

 

[Piff]

Here's a link: -
http://www2.mercedes-benz.co.uk/con...e/financial_services/Finance_and_leasing.html

As for your sister, despite what some others have said on this thread, if she likes to change her car every two or three years and can afford to do so, why not? Whatever turns you on, as they say.

For her a PCP could be ideal so long as the APR is sensible, the GFV is reasonably high and she gets a good deal on price.

Her husband, who always used to buy his cars on hp, would enter the VW garage perhaps for a service and would come out with a replacement car! Each time they would convince him that for only an extra £xx per month and his car + £500 they could put him in a better car!!! Entertaining to watch.

 

[hawk20]

Her husband, who always used to buy his cars on hp, would enter the VW garage perhaps for a service and would come out with a replacement car! Each time they would convince him that for only an extra £xx per month and his car + £500 they could put him in a better car!!! Entertaining to watch.

Wow. I read a report by a phsychiatrist last year that said the pleasure and novelty of a new car wears off after ten months and for some people from then on the itch to change gets stronger and sronger.

 

[Piff]

Just returned from the VW garage - making sure my father does not get stitched up on the price of his new transport - a Polo Match. He is all ready to pay cash when the finance guy starts talking PCP's.
He says "leave your money in the bank earning interest and take one of our splendid deals!"
Basically after a few added options & a bit of discount amount to "finance" is £10400.

Option 1
deposit £1560.00
balance £8840.00
interest £1054.64
35 payments £145.65
purchase fee with final rental payment £185.00
Guaranteed final value £4796.87 (but it's bound to be worth more than that sir and you will have some equity to put towards your next new car!!!)
Total amount payable if purchasing £11639.62
APR 6.1%

Option 2
deposit £1560.00
balance £8840.00
interest £748.51
35 payments £253.96
purchase fee with final rental payment £185.00
Guaranteed final value £700.00
Total amount payable if purchasing £11333.60
APR 6.4%

Option 3
deposit £3120.00
balance £7280.00
interest £625.65
35 payments £205.88
purchase fee with final rental payment £185.00
Guaranteed final value £700.00
Total amount payable if purchasing £11210.80
APR 6.7%

The car is ordered with delivery at the end of next week. He has until Friday morning to decide whether to use his cash or leave his in the bank earning interest and take the finance offered

Any comments welcome.


P.S. He has had a trade in offer for his Skoda Fabia 1.4 (8v) Comfort 2000W, 33,000 miles, MOT & tax until July, full service history (3 years main dealer then independant), small dings on both corners of rear bumper. Offers over £1500 if any one is interested.

 

[Rory]

OK, I'm ever cynical, but why the £700 balance PCP (options 2 & 3) rather than straight HP. Is there some advantage for the dealer / disadvantage for the customer in usng PCP rather than HP? Are the cancellation terms worse?

More generally, if your Dad has the cash, then we are in a climate of falling interest rates for the foreseeable future so if the money is sitting in a fairly normal deposit account then he's better off using it to buy the car. If he's more creative with his money, then maybe that's not the case.

Have you checked the price of the Polo on somewhere like DriveTheDeal? If you could get 12mths MOT on the Fabia then that would probably help its value in a private sale.

 

[crockers]

A simple Question -- APR at 6.7% ...tell me which bank he can leave his money in and earn 6.7% after any taxes??


Just a thought...

If it was 0% finance - different arguement..

 

[crockers]

OK, I'm ever cynical, but why the £700 balance PCP (options 2 & 3) rather than straight HP. Is there some advantage for the dealer / disadvantage for the customer in usng PCP rather than HP? Are the cancellation terms worse?

More generally, if your Dad has the cash, then we are in a climate of falling interest rates for the foreseeable future so if the money is sitting in a fairly normal deposit account then he's better off using it to buy the car. If he's more creative with his money, then maybe that's not the case.

Have you checked the price of the Polo on somewhere like DriveTheDeal? If you could get 12mths MOT on the Fabia then that would probably help its value in a private sale.

Yes...with a HP arrangement you can walk away and hand back the car after 50% of payments have been made....no affect on your credit rating etc...I did it once when the value of the car was less than the amount of finance outstanding......not a lot of people realise this...

 

[Rory]

Of course if they'll discount the price if he takes the PCP then that might change the picture.

 

[Rory]

Yes...with a HP arrangement you can walk away and hand back the car after 50% of payments have been made....no affect on your credit rating etc...I did it once when the value of the car was less than the amount of finance outstanding......not a lot of people realise this...

To be honest I think most people know that, and also you can also pay off the deal with a maximum penalty of 2 mths interest (not principal) payments at any time.

What I've never been clear on is what are the early termination penalties are for a PCP?

 

[Piff]

OK, I'm ever cynical, but why the £700 balance PCP (options 2 & 3) rather than straight HP. Is there some advantage for the dealer / disadvantage for the customer in usng PCP rather than HP? Are the cancellation terms worse?

More generally, if your Dad has the cash, then we are in a climate of falling interest rates for the foreseeable future so if the money is sitting in a fairly normal deposit account then he's better off using it to buy the car. If he's more creative with his money, then maybe that's not the case.

Have you checked the price of the Polo on somewhere like DriveTheDeal? If you could get 12mths MOT on the Fabia then that would probably help its value in a private sale.

Discount was £870 which didn't seem too bad even with the "low" trade in offer. Checked Broadspeed.com - their discount was £532 on that particular model.
As regards MOT & private sale, I don't think at 73 he can be bothered with preparing a car for sale and dealing with the usual time wasters.

I wondered why the £700 final value was offered - hence posting the query. HP wasn't even offered - "virtually all the cars we sell now are on PCP's....."

 

[Piff]

Of course if they'll discount the price if he takes the PCP then that might change the picture.

The discount agreed is regardless of whether he pays cash or takes the PCP.

 

[Rory]

"virtually all the cars we sell now are on PCP's....."

It's a trap, you see.

 

[Piff]

To be honest I think most people know that, and also you can also pay off the deal with a maximum penalty of 2 mths interest (not principal) payments at any time.

What I've never been clear on is what are the early termination penalties are for a PCP?

I think earlier in the thread it was stated that PCP's are more difficult to get out of. I guess it would mean paying the agreed finance in full - either by selling the car to realise the funds or raiding the piggy bank!

 

[Rory]

I think earlier in the thread it was stated that PCP's are more difficult to get out of.

People (inlcuding me) say that, but I would be checking it out for myself before I got into such a deal.

 

[Piff]

It's a trap, you see.

I asked if at the end of the pcp he would be obliged to return to VW if he wanted to use the suggested equity towards his next purchase. They said that he could take the car anywhere, trade it in, pay the guaranteed final value to VW and use the balance towards his next purchase. They then added that it was not widely advertised and that the intention was to get you back in their showroom again in 3 years time.

 

[Rory]

the intention was to get you back in their showroom again in 3 years time.

That's the "trap".

With a PCP you have to take some action at 3 yrs - and what many people will do is to take another PCP.