Discussion in 'Motoring' started by thedude, Oct 7, 2013.
Hi guys why do so many people tell each other not to get pch or a pcp deal what's your thoughts...
It's a good way to have a car for a set period of time. If you change your car every few years then it can be a very good way to finance a car.
If you tend to keep your cars longer then you'd be better off with HP, personally I don't think there's anything wrong with them it just people who don't like the idea of not owning the car and handing it back after the hire period.
I have more of an issue with people buying a car over 5 years on HP, to me that is generally pointless, IMO if you have to finance a car over 5 years you can't afford it and should buy a cheaper car.
In my opinion people should finance whatever car they want whatever way they want and anyone that moans about it needs to worry about their own life and not something as trivial as this. When it comes to cars and finance everyone is an armchair expert. I've bought cars cash, PCP and HP. I'll do whatever I decide to get the car I want at that particular time in my life, anyone else's opinion is quite frankly worthless.
People are old fashioned, they still expect to 'own' cars.
They can't get their head around a car being like a mobile phone.
Pay a monthly 'contract', then change in 2/3/4 years.
But buying cars is now in the minority, so those who 'can't get their head around it' need to catch up!
Exactly this, I hear people all the time saying if you have to finance a car then you cant afford it and therefore shouldn't have it and this is why the economy is in a mess etc. I paid cash for one car, one is on a 4 year HP and the other 5 year M&S car buyer plan. I pay X amount a month to have the cars I want then trade them in and upgrade when the time is right. I never keep the cars for 4-5 years, its more like 2 before I can trade them in and not be in negative equity.
I was tempted to get a Juke Nismo on PCP but it'll work out better for me to pick up a used one and finance it over 4-5 years on something like the M&S car buyer plan.
It might be a mindset thing, similar to most people being obsessed with property ownership over renting 'because renting's dead money'.
Personally I've always bought my cars but I'm considering some form of lease for my wife's next car.
Property is a whole different kettle of fish, Rent is a waste as your just paying someone else's mortgage. Cars are just an expense like Mobile phones and Sky but in 25-30 years i'd want to own my house.
If you compare it with house buying, the lack of understanding about PCP/PCH is even more baffling.
It used to be the norm to 'defer' your house loan amount and only pay the interest.
It was only badly performing endowments that ended endowment mortgages, not a problem with the concept per se.
Same concept as PCP/PCH, you're only paying interest/depreciation and not owning the car until you produce a lump sum at the end.
(I'm aware with PCH you usually hand the car back, but you do have the option of buying it, which makes it practically the same as PCP).
PCH doesn't give you a fixed amount of the vehicle used where as PCP does. Now this can work in your favour should you wish to buy the vehicle after the period of hire. If the market it on its bum then a PCH is the way forward as you will pick up the car for market value.
On a PCP they set the RV of the vehicle and if the market is on its bum then you still pay the set amount but if its high you reep the rewards that way. Its horses for courses.
Of course all finance companies auction their cars off after the term of the lease on a BCH or PCH so if you want a bargain then that could be the way to go (used). However i am all for PCH it seems to be a sensible option and a cheap way to own your vehicle. Ive seen some deals on Ford Focus Zetecs to be around the £215 mark not bad for a 15-20k car.
This is true, but people do have this misconception you 'have' to hand a car back after a PCH deal.
You don't, you can always ask to buy it.
The last lease company we used even had it as a phone option "press 3 if you wish to buy your car".
Exactly, but most people wont have saved to buy the vehicle or will want a new one at the end of the contract
You buy a house, you repay the mortgage, you then own the property.
You buy a car, you repay the loan or finance, you then own the car.
PCH you effectively rent a car, at the end of the term you give the keys back, you own nothing.
Renting a property, you finish your rental term and own nothing.
I'm sure everyone will jump on this as being a far too simplistic view, but for those who don't understand the full ins and outs of PCH that's exactly how it looks.
Personal Contract Hire
Few purchases depreciate at the speed of a new car. As the theory goes, the car loses value as soon as you drive it off the dealer's forecourt. However, there are ways to eliminate the negative effects of depreciation and personal contract hire is top of the list. Personal contract hire is both cost-effective and easy to manage. This guide to personal contract hire will explain how it works and who it's right for.
Personal contract hire is essentially the same as regular contract hire, but it applies exclusively to private individuals. It is the most common form of car leasing and usually when the term 'car leasing' is referred to, most people are talking about personal contract hire.
With a personal contract hire agreement you take control of a car for a contractual period usually referred to as the 'lease period'. Though the car is in your possession, it is not actually yours to own. Instead, you make fixed monthly payments to a leasing company for the duration of the contract and when the contract expires you simply return the car to the leasing company or take out a new personal contract hire lease. As a result you never have to worry about resale values of the car because you never own it, so you can simply return it and walk away.
It's important to understand how your payments are determined.
The personal contract hire company will work out the 'residual value' of the vehicle that is its value at the end of the contractual period once depreciation is taken into account. To estimate this value, the company will ask you to stick to a strict mileage limit while you drive the car exceeding this limit could see you penalised at the end of the term. To determine your payments, the company will deduct the estimated future value (residual value) from the retail price of the car and you pay the difference in monthly instalments
source Union Leasing - Contract Hire Specialists
Personal contract hire doesn't really eliminate the negative aspects of depreciation, as the monthly premium payable takes into account the expect depreciation on the vehicles plus a substantial margin.
Of course in some circumstances, where depreciation has been much worse than expected, the 'excess' depreciation is avoided by someone on PCH.
You are talking worse case scenarios. Most finance companies use Glasses Guide in order to work out RV (residual values) of the vehicle. They usually will look at the worse case scenario. But they also look at recent auctions, franchise dealers as well in order to back that up. They then add on the interest and thus giving you an amount.
People who view it like this are simpletons, they have to be.
Using your words.
1/ You buy a house, you prepay the mortgage, you own the house.
Yes, but there are different ways to buy a house (endowment/repayment)
2/ You rent a flat, you finish your rental term, you own nothing
Yes, but you may well be able to buy it.
I remember years ago when the Sierra Cosworth was one of the cars of the moment and joyriding was at it's peak. Insurance for these types of cars went through the roof so residuals bottomed out. My dad had a Cossie on PCP and was asked at the end of the term if he wanted to buy it, he just laughed as it was worth about half what the dealer wanted/the contract stated.
PCP / PCH the only difference is that PCP gives you the option to buy the vehicle
The variables are:
1. The cost of the vehicle (and maintenance package where applicable)
2. The interest rate charged
3. The initial payment or deposit
4. The residual value of the vehicle
5. The Term of the agreement
On these variables the monthly payments are calculated.
There is no magic formula to avoid depreciation be it on PCH/PCP/ Lease whatever
The estimated depreciation for the period on a vehicle can be viewed from the outset by comparing the invoice price of the car to the residual value quoted on the agreement.
The total cost of the facility is the difference between the invoice price and the residual value plus any deposit paid plus the interest charged, this is reflected in the monthly payments you are charged.
Basically your deposit plus the total monthly payments you make through the term is the cost, in the case of PCP if the value of the car is greater at the end then this reduces the overall cost.
Comparing Mortgage to PCP is perfectly correct as it is an agreement to purchase the asset.
Comparing Rent to PCH again is correct as it is an agreement to use the asset.
If you haven't the cash to buy a car outright and wish to use or part buy a new or ish car and pay a fixed monthly sum it'll work for you - if you want to purchase a car outright and have the cash you'll forgo the interest charges and any stipulation as to its usage so you pays your money and takes your choice.
Nobody in their right mind would buy a house with an Endowment nowadays.
No, not nowadays, but that's not because there's anything inherently wrong with the concept!
It's just a loan with a deferred lump sum at the end, like PCP.
Well, I have just gone down the PCH route for the first time; £311 a month for a Merc C class 250 CDi AMG Sport Plus Auto. Happy with that.
Remember peeps saying here that certain models (eg Mini) were very popular re PCP etc.
Just reading on a famous motoring site that the boss of Mercedes UK said that 90% of private sales are effectively purchased via PCP.
Can only imagine that other manufacturers will confirm (if not neccesarily 90%) that finance schemes (as opposed to outright purchases) are very popular.
Whether it's a myth or not. My own perception is that new car prices have grown significantly over the last decade or so. Certainly outstripping wage growth. Again, seems that way to me but just my own gut feeling.
Nearly £20K (list) for a family hatchback (eg Golf). or circa £2-£300 a month.
What % have anything like that kind of cash to purchase outright? 1%?
What % have the means to repay £2-300 a month on finance. Ten, twenty times as many?
If wage growth continues to lag behind inflation (like it has done for years (especially when you factor in real world inflation of 5%++)) then disposable income will remain under pressure so saving up cash will be hard.
I'm strongly considering it for my next car purchase and i suspect that it's popularity will continue to grow.
I've been thinking about going the PCP route for a few months now. The car I drive is 12 years old, I'm constantly the butt of jokes at work about it. But the fact is that my 12 year old car which was purchased for £1200 in cash, has only cost me around £1000 in repairs, MOT's, Tax and servicing in all the years I've owned it.
Even if my car cost me £100 each month in repairs it would still be cheaper than the majority of PCP deals.
I am still tempted to get a new car on PCP, the 3yrs of no MOT's, warranty and feel of a new car would be nice though. Fighting the temptation.
Its a hard one isn't it - I've had Saab convertible from new its 7 years and never missed a beat - sales through its MOT and is a nice car - it costs me nothing to run apart from the usual fuel and ins and no monthly payments. It still looks good and its mine! Do I really want to shell out £400 per month for an equivalent replacement just because it smells new? My mileage has dropped significantly from 30k to 10k p.a, at 30k p.a you need the reliability and back up a new car offers at 10k its not so important. I also think that better quality executive cars last better than Fords and Vauxhalls etc particularly Mercs - Im half tempted by a 5 year old SL but we'll see. Once you get on the PCP/PCH roundabout its very difficult to get off unless you have cash to chuck into a deal.
Industry wide, 75% of car sales are now done via some sort of PCP style finance.
It was on the news last week.
6 years ago, when we first ordered a Mini (but cancelled), the dealer advised us 90% of his sales were on PCP/PCH.
It doesn't really matter how you fund a new car purchase (PCP/Cash etc) you cannot get away from the fact new cars depriciate.
I can see why dealers love PCP/PCH, since it often locks people into buying a new car every X number of years, and the dealer can sell it on the idea you don't have to worry about MOTs/repairs ever. I would love to have a new car evey 3 years but simply cannot justify spending £200/300 months for years upon years.
Both of our cars in the family are now over 5 years old, and to be maintance costs have been minimal. The Civic in particular has been amazing, £13.5K as a pre-reg demo with 1000 miles on the clock 5.5 years ago, not a penny spent on repairs or MOT failures, and if traded in now still worth about £5K. So it works out as costing us about £130 months. Much cheaper than running a car via PCP/PCP. The plan is to part exchange it for another pre-reg car in 2-3 years time.
That's why the dealers love it - because at the end of the agreement you have to make a decision and they know exactly when to contact you to dangle the carrot and they also have a guaranteed flow of used stock through their business. PCP/PCH do have a lot of good points but they do remove a lot of your choices. Still at least there's plenty of nice used 3 year old vehicles about on which someone else has taken the depreciation.
The thing I can't get my head around is this...say I want a Toyota GT86 which, through lingscars.com, is going to cost me £1,155 up front and £385 a month for the next 35 months...a total of £14,630.
If I choose to buy a 1 year old GT86 with a loan and have £3,000 to deposit from the sale of my banger...a loan will cost me £483.54 a month for 36 months...£17,407.
In 3 years time when I want to get another new GT86 and start all over again on contract hire the costs will remain much of a muchness...another £14,630. However if I had finished paying my loan and owned my GT86 outright it will still be worth around £10,000...so I could use this to buy another nearly new GT86 for £19,000 and only have to borrow £9,000 for the next 3 years at £286.00 a month...£10,296 in total.
So over 6 years PCH will have cost a total of £29,269...and I would have been running a brand new car.
Using a car loan and even taking into account that £10k deposit for the 2nd car I would still have spent £27,703 on finance.
That's a difference of £1,566 over 6 years...£21.75 a month...and i would have had to pay for an MOT and had the hassle of selling privately. PCH seems to be a no brainer to me...or am I wrong?
I'm no expert but the only thing that stands out for me is:
The numbers are pretty similar at the end but...
PCP route. You'll need another 10K or so balloon payment to own the car.
The loan route, you own the car so you have a 10K asset.
Or am I missing something here
With a loan you own the car at the end, for a new purchase of say a ford focus
19k for a zetec that's a heft loan yuy won't get a small payment on that!
Even over 5 years it's still going to be 400 odd pound. And after that you have a car worth 6k!
On pch it's £216 a month for four years and you give it back.
You do the maths.
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