Explaining PCP's
Discussion
Having watched the way VW sold a PCP package to my partner I can only say how “impressed” I am with how slick they are !
I now understand why supposedly over 70% of new cars are bought on finance.
My other half is a lawyer, commercially savvy and intelligent etc but she simply was bamboozled and really only fixated on the monthly payment figure which someone else pointed out earlier.
My car is 10 years old and I bought it outright for cash and am a cynical old begger and even I was losing the will to follow the numbers with her. Once you threw in the part exchange figure, the VW deposit contribution, free servicing GFV etc .
I doubt if my partner even knows the retail price of the car she purchased and I am sure that the manufacturers use this to inflate retail prices
To work out if she got a good deal ( she wasn’t prepared to do the homework) I would have to look at part ex price of her trade in, look online to look at the type of discounts offered for cash , look at interest rates on either a personal loan or the interest lost if bought from savings and then look at depreciation prediction etc ………………..
So she is happy for now with monthly payment figure but wonder if she will feel the same in 3 years’ time
So all in all they make it just so easy to pull the trigger and hats off to them.
Regards
Antony
I now understand why supposedly over 70% of new cars are bought on finance.
My other half is a lawyer, commercially savvy and intelligent etc but she simply was bamboozled and really only fixated on the monthly payment figure which someone else pointed out earlier.
My car is 10 years old and I bought it outright for cash and am a cynical old begger and even I was losing the will to follow the numbers with her. Once you threw in the part exchange figure, the VW deposit contribution, free servicing GFV etc .
I doubt if my partner even knows the retail price of the car she purchased and I am sure that the manufacturers use this to inflate retail prices
To work out if she got a good deal ( she wasn’t prepared to do the homework) I would have to look at part ex price of her trade in, look online to look at the type of discounts offered for cash , look at interest rates on either a personal loan or the interest lost if bought from savings and then look at depreciation prediction etc ………………..
So she is happy for now with monthly payment figure but wonder if she will feel the same in 3 years’ time
So all in all they make it just so easy to pull the trigger and hats off to them.
Regards
Antony
AntonyMark said:
To work out if she got a good deal ( she wasn’t prepared to do the homework) I would have to look at part ex price of her trade in, look online to look at the type of discounts offered for cash , look at interest rates on either a personal loan or the interest lost if bought from savings and then look at depreciation prediction etc ………………..
I know this is PH so all of that is second nature to us but it still amazes me that people make the second biggest purchase OF THEIR LIVES without, as you say, doing the homework.No offence but don't they DESERVE to subsidise the second hand market for the rest of us!!?
AntonyMark said:
To work out if she got a good deal ( she wasn’t prepared to do the homework) I would have to look at part ex price of her trade in, look online to look at the type of discounts offered for cash , look at interest rates on either a personal loan or the interest lost if bought from savings and then look at depreciation prediction etc ………………..
Surely any car buyer, be it cash, HP, bank loan, PCP, etc would look at all of that information to assess how good their deal was before committing to purchase. Or are you suggesting that this kind of homework is only applicable to PCP purchases?walm said:
I know this is PH so all of that is second nature to us but it still amazes me that people make the second biggest purchase OF THEIR LIVES without, as you say, doing the homework.
I did a lot of research on pricing for the Tiguan we bought for my missus 6mths ago, partly because I was seriously thinking about leasing it. In the end I decided to buy cash, but signed up for the PCP to get the VW deposit contribution and then withdrew a few days after getting the car.This meant the monthly didn't matter to me, all that mattered was the "total amount of credit" because that's what I'd have to pay on withdrawing and I focussed on getting that figure down, but without making it obvious to the salesman that I was going to withdraw.
The salesman was focussed on getting the monthly as low as possible - at one point it dropped a chunk but the total didn't change. It took me while to figure out the salesman had changed the payments from 35 to 37!
If it had been me buying I would have done the homework buy my partner just didn’t have the time or to be honest could not be bothered. So as you said she is subsidising second hand cars for others.
She is very savvy in her job and when dealing with other areas of her life but in this case she was a sheep.
It’s very clever theatre and a lot of bright people have designed a process that seduces a lot of people into PCP. On top of the VW contribution and free servicing we had the dealer bonus and after we asked for more, the usual salesman goes off to the manager for approval etc.
I think the point I am making is that they make it so so easy to buy and very very tough to break down the constituent parts of the deal to allow you to evaluate if the deal is good or bad and hence a lot of people just sign.
She is very savvy in her job and when dealing with other areas of her life but in this case she was a sheep.
It’s very clever theatre and a lot of bright people have designed a process that seduces a lot of people into PCP. On top of the VW contribution and free servicing we had the dealer bonus and after we asked for more, the usual salesman goes off to the manager for approval etc.
I think the point I am making is that they make it so so easy to buy and very very tough to break down the constituent parts of the deal to allow you to evaluate if the deal is good or bad and hence a lot of people just sign.
timbo999 said:
Presumably the interest rate went down at this point if the total didn't change but the period of the loan did...?
Well, it would only be a tiny change, but that's another bone of contention - they reckon they don't know the precise interest rate until the deal is put through the system.AntonyMark said:
Having watched the way VW sold a PCP package to my partner I can only say how “impressed” I am with how slick they are !
I now understand why supposedly over 70% of new cars are bought on finance.
My other half is a lawyer, commercially savvy and intelligent etc but she simply was bamboozled and really only fixated on the monthly payment figure which someone else pointed out earlier.
My car is 10 years old and I bought it outright for cash and am a cynical old begger and even I was losing the will to follow the numbers with her. Once you threw in the part exchange figure, the VW deposit contribution, free servicing GFV etc .
I doubt if my partner even knows the retail price of the car she purchased and I am sure that the manufacturers use this to inflate retail prices
To work out if she got a good deal ( she wasn’t prepared to do the homework) I would have to look at part ex price of her trade in, look online to look at the type of discounts offered for cash , look at interest rates on either a personal loan or the interest lost if bought from savings and then look at depreciation prediction etc ………………..
So she is happy for now with monthly payment figure but wonder if she will feel the same in 3 years’ time
So all in all they make it just so easy to pull the trigger and hats off to them.
Regards
Antony
Hate to say it, but she's cleary not intelligent or commercially savvy.I now understand why supposedly over 70% of new cars are bought on finance.
My other half is a lawyer, commercially savvy and intelligent etc but she simply was bamboozled and really only fixated on the monthly payment figure which someone else pointed out earlier.
My car is 10 years old and I bought it outright for cash and am a cynical old begger and even I was losing the will to follow the numbers with her. Once you threw in the part exchange figure, the VW deposit contribution, free servicing GFV etc .
I doubt if my partner even knows the retail price of the car she purchased and I am sure that the manufacturers use this to inflate retail prices
To work out if she got a good deal ( she wasn’t prepared to do the homework) I would have to look at part ex price of her trade in, look online to look at the type of discounts offered for cash , look at interest rates on either a personal loan or the interest lost if bought from savings and then look at depreciation prediction etc ………………..
So she is happy for now with monthly payment figure but wonder if she will feel the same in 3 years’ time
So all in all they make it just so easy to pull the trigger and hats off to them.
Regards
Antony
lukefreeman said:
Hate to say it, but she's cleary not intelligent or commercially savvy.
If you "hate to say it" then you probably shouldn't.My wife's a lawyer too and has no head for numbers.
Being good or bad at mental arithmetic doesn't really tell you much about someone's intelligence or lack of it.
A bit like someone's ability to spell or even just use a spell-checker, clearly.
I put together a big write up of the different finance options available a couple of years ago - may be of use (although I think you lot know your stuff already!)
Car finance options.
1. Hire purchase - available for all new and used vehicles of all ages (depending on finance company.)
This is effectively a loan to buy a car. You pay a deposit to the car dealer, and the balance is paid back in monthly instalments to a finance company over a period between 24 and 60 months usually. At the end of the finance agreement, when all the payments have been made, title of the vehicle passes to you.
Pros: You can get into the car you want now rather than saving up and waiting.
Cons: You'll pay interest on the money you borrow.
2. Lease purchase - available for all new and used cars, typically up to 5 years old (though some finance companies will offer balloons on expensive classic cars too.)
This is essentially the same as a hire purchase, but with a final balloon payment payable at the end of the agreement. This final balloon is not a guaranteed future value - you must still pay this. This can be covered by perhaps refinancing the final balloon, or selling the car to cover the balloon - or just paying the balloon if you have the money to do so.
Pros: You will get more car for your monthly budget with a finance agreement with final balloon payment.
Cons. You'll pay more in total interest charges over the term, as you are deferring a large lump of capital until the end of the agreement. There's also the possibility that the final balloon payment may be more than the car is worth and this is at your risk - when you start your finance agreement, most finance companies will ask what mileage you expect to cover in the vehicle and they will set the final balloon at a conservative level to try and ensure you're not in negative equity.
3. Contract Purchase or PCP. Available on all new cars and used cars up to 5 years old at the beginning of the agreement, and 9 years old at the end (depending on finance company.)
This is very similar to lease purchase, you'll pay a deposit plus monthly payments, and at the end of the agreement there is again a final balloon payment payable. This time however, it's classed as a guaranteed future value - this means that the finance company will guarantee to purchase the vehicle from you for exactly the same amount as your final balloon payment. This balloon payment is set by the finance company at the start of the agreement by ascertaining what mileage you expect to cover over the term of the agreement (2-4 years.)
At the end of the term, you have the following choices.
a. Just hand the vehicle back to the finance company with no further obligation - please note that the finance company will charge you if you have gone over your anticipated mileage as a pence-per-mile cost which will be on your agreement. They will also have the right to charge for any damage to the vehicle, missing keys / missing services etc.
b. Sell the car yourself and pay the balloon to the finance company before it's due. If you sell the car for more than the final balloon payment then you get to keep any equity in the vehicle to put towards your next car.
c. Refinance the final balloon if you want to keep the car, or simply pay the balloon and title will pass to you.
Pros: Payments are usually lower than a straight forward hire purchase and there is the safety net of just being able to hand the vehicle back at the end, if you want to.
Cons: Same as lease purchase, you'll pay more interest than a hire purchase because you are deferring a lump of capital until the end of the agreement.
On all of the above agreements, you are responsible for all maintenance / servicing / road fund licence / insurance, just as you would if you owned the vehicle outright. Your name goes on the vehicle registration document, and the finance company have a 'charge' over the vehicle (which will show on an HPI report.) They are the owner of the vehicle until such time as the agreement is finished. You are responsible for keeping the vehicle in a roadworthy condition.
Assuming you take one of these agreements in your own name rather than in a limited company, then the agreements are regulated by the consumer credit act which is very flexible. This give you the option of making lump sum payments during the course of the agreement and either lowering your remaining monthly payments, shortening the term or lower the final balloon (if you have one.) You can also settle the finance agreement at any time and benefit from a regulated settlement figure. The finance company will provide you with a settlement figure which shows the balance outstanding to pay, less a rebate of interest charges that you won't have to pay as you're settling early, and the final settlement figure.
Under the consumer credit act, you also have the right to voluntarily terminate the agreement and hand it back to the finance company, once you have paid 50% of the total amount payable under the agreement. The finance company will have the right here to charge you for any damage / missing keys / services / illegal tyres. Additionally, on a contract purchase agreement, the finance company will also have the right to charge you for excess mileage on a pro-rata basis.
Car finance options.
1. Hire purchase - available for all new and used vehicles of all ages (depending on finance company.)
This is effectively a loan to buy a car. You pay a deposit to the car dealer, and the balance is paid back in monthly instalments to a finance company over a period between 24 and 60 months usually. At the end of the finance agreement, when all the payments have been made, title of the vehicle passes to you.
Pros: You can get into the car you want now rather than saving up and waiting.
Cons: You'll pay interest on the money you borrow.
2. Lease purchase - available for all new and used cars, typically up to 5 years old (though some finance companies will offer balloons on expensive classic cars too.)
This is essentially the same as a hire purchase, but with a final balloon payment payable at the end of the agreement. This final balloon is not a guaranteed future value - you must still pay this. This can be covered by perhaps refinancing the final balloon, or selling the car to cover the balloon - or just paying the balloon if you have the money to do so.
Pros: You will get more car for your monthly budget with a finance agreement with final balloon payment.
Cons. You'll pay more in total interest charges over the term, as you are deferring a large lump of capital until the end of the agreement. There's also the possibility that the final balloon payment may be more than the car is worth and this is at your risk - when you start your finance agreement, most finance companies will ask what mileage you expect to cover in the vehicle and they will set the final balloon at a conservative level to try and ensure you're not in negative equity.
3. Contract Purchase or PCP. Available on all new cars and used cars up to 5 years old at the beginning of the agreement, and 9 years old at the end (depending on finance company.)
This is very similar to lease purchase, you'll pay a deposit plus monthly payments, and at the end of the agreement there is again a final balloon payment payable. This time however, it's classed as a guaranteed future value - this means that the finance company will guarantee to purchase the vehicle from you for exactly the same amount as your final balloon payment. This balloon payment is set by the finance company at the start of the agreement by ascertaining what mileage you expect to cover over the term of the agreement (2-4 years.)
At the end of the term, you have the following choices.
a. Just hand the vehicle back to the finance company with no further obligation - please note that the finance company will charge you if you have gone over your anticipated mileage as a pence-per-mile cost which will be on your agreement. They will also have the right to charge for any damage to the vehicle, missing keys / missing services etc.
b. Sell the car yourself and pay the balloon to the finance company before it's due. If you sell the car for more than the final balloon payment then you get to keep any equity in the vehicle to put towards your next car.
c. Refinance the final balloon if you want to keep the car, or simply pay the balloon and title will pass to you.
Pros: Payments are usually lower than a straight forward hire purchase and there is the safety net of just being able to hand the vehicle back at the end, if you want to.
Cons: Same as lease purchase, you'll pay more interest than a hire purchase because you are deferring a lump of capital until the end of the agreement.
On all of the above agreements, you are responsible for all maintenance / servicing / road fund licence / insurance, just as you would if you owned the vehicle outright. Your name goes on the vehicle registration document, and the finance company have a 'charge' over the vehicle (which will show on an HPI report.) They are the owner of the vehicle until such time as the agreement is finished. You are responsible for keeping the vehicle in a roadworthy condition.
Assuming you take one of these agreements in your own name rather than in a limited company, then the agreements are regulated by the consumer credit act which is very flexible. This give you the option of making lump sum payments during the course of the agreement and either lowering your remaining monthly payments, shortening the term or lower the final balloon (if you have one.) You can also settle the finance agreement at any time and benefit from a regulated settlement figure. The finance company will provide you with a settlement figure which shows the balance outstanding to pay, less a rebate of interest charges that you won't have to pay as you're settling early, and the final settlement figure.
Under the consumer credit act, you also have the right to voluntarily terminate the agreement and hand it back to the finance company, once you have paid 50% of the total amount payable under the agreement. The finance company will have the right here to charge you for any damage / missing keys / services / illegal tyres. Additionally, on a contract purchase agreement, the finance company will also have the right to charge you for excess mileage on a pro-rata basis.
Hi, I have never used car finance in my life but am considering using the hire purchase method for my next car. However, I cannot see any APR rates anywhere online. My question is whether HP APR rates are similar to person loan rates?
For example Tesco offer a personal loan rate of 3.4% but with a maximum loan of £25k. If I wanted a £40K car then I would simply take £15k out of my savings and get this person loan.
If I went the HP route for a £40K used car could I get a HP APR rate of 3.4% or better?
I have an excellent credit history and can put down any amount of deposit. Just seeing whether HP could provide the whole £40k at similar rates or is it the case that HP is always more expensive than a personal loan.
I would be looking for a 5 year term.
For example Tesco offer a personal loan rate of 3.4% but with a maximum loan of £25k. If I wanted a £40K car then I would simply take £15k out of my savings and get this person loan.
If I went the HP route for a £40K used car could I get a HP APR rate of 3.4% or better?
I have an excellent credit history and can put down any amount of deposit. Just seeing whether HP could provide the whole £40k at similar rates or is it the case that HP is always more expensive than a personal loan.
I would be looking for a 5 year term.
Edited by Audemars on Thursday 28th April 11:35
Audemars said:
If I went the HP route for a £40K used car could I get a HP APR rate of 3.4% or better?
I suspect you'd struggle unless there was some kind of manufacturer supported deal going on. The risk for HP providers is that the car could drop in value dramatically or you could put a load of miles on it and once you've paid half you can hand the car back and walk away.Personal loans get awkward over £25K. If you can put down £15K then that's great, but many people won't have that option.
The other thing to be aware of is the dealer will expect you to take their finance and may offer discounts and incentives that are dependant on doing so. Trick here if you're flush is to lap them up then take a personal loan and your savings and use them to settle the HP (or withdraw if you're quick enough).
Sheepshanks said:
Audemars said:
If I went the HP route for a £40K used car could I get a HP APR rate of 3.4% or better?
I suspect you'd struggle unless there was some kind of manufacturer supported deal going on. The risk for HP providers is that the car could drop in value dramatically or you could put a load of miles on it and once you've paid half you can hand the car back and walk away.Personal loans get awkward over £25K. If you can put down £15K then that's great, but many people won't have that option.
The other thing to be aware of is the dealer will expect you to take their finance and may offer discounts and incentives that are dependant on doing so. Trick here if you're flush is to lap them up then take a personal loan and your savings and use them to settle the HP (or withdraw if you're quick enough).
Regarding your suggestion about taking the dealers HP and then settling straight away I assume their are no penalties in doing this? What are the typical incentives I would get from a dealer by taking out their HP other than a larger discount in price? What would be the typical discount on a £40k car if I took out their HP vs just buying it straight in cash?
Sheepshanks said:
Audemars said:
If I went the HP route for a £40K used car could I get a HP APR rate of 3.4% or better?
I suspect you'd struggle unless there was some kind of manufacturer supported deal going on. The risk for HP providers is that the car could drop in value dramatically or you could put a load of miles on it and once you've paid half you can hand the car back and walk away.Personal loans get awkward over £25K. If you can put down £15K then that's great, but many people won't have that option.
The other thing to be aware of is the dealer will expect you to take their finance and may offer discounts and incentives that are dependant on doing so. Trick here if you're flush is to lap them up then take a personal loan and your savings and use them to settle the HP (or withdraw if you're quick enough).
I had a very quick look a few weeks ago for a potential purchase and came across circa 3.9% unsecured £20k but only 3.4% secured against the vehicle.
Do some research before you buy anything.
Audemars said:
Interesting. Will I be better off organising HP outside of the dealer or will the dealer be able to offer deals that are available to the whole market?
Is there a website that details current HP APR rates?
The exact rates you get will be dependent upon your circumstances, so anything you see online will just be a rough estimate.Is there a website that details current HP APR rates?
I saw an advert whilst logged into my Halifax online banking so the quote was fairly accurate based on what they know about me. They offer both standard unsecured loans and also recently added HP and PCP.
As for dealers you'd have to check. Main dealers seem to be pretty poor for used cars from experience.
Gassing Station | Finance | Top of Page | What's New | My Stuff