Why is PCP / Secured finance expensive?

[TheBinarySheep]

When financing a car, why are unsecured personal loans cheaper than taking out a secured loan/PCP/Hire Purchase?

Surely with a personal loan there is higher risk for the finance company? With a secured loan they can claw back something from the asset?

For example. I looked at PCP on a £28k vehicle. £4.5k deposit and then £380 per month. Total payable in interest is £6.5k. It's a used vehicle BTW. However, if you take out a personal loan for £25k over 6 years at £369 per month, interest payable is around £1.6k.

I'm aware that an unsecured loan doesn't look at good on your credit file. Are there any secured finance options that are cheaper than PCP if you didn't want an unsecured loan?

[Dr Jekyll]

TheBinarySheep said:

When financing a car, why are unsecured personal loans cheaper than taking out a secured loan/PCP/Hire Purchase?

Surely with a personal loan there is higher risk for the finance company? With a secured loan they can claw back something from the asset?

For example. I looked at PCP on a £28k vehicle. £4.5k deposit and then £380 per month. Total payable in interest is £6.5k. It's a used vehicle BTW. However, if you take out a personal loan for £25k over 6 years at £369 per month, interest payable is around £1.6k.

I'm aware that an unsecured loan doesn't look at good on your credit file. Are there any secured finance options that are cheaper than PCP if you didn't want an unsecured loan?

During the loan you owe a little over £12,500 on average, on the PCP it's going to be more like £20,000.

[troika]

Because the dealer probably makes more commission from the finance company for flogging their money than the profit in the car.

[Shnozz]

There was another thread in the last week on exactly the same subject.

And as pointed out there also, 99% of people wouldn't qualify for the bank loan at the advertised (representative) figures.

[PrinceRupert]

Shnozz said:

There was another thread in the last week on exactly the same subject.

And as pointed out there also, 99% of people wouldn't qualify for the bank loan at the advertised (representative) figures.

Why isn't a PCP advertised at 'headline rate 2.8%' and then the rate gets bumped up post-application for a bunch of people like loans are?

[The Rotrex Kid]

PrinceRupert said:

Shnozz said:

There was another thread in the last week on exactly the same subject.

And as pointed out there also, 99% of people wouldn't qualify for the bank loan at the advertised (representative) figures.

Why isn't a PCP advertised at 'headline rate 2.8%' and then the rate gets bumped up post-application for a bunch of people like loans are?

Because FCA Regulations.

[PrinceRupert]

The Rotrex Kid said:

Because FCA Regulations.

Interesting, wonder why they are stricter for PCP than for loans?

[Jamescrs]

Shnozz said:

There was another thread in the last week on exactly the same subject.

And as pointed out there also, 99% of people wouldn't qualify for the bank loan at the advertised (representative) figures.

51% of people minimum qualify for the advertised rate, if only 1% qualified they would not be allowed to advertise it.

[TheBinarySheep]

Shnozz said:

There was another thread in the last week on exactly the same subject.

And as pointed out there also, 99% of people wouldn't qualify for the bank loan at the advertised (representative) figures.

I guess there's no way to find out if you'd get the rate without applying for the loan either, which at that point you've had a hit on your credit report.

[Shnozz]

Jamescrs said:

51% of people minimum qualify for the advertised rate, if only 1% qualified they would not be allowed to advertise it.

Never knew that - seemed from the other thread people more educated on loans and finance than I were suggesting the representative rate was rarely achievable.

[Jamescrs]

Shnozz said:

Never knew that - seemed from the other thread people more educated on loans and finance than I were suggesting the representative rate was rarely achievable.

The rate has to be available to 51% of successful applicants so I guess it doesn't take into account they just flat refuse to take on as a customer, but to those a bank offers a loan they have to offer the advertised rate to 51% of applicants

All explained on the link below if you are bored and want to read it

https://www.guarantorloancomparison.co.uk/why-didn...

[The Rotrex Kid]

Shnozz said:

Jamescrs said:

51% of people minimum qualify for the advertised rate, if only 1% qualified they would not be allowed to advertise it.

Never knew that - seemed from the other thread people more educated on loans and finance than I were suggesting the representative rate was rarely achievable.

It's a little more complicated than that TBH.

It's 51% of people who apply for the advertised rate on the term/amount it is advertised at.

So if M&S advertised £7500 over 36m @ 2.9% APR then 51% of the people who apply for that term/amount/rate need to get it.



They can then offer £4900 over 36m @ 18.8% APR



So a smart borrower could effectively borrow £7500, pay back a sum of say £2600 in a few months and effectively save themselves about £1000 in interest................... But they won't tell you that... So any deviation from the terms of the 'offer' allow them to set the rate as they can say it's how they have it advertised, even if you were originally drawn in by the shiny 2.9% rate...