To PCP or not to PCP???

[mlbutler]

Hello everyone,

Im hoping someone can help me because im driving myself insane with the number of 'what ifs' running through my head!

Im about to change jobs and will be going from having a company car to having a car allowance. Ive decided to invest in a Vauxhall Mokka, after much debate, but im now facing the question of PCP or HP, or even back to the drawing board.

My situation is this;

- Car allowance of £250 ish per month
- Deposit of up to £2k
- preference for economical car but really love SUV's so this was the middle ground
- expect to do average of £20,000 miles per annum, maybe more
- No real interest in owning the car. I would prefer to part-ex after 2 years
- Concerned the depreciation after 2-3 years will leave me in negative equity?

Ive found a nearly new Mokka, low miles and top spec for £16k. I have been quoted the following;

HP

- £1,500 deposit
- £299 per month over 5 years
- £7,400 to purchase after 3 years

PCP

- £1,500 deposit
- £281 monthly over 3 years
- £5,300 balloon payment after 3 years
- 10% APR
- ability to part-ex after 2 years (hopefully)

Im leaning towards PCP as it allows me to 'swap' the car before the end of the term and the monthly payment is lower. My concern is whether the value of the car will have depreciated to a point where I owe more than its worth after 2 years?

Also, ive heard different points regarding the mileage prediction/penalty with PCP. If I have a 3 year term and predict 15,000 miles per year, but end up doing 20,000 per year. Need I worry if im going to change acrs before the end of the term or is it measured year on year?

Any advice would be much appreciated as I don't want to enter into this without being fully aware of the pros and cons.

Thank you in advance x

[skahigh]

mlbutler said:

HP

- £1,500 deposit
- £299 per month over 5 years
- £7,400 to purchase after 3 years

That is not Hire Purchase, HP would be equal monthly payments for a set duration after which the car is entirely yours.

Also, there's no way you've typed that correctly, it works out at £26k for a £16k car!!!

[Axionknight]

What engine is the Mokka? My girlfriends my gave up her petrol head days and bought one, its blue and looks lovely, comfy too but as it is only a 1.6 petrol it isn't even remotely quick and as you have to really give it some to make progress its a touch heavy on the old jungle juice too - not terrible, but not as good as you'd expect. In the real world I'd be surprised if the 1.4 turbo isn't at least as good, better, probably.

[northandy]

Why do you think only the pcp offers you the opportunity to trade it in after 2 years?

[skahigh]

swerni said:

skahigh said:

mlbutler said:

HP

- £1,500 deposit
- £299 per month over 5 years
- £7,400 to purchase after 3 years

That is not Hire Purchase, HP would be equal monthly payments for a set duration after which the car is entirely yours.

Also, there's no way you've typed that correctly, it works out at £26k for a £16k car!!!

Re do your maths.

The £7500 is if he buys it after 3 years not 5.
Cost is just shy of £20k

Ah yes, my apologies, I didn't spot that.

[mlbutler]

Thanks everyone for your replies,

The HP is over 5 years but the £7k amount is indeed if I wanted to buy myself out early after 3 years (which I probably will want to do!)

The engine is 1.7 Diesel 2wd (SE) with sat nav- I need as much MPG as I can get as I will be doing a lot of miles , half on-and-off the motorway and half in-and-out of London.

Regarding the PCP- every dealership and also search engines have confirmed that you have the flexibility to essentially re-finance within your term. So the dealership may call me between 2-3 years to offer a newer car at the same monthly vale. they may call earlier in the term.

Essentially, the dealership is pushing for me to do HP but I know I wont want this car in 3-5 years. So do I get HP and just do a private sale after 2/3 years or PCP and hope Im not in negative equity after 2/3 years?

[SeeFive]

At the time of trade in with pcp, you will probably have lost your initial 2k deposit, all the depreciation in the car and have absolutely nothing to put down on your next car.

If you can afford the HP route to finance the whole car, you have the full value of the car at trade in time against another one. And it does not have to be another new vauxhall, you can trade it anywhere you want or even sell it privately.

Go online to see what rate other lenders are offering for car loans, you could lower your payments. 4ish APR is quite normal from large lenders, which will probably beat any manufacturer offer, except for the higher deposit 0%APR deals against new cars.

[Sheepshanks]

mlbutler said:

The engine is 1.7 Diesel 2wd (SE) with sat nav-

Have you checked the deals on new ones? PCP usually works best on new cars as there is generally support from the manufacturer on deposits and interest rates.

[northandy]

mlbutler said:

Thanks everyone for your replies,

The HP is over 5 years but the £7k amount is indeed if I wanted to buy myself out early after 3 years (which I probably will want to do!)

The engine is 1.7 Diesel 2wd (SE) with sat nav- I need as much MPG as I can get as I will be doing a lot of miles , half on-and-off the motorway and half in-and-out of London.

Regarding the PCP- every dealership and also search engines have confirmed that you have the flexibility to essentially re-finance within your term. So the dealership may call me between 2-3 years to offer a newer car at the same monthly vale. they may call earlier in the term.

Essentially, the dealership is pushing for me to do HP but I know I wont want this car in 3-5 years. So do I get HP and just do a private sale after 2/3 years or PCP and hope Im not in negative equity after 2/3 years?

You can settle the hp agreement at the same time though and assuming interest rates are the same as well as deposit and payments then it will be a similar figure. You can in theory settle either agreement at any point, be it 1 month or 40 months in.

Don't be under the assumption the dealer will because you are on pcp offer some amazing deal to you, they will be in touch whether you hp or pcp the car, even if you pay cash you can expect a call.

[kiethton]

I'd put down the smallest deposit on HP possible over a 4 year or 5 year term and use the voluntary termination clause after 2 years/2.5 years (when half of payments made), give the car back (likely in negative equity) and repeat.

You loose the deposit but can do as many miles as you like and the condition you give it back in is irrelevant (to a degree - you can't do a destruction derby)

[mlbutler]

SeeFive- thanks, my next move was to approach other lenders. You have confirmed my fear that the car wont hold its value very well and ill probably end up stuck with it.

Sheepshanks- This was another battle but the nearly new deal I've seen, even with 10% APR, is coming out better than a new model would be at £22k on 0%.

Thanks all x

[okie592]

Why would you buy a vauxhall mokka in the first place they are awful! Surely the new quashqi is better? They had loads of leases for less than £250 a month inc vat.

also why are you buying a used one at 10%, apr when all new Vauxhalls come with 0% finance over 5 years, and I bet it wouldn't be hard to haggle a brand new mokka for 16k they aren't exactly selling well, I've seen about 4 compared to hundreds of other soft roaders

[mlbutler]

Thanks Northandy that's very interesting and it seems as though PCP offers no real advantage.

Keith- am I able to give the car back after 2-2 1/2 years with a HP?

[northandy]

I assume the pcp quote is with 20k miles a year set?.

10% Apr is very poor! You can bank loan for 4% at the moment, a quick look suggests with your 1500 deposit over a 4.5 year term the payments are £293ish

My quick calculation shows if you took a loan at 4% paying the monthly at £293 you would only owe £5400 ish after 3 years

Edited: that seems odd as your pcp quote at 10% is similar, what extras have they added to the pcp deal? Gap insurance, paint protection etc?

Edited by northandy on Sunday 10th August 22:44

[mlbutler]

Okie 592- I would love a Qashqai but the Mokka has better MPG and Co2

Ive struggled to get a new SE any lower than 19k (without sat nav). However, this was when I was looking at PCP which was at 2-4% APR. I haven't looked in depth at HP options for new. Quick look suggests im still better off with the nearly new as its literally 2013, 8k miles

Nothandy- no extras, just 10% over 3 years. I haven't checked the figures yet so he may have miscalculated. I cant remember what the HP APR offer was?

I will definitely look for a different lender

Edited by mlbutler on Sunday 10th August 22:50

[northandy]

The mileage matters only if you do the voluntary termination option, where you will be charged a cost per mile pro rata or if you get to the very end and hand it back. Be wary though if the dealer suggests you drop the annual mileage to lower the payments, as you could come unstuck if you do the higher mikes as the cars worth less and you have paid less towards it.

[Sheepshanks]

northandy said:

Edited: that seems odd as your pcp quote at 10% is similar, what extras have they added to the pcp deal? Gap insurance, paint protection etc?

The APR on PCP deals always comes out higher as the GFV is outstanding for the whole term.

It's a bit of a can of worms, but if you VT there shouldn't be a mileage charge - the part of the Consumer Credit Act that allows VT says there should be no additional charges. However on a PCP the outstanding GFV means you don't get the point at which you could VT until a long way into the deal.

VT'ing with HP is more likely to make sense, but usually only if the car has done very high mileage, or the backside has dropped out of the car's value for some other reason.

[northandy]

Sheepshanks said:

The APR on PCP deals always comes out higher as the GFV is outstanding for the whole term.

It's a bit of a can of worms, but if you VT there shouldn't be a mileage charge - the part of the Consumer Credit Act that allows VT says there should be no additional charges. However on a PCP the outstanding GFV means you don't get the point at which you could VT until a long way into the deal.

VT'ing with HP is more likely to make sense, but usually only if the car has done very high mileage, or the backside has dropped out of the car's value for some other reason.

Try enforcing the clause though in regards to additional charges (trust me been there and tried) and it's very difficult, and risks a credit black mark. I didn't want to risk it when it happened to me and was happy I was avoiding the 3k neg equity.

Big miles is a killer when it comes to values, I regularily do 25k a year, three year old cars on 75k are very hard to shift.

[SeeFive]

mlbutler said:

Thanks Northandy that's very interesting and it seems as though PCP offers no real advantage.

Keith- am I able to give the car back after 2-2 1/2 years with a HP?

There will be a difference between a pcp,settlement and an HP settlement after 2 and a half years, but probably not that much. No doubt someone with a calculator handy will work it out.

The only thing that is certain is that you will have a 40-50,000 mile niche car at that stage. Its value may not meet what you owe, and your 2 grand deposit is gone.

Interest on HP loans is all added to the front of the loan. So if you borrow 10 grand, on day 1 you owe that plus the interest, let call it 12 grand. So the first 2 grand you pay makes no impact on the capital. Assume the same with pcp, never done one.

If you are looking to own a car for 2 and a half years, the best thing to do is probably budget to complete the payments / contract in that timeframe as you will have paid more of the capital off after that time, and will have more to go into your next car. Sure the payments will be higher, but HP and pcp have always been recognised by most as a way to buy a car you cannot afford. Keeping it full term minimises the hit, and HP minimises it further as you own the car at the end with no balloon to erode your capital. That is why the payments are a bit dearer, you pay off more capital over the term (no balloon).

Finishing a loan early seems to mean that you pay a lot of interest and very little capital the way I see it and will have very little to go into the next car. Sure a settlement figure may reduce the interest over the remaining term of the loan, but read the Ts and Cs carefully for penalties.

Sounds like a bit of a mugs game to me to be honest, I have no experience of it. There has been a thread over the last week or so which you may want to read.

http://www.pistonheads.com/gassing/topic.asp?h=0&a...

Buy what you can afford over the timeframe you intend to own it would be my advice unless you can get crystal clear and rock solid figures to get out early.

Edited by SeeFive on Monday 11th August 03:16

[anonymous-user]

When I had my last car in the UK and ran it on a car allowance, using the revenue fixed profit car scheme there were advantages (highr tax allowances) in having a car over 2L so dn;t assume econmical is best is cash terms.
Of subject but is 250 the monthly allowance people are paying now, I was getting 650 in 1996?