Hire Purchase, PCP, finance idiot... help.
Discussion
This seems to keep happening to me... but a good friend asked me this morning, how to get a fast, expensive car without buying it or tieing up lots of cash in it. And I have absolutely no idea - I've never used car finance.
He's talking about HP, PCP or something similar (I think...) and wants to spend around the £5k mark on a deposit, and he tells me he's also easily got £500 plus spare each month because "business is booming"... (he's self employed).
Bottom line is, he's raking it in **now** and wants to splash out now, but (apart from the deposit) he wants the "security" of being able to hand the car back if things change etc.
I was about as much use as a chocolate teapot (my advice was to find something fast and fun for the £5000 and save the rest up, but I don't think he's interested, he's set his heart on something fast, expensive and impressive).
What's his least stupid route?
Julian Thompson said:
I’m rubbish at those emoji things but if I was good at it I’d be posting a picture of a guy with an enormous box of popcorn.
Perhaps someone can help me out?
Perhaps someone can help me out?
http://emoticons.datahamster.com/
steve-5snwi said:
if he wants out of it at any time then lease is out and pcp will usually break even between 18 and 36 months.
Exactly this, and it's not something the sales person will tell them.You said he might want out if things change, he's entering into negative equity for 18 to 36 months as said above.
So in simple terms, if he wants to sell the car in six months he'll owe more than the car's worth and have to pay that difference to sell the car.
https://www.contracthireandleasing.com/independent...
Audi A4 Saloon
S4 Quattro 4dr Tip Tronic
£367.56 Per Month, INC VAT
Rental Profile 6+23
Annual Mileage 10k Miles p/a
Initial Rental £2,205.36
Additional Fees £198.00
Audi A4 Saloon
S4 Quattro 4dr Tip Tronic
£367.56 Per Month, INC VAT
Rental Profile 6+23
Annual Mileage 10k Miles p/a
Initial Rental £2,205.36
Additional Fees £198.00
If he's happy to write off the £5K deposit and whatever monthly payments he's made, then he just needs to look at a car that's got a low cost to change.
Something like a 981 Boxster or Cayman should fit the bill. Find one of the right spec, buy it from one of the specialists and they should have it back off you at any point should your circumstances change. For example (ballpark numbers):
Sticker price - £40K
Deposit - £5K
Monthly payments - £550
If you needed get out of the car after 6 months, the same specialist would be quite likely to give you £32K for the car - assuming you hadn't put mega mileage on it, and had kept it in decent nick.
Something like a 981 Boxster or Cayman should fit the bill. Find one of the right spec, buy it from one of the specialists and they should have it back off you at any point should your circumstances change. For example (ballpark numbers):
Sticker price - £40K
Deposit - £5K
Monthly payments - £550
If you needed get out of the car after 6 months, the same specialist would be quite likely to give you £32K for the car - assuming you hadn't put mega mileage on it, and had kept it in decent nick.
omniflow said:
If he's happy to write off the £5K deposit and whatever monthly payments he's made, then he just needs to look at a car that's got a low cost to change.
Something like a 981 Boxster or Cayman should fit the bill. Find one of the right spec, buy it from one of the specialists and they should have it back off you at any point should your circumstances change. For example (ballpark numbers):
Sticker price - £40K
Deposit - £5K
Monthly payments - £550
If you needed get out of the car after 6 months, the same specialist would be quite likely to give you £32K for the car - assuming you hadn't put mega mileage on it, and had kept it in decent nick.
This sounds plausible.Something like a 981 Boxster or Cayman should fit the bill. Find one of the right spec, buy it from one of the specialists and they should have it back off you at any point should your circumstances change. For example (ballpark numbers):
Sticker price - £40K
Deposit - £5K
Monthly payments - £550
If you needed get out of the car after 6 months, the same specialist would be quite likely to give you £32K for the car - assuming you hadn't put mega mileage on it, and had kept it in decent nick.
I am w-a-y out of my depth with all the "price to change" and "half this / half that" stuff... I've only ever bought cars with lump sums. But I can't help feeling the whole thing is a bad idea, compared to putting a few months of the £500 on one side and then going out and finding something fast and fun for circa £7500.
Am I just stupid and old fashioned?
steve-5snwi said:
Nope, your sensible. The bank loan would be my preferred option.
That makes more sense to me... then if he wants out, he just needs to sell the car and pay off the loan... but I suspect his main motivation for HP or PCP or whatever, is A: to get a car worth more than he could via a loan and B: the idea of just "handing the car back" which I imagine is actually not really possible.I'm working on him.
Having given this a bit more thought, it's ALL about the car he chooses. The finance method is a distant second.
There is no magic to this, and once you strip away all of the finance terminology it comes down to:
Price paid for the car - price the car is sold for = money written off (depreciation)
If you pick the right car, probably second hand, then the difference between what you pay for the car and what you could sell it for can be within tolerable levels.
Having found the type of car that meets your requirements, you can then figure out the best way to finance it. This pretty much 100% comes down to APR.
If you borrow £40K, whether via a PCP deal or a Bank loan, you're going to be paying interest on £40K. The difference is, that with a bank loan, you're paying off SOME of the entire £40K from the beginning, whereas with a PCP deal you're paying off something like £15K from the beginning and then the interest on the other £25K. With the same APR the PCP deal will cost you more over the full term, but your monthly payments will be lower.
BUT - if you can get a PCP deal with a significantly better APR than a Bank Loan, then it can work out cheaper.
Also - a PCP deal can FEEL like a better deal, because you have zero intention of ever getting to the end, you don't ever plan to pay the balloon, and the monthly payments are nice and affordable.
My view - if it's a long term purchase (i.e. a car that I plan to keep) then it's a bank loan all day long. However, if it's for a toy that I might change in 6 months, then some kind of PCP deal probably makes sense.
There is no magic to this, and once you strip away all of the finance terminology it comes down to:
Price paid for the car - price the car is sold for = money written off (depreciation)
If you pick the right car, probably second hand, then the difference between what you pay for the car and what you could sell it for can be within tolerable levels.
Having found the type of car that meets your requirements, you can then figure out the best way to finance it. This pretty much 100% comes down to APR.
If you borrow £40K, whether via a PCP deal or a Bank loan, you're going to be paying interest on £40K. The difference is, that with a bank loan, you're paying off SOME of the entire £40K from the beginning, whereas with a PCP deal you're paying off something like £15K from the beginning and then the interest on the other £25K. With the same APR the PCP deal will cost you more over the full term, but your monthly payments will be lower.
BUT - if you can get a PCP deal with a significantly better APR than a Bank Loan, then it can work out cheaper.
Also - a PCP deal can FEEL like a better deal, because you have zero intention of ever getting to the end, you don't ever plan to pay the balloon, and the monthly payments are nice and affordable.
My view - if it's a long term purchase (i.e. a car that I plan to keep) then it's a bank loan all day long. However, if it's for a toy that I might change in 6 months, then some kind of PCP deal probably makes sense.
wemorgan said:
https://www.contracthireandleasing.com/independent...
£367.56 Per Month, INC VAT
Rental Profile 6+23
Annual Mileage 10k Miles p/a
Initial Rental £2,205.36
Additional Fees £198.00
So in the typical exmaple above, 6+23 does that mean he gets the car for 29 months but pays the first 6 months up front?£367.56 Per Month, INC VAT
Rental Profile 6+23
Annual Mileage 10k Miles p/a
Initial Rental £2,205.36
Additional Fees £198.00
I assume total paid is £10857.24
tight fart said:
wemorgan said:
https://www.contracthireandleasing.com/independent...
£367.56 Per Month, INC VAT
Rental Profile 6+23
Annual Mileage 10k Miles p/a
Initial Rental £2,205.36
Additional Fees £198.00
So in the typical exmaple above, 6+23 does that mean he gets the car for 29 months but pays the first 6 months up front?£367.56 Per Month, INC VAT
Rental Profile 6+23
Annual Mileage 10k Miles p/a
Initial Rental £2,205.36
Additional Fees £198.00
I assume total paid is £10857.24
Then he pays 23 monthly amounts.
So 24 months of payments in total.
wemorgan said:
The word deposit is a bit misleading with regards to PCH, as you never transfer the deposit on to the next lease. It's easier to simply consider it the 1st months instalment. Unlike PCP where there are occasions of having equity in the car transferred to the next PCP
True - my bad as it’s actually called initial rental 
PCP over 6 months does not make sense, with PCP you also pay interest on the full amount where as with a bank loan its paid on the amount borrowed. There are no admin fees either with a bank loan.
It would make more sense to buy a Boxster PDK now when they are not so much in demand, then sell it in 6 months when people want them for the summer - the same might apply to an F Type Jag V8,
Find a car thats liked, whack it through We Buy any car and see how much you could possibly lose.
It would make more sense to buy a Boxster PDK now when they are not so much in demand, then sell it in 6 months when people want them for the summer - the same might apply to an F Type Jag V8,
Find a car thats liked, whack it through We Buy any car and see how much you could possibly lose.
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