PCP v Hire Purchase
Discussion
Eric Mc said:
PCP?
Personal Contract Plan.
I have just taken out a PCP because the rate was 3.9% APR was 4.2% and I can get more for the money in the bank.
You pay a significant deposit, then interest on the balance, and the balance is payable at the end of the contract, when you can hand it back or make the final payment. Agreed annual mileage, agreed final purchase price.
Beware the £150 set up fee and the final fee to transfer the car to you of aboyt £78. Can erode any advantage from the interest rate.
Good for cash flow (but not as good as other methods), mind the gap if buying a new car and then writing it off.
They do it on a business basis as well but interest rates not as attractive.
I don't think it is VATABLE? I think you get the capital allowances.
Eric Mc said:
So a PCP is another term for "Contract Hire" or "Finance Lease"?
Edited by Eric Mc on Monday 5th February 22:35
No. PCP is in fact a purchase product or - Personal Contract Purchase, which in essence is hire purchase with a balloon.
The main advantage of a PCP is that the future value of the car is guaranteed and this is at least the value of the balloon and sometimes more.
In theory you get the best of both worlds in that you can hand the car back - subject to mileage & condition, or purchase the car for the agreed balloon. In reality the balloons are quite conservative and as well as paying intrest on the amount you are paying off you are also paying interest on the balloon which does not depreciate.
For tax purposes I believe you can off set interest and write down as with any vehicle purchase, although I am sure Eric will be able to give you more specifics.
If it is a HP under a different name, then the buyer can claim the Capital Allowances on the vehicle and claim the finance charges on the repayments.
HPs with balloon payments have been around a long time, although they were used to be referred to simply as "Hire Purchase" agreements.
HPs with balloon payments have been around a long time, although they were used to be referred to simply as "Hire Purchase" agreements.
Eric Mc said:
If it is a HP under a different name, then the buyer can claim the Capital Allowances on the vehicle and claim the finance charges on the repayments.
HPs with balloon payments have been around a long time, although they were used to be referred to simply as "Hire Purchase" agreements.
HPs with balloon payments have been around a long time, although they were used to be referred to simply as "Hire Purchase" agreements.
I think that within my PCP paperwork 'HP' is how they are referred to. The dealer was very keen to sell it to me in that format and willing to throw in extras to get me to buy that way rather than with cash. There must be an incentive or a target based on it for them.
If you plan to keep the vehicle and pay the ballon, then you can play the PCP game quite well.
We have just bought our 54 plate grand scenic after a two year PCP.
£2K deposit
£311.00 a month
2.9% Apr
Just under 9K as the ballon.
On something like a £20K car, dealer and Renualt put in a total of £2.5K
Ok, technically we were limited to 10,000 mile per year. But if you part exchange it or buy it then that doesnt factor into it at all.
We bought ours with 44K on the clock for £9K when other 2 year olds were selling fast at £10/11K with more mileage.
We have just bought our 54 plate grand scenic after a two year PCP.
£2K deposit
£311.00 a month
2.9% Apr
Just under 9K as the ballon.
On something like a £20K car, dealer and Renualt put in a total of £2.5K
Ok, technically we were limited to 10,000 mile per year. But if you part exchange it or buy it then that doesnt factor into it at all.
We bought ours with 44K on the clock for £9K when other 2 year olds were selling fast at £10/11K with more mileage.
I'm not clear on the fine details, so would welcome clarification froman expert, but I was warned off PCP's due to their lack of flexibility if your circumstances change. With HP (for under £25K) you can get out with 2 months interest payments. With PCP the settlement figure can be huge, especially early on.
I'm not sure if they're available to private buyers, but Lease Purchase is supposed to offer the best of PCP & HP worlds. Only thing is that the baloon payment at the end isn't guaranteed like it is with a PCP, so the car could be worth less than the balloon.
I'm not sure if they're available to private buyers, but Lease Purchase is supposed to offer the best of PCP & HP worlds. Only thing is that the baloon payment at the end isn't guaranteed like it is with a PCP, so the car could be worth less than the balloon.
vex said:
If you plan to keep the vehicle and pay the ballon, then you can play the PCP game quite well.
We have just bought our 54 plate grand scenic after a two year PCP.
£2K deposit
£311.00 a month
2.9% Apr
Just under 9K as the ballon.
On something like a £20K car, dealer and Renualt put in a total of £2.5K
Ok, technically we were limited to 10,000 mile per year. But if you part exchange it or buy it then that doesnt factor into it at all.
We bought ours with 44K on the clock for £9K when other 2 year olds were selling fast at £10/11K with more mileage.
We have just bought our 54 plate grand scenic after a two year PCP.
£2K deposit
£311.00 a month
2.9% Apr
Just under 9K as the ballon.
On something like a £20K car, dealer and Renualt put in a total of £2.5K
Ok, technically we were limited to 10,000 mile per year. But if you part exchange it or buy it then that doesnt factor into it at all.
We bought ours with 44K on the clock for £9K when other 2 year olds were selling fast at £10/11K with more mileage.
What happens to the deposit at the end? Is that included in the £9k balloon payment? What would happen if you handed the car back - would you get the deposit back?
Seany88 said:
What happens to the deposit at the end? Is that included in the £9k balloon payment? What would happen if you handed the car back - would you get the deposit back?
Nope. If you hand the car back you get zip.
Lets say £10000 for a car with a £4000 balloon payment at the end.
You pay a deposit of say £1000.
Borrow £9000 at 10% interest, means you pay back £9900-4000 over x number of months.
At the end you either pay/finance the £4000 and keep the car or give it back.
If the car is worth more than £4k you can buy it from the finance company, and sell it on.
If the car is worth less than £4k you give back the keys
vex said:
If you plan to keep the vehicle and pay the ballon, then you can play the PCP game quite well.
We have just bought our 54 plate grand scenic after a two year PCP.
£2K deposit
£311.00 a month
2.9% Apr
Just under 9K as the ballon.
On something like a £20K car, dealer and Renualt put in a total of £2.5K
Ok, technically we were limited to 10,000 mile per year. But if you part exchange it or buy it then that doesnt factor into it at all.
We bought ours with 44K on the clock for £9K when other 2 year olds were selling fast at £10/11K with more mileage.
We have just bought our 54 plate grand scenic after a two year PCP.
£2K deposit
£311.00 a month
2.9% Apr
Just under 9K as the ballon.
On something like a £20K car, dealer and Renualt put in a total of £2.5K
Ok, technically we were limited to 10,000 mile per year. But if you part exchange it or buy it then that doesnt factor into it at all.
We bought ours with 44K on the clock for £9K when other 2 year olds were selling fast at £10/11K with more mileage.
Vex, could you tell me where you got such a low rate from?
mcflurry said:
Seany88 said:
What happens to the deposit at the end? Is that included in the £9k balloon payment? What would happen if you handed the car back - would you get the deposit back?
Nope. If you hand the car back you get zip.
Lets say £10000 for a car with a £4000 balloon payment at the end.
You pay a deposit of say £1000.
Borrow £9000 at 10% interest, means you pay back £9900-4000 over x number of months.
At the end you either pay/finance the £4000 and keep the car or give it back.
If the car is worth more than £4k you can buy it from the finance company, and sell it on.
If the car is worth less than £4k you give back the keys
That sounds like a pretty good deal to me!? Assuming 10% interest, £900 extra over say 3yrs isn't a lot is it?
deva link said:
I'm not clear on the fine details, so would welcome clarification froman expert, but I was warned off PCP's due to their lack of flexibility if your circumstances change. With HP (for under £25K) you can get out with 2 months interest payments. With PCP the settlement figure can be huge, especially early on.
I'm not sure if they're available to private buyers, but Lease Purchase is supposed to offer the best of PCP & HP worlds. Only thing is that the balloon payment at the end isn't guaranteed like it is with a PCP, so the car could be worth less than the balloon.
I'm not sure if they're available to private buyers, but Lease Purchase is supposed to offer the best of PCP & HP worlds. Only thing is that the balloon payment at the end isn't guaranteed like it is with a PCP, so the car could be worth less than the balloon.
PCP is HP with a guaranteed balloon, the settlement rules are exactly the same and are not as bad as they were under the old Rule of 78.
Contract Purchase is just PCP for business and Lease purchase is just the same but without the balloon is not guaranteed.
The reason manufactures and dealers are so keen on PCP type products is that they believe that they will have a greater chance of selling you another car when you are ready to change again.
Seany88 said:
mcflurry said:
Seany88 said:
What happens to the deposit at the end? Is that included in the £9k balloon payment? What would happen if you handed the car back - would you get the deposit back?
Nope. If you hand the car back you get zip.
Lets say £10000 for a car with a £4000 balloon payment at the end.
You pay a deposit of say £1000.
Borrow £9000 at 10% interest, means you pay back £9900-4000 over x number of months.
At the end you either pay/finance the £4000 and keep the car or give it back.
If the car is worth more than £4k you can buy it from the finance company, and sell it on.
If the car is worth less than £4k you give back the keys
That sounds like a pretty good deal to me!? Assuming 10% interest, £900 extra over say 3yrs isn't a lot is it?
Those were made up figures.
A real example, based on a £10k Toyota is below:
Cash price 9695
Deposit 1053
Borrowed amount 8642
35 monthly payments of 199 = 6965
Final payment 3754
So the real interest over 3 years is (1053 + 6965 + 3754) - 9695 = £2077
(i.e. about 7% flat or 12% ish APR)
Sometimes you can discount the APR or cash price if you haggle and have a clean credit record
mcflurry said:
A real example, based on a £10k Toyota is below:
Cash price 9695
Deposit 1053
Borrowed amount 8642
35 monthly payments of 199 = 6965
Final payment 3754
So the real interest over 3 years is (1053 + 6965 + 3754) - 9695 = £2077
(i.e. about 7% flat or 12% ish APR)
Cash price 9695
Deposit 1053
Borrowed amount 8642
35 monthly payments of 199 = 6965
Final payment 3754
So the real interest over 3 years is (1053 + 6965 + 3754) - 9695 = £2077
(i.e. about 7% flat or 12% ish APR)
That makes it just over 8% flat and an APR of just over 15%
Edited by SKR on Friday 9th February 21:01
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