So, who here is on a PCP/Leasing plan?
Discussion
hairyben said:
its completely flawed as a blanket rule though. You still pay the depreciation when leasing!
Not always.If you follow the "leasing thread" on PH you will see that deals often come up allowing you to run a car over 2 years for c. 20% of the list price.
Very few new cars depreciate that slowly.
In addition, with a lease car, your car tax is always paid for you. Often, you will have maintenance included as well so no servicing or tyres. Couple that with a new car warranty and you are only paying insurance and fuel on top of the lease costs.
A great way to budget and often the very cheapest way to drive away a new model. In addition, you still have your cash to do something else with/earn a return.
There are pitfalls and its not for everyone but if the model 'fits' its a no-brainer.
Personally, I would rather not tie up c. £40k in a depreciating asset. I would rather have it in an appreciating one while renting the depreciating asset, for a known monthly figire, and let someone else take the risk.
DSLiverpool said:
Used pcp interest rate doesn’t really matter as I’m a lot of cases the buying price can be manipulated to compensate.
BMW is about 8% but I got 2 years warranty, a major service and a wind deflector plus it was well priced.
still a ridiculous finance rate.BMW is about 8% but I got 2 years warranty, a major service and a wind deflector plus it was well priced.
on the pcp i took out over 4 years at 7.4% i would have paid 5k in interest (pre reg car so classed as used). I paid it off within the cooling off period with a loan over 5 years and I'm paying about 1500 in interest. ok my payments are £70 a month more but after 5 years I'll own it rather than after 4 years owing VW nearly 12k.
(yes its a long time to pay for a car, i could have paid cash bla bla. I get a car allowance and my car has to be 5 years or newer so that's all nearly paid for)
I’ve always been happy leasing or PCPing cars even though it isn’t the cheapest route.
I think of a decent car as a cost of doing business / getting to work. The lease cost almost exactly funds the depreciation whilst allowing me to keep liquid cash on hand.
I don’t run any “debt” elsewhere but will continue doing it for cars.
I think of a decent car as a cost of doing business / getting to work. The lease cost almost exactly funds the depreciation whilst allowing me to keep liquid cash on hand.
I don’t run any “debt” elsewhere but will continue doing it for cars.
Two cars one cost 19k was funded by cash and a 3% 15k loan and the other cost 11k via a loan to ourselves at a punitive interest rate of 5%. I've decided I like the latter approach more. It's sort of like leasing so hope nobody minds the suggestion. Obviously requires having the cash up front on hand but at least you get a good return.
The Cardinal said:
Assuming a £20k price, £1k deposit and 36 month term... a PCP at 8% APR costs £3,200 in interest.
A £20k bank loan at a typical 3% would cost £925 over the same term, with no need to find the deposit upfront.
That buys a lot of servicing, aftermarket warranty and wind deflectors.
repayment per month may be a tiny bit different though...A £20k bank loan at a typical 3% would cost £925 over the same term, with no need to find the deposit upfront.
That buys a lot of servicing, aftermarket warranty and wind deflectors.
For those that draw dividends, it can be far more beneficial to take a lease / balloon type finance package (be it HP or PCP) and reduce their income tax liability with less drawings - Better to save 32.5% in higher rate dividend tax than the 6% APR (or whatever rates they might be) in interest.
Helicopter123 said:
As a general rule of thumb, in life, you want to OWN appreciating assets and RENT depreciating ones.
Count me as another that is suspicious of this principle. The question should be framed in terms of cost of capital and risk rather than simple appreciation / depreciation.If owning a residential property in SE England gives me a 2.5% implied yield on cost, I might prefer to rent it.
If it costs me 7.5% in interest to lease a used Range Rover, I might prefer to own it.
It's not about what appreciates or depreciates per se, it's about what the market prices in for appreciation ex ante versus what the actual outcome is. In my example above, the market is pricing in huge appreciation for the property, which I may not believe to be likely. Similarly for the Rangie, the market may be pricing in enormous bork factor, which I might be less afraid of.
Rolls said:
The Cardinal said:
Assuming a £20k price, £1k deposit and 36 month term... a PCP at 8% APR costs £3,200 in interest.
A £20k bank loan at a typical 3% would cost £925 over the same term, with no need to find the deposit upfront.
That buys a lot of servicing, aftermarket warranty and wind deflectors.
repayment per month may be a tiny bit different though...A £20k bank loan at a typical 3% would cost £925 over the same term, with no need to find the deposit upfront.
That buys a lot of servicing, aftermarket warranty and wind deflectors.
One year we had a mustang and I actually lost hardly anything inc deposit and repayments.
NickCQ said:
If owning a residential property in SE England gives me a 2.5% implied yield on cost, I might prefer to rent it.
If it costs me 7.5% in interest to lease a used Range Rover, I might prefer to own it.
Exactly. Theres no one size fits all answer. It depends on what you're looking at, how much it costs, and how long you intend to keep it.If it costs me 7.5% in interest to lease a used Range Rover, I might prefer to own it.
I flip flop between the 2.
I had a 2nd hand car, got tired of repairs, Mots, tyres etc, so went pcp on the next one. Cost me a small fortune, so sold after 2 years and went back to 2nd hand. Now I'm back on pcp again. 6mths into new car ownership and guess what? Think I'll be going 2nd hand again next time.
I had a 2nd hand car, got tired of repairs, Mots, tyres etc, so went pcp on the next one. Cost me a small fortune, so sold after 2 years and went back to 2nd hand. Now I'm back on pcp again. 6mths into new car ownership and guess what? Think I'll be going 2nd hand again next time.
NickCQ said:
Helicopter123 said:
As a general rule of thumb, in life, you want to OWN appreciating assets and RENT depreciating ones.
Count me as another that is suspicious of this principle. The question should be framed in terms of cost of capital and risk rather than simple appreciation / depreciation.If owning a residential property in SE England gives me a 2.5% implied yield on cost, I might prefer to rent it.
If it costs me 7.5% in interest to lease a used Range Rover, I might prefer to own it.
It's not about what appreciates or depreciates per se, it's about what the market prices in for appreciation ex ante versus what the actual outcome is. In my example above, the market is pricing in huge appreciation for the property, which I may not believe to be likely. Similarly for the Rangie, the market may be pricing in enormous bork factor, which I might be less afraid of.
1. What is your cost of capital?
2. Over what time frame are thinking?
I would always want to own an appreciating asset over the long-term to mitigate short-term price fluctuations.
I cannot see any financial upside to the long-term ownership of a depreciating asset (think of a series of car ownership experiences)
Helicopter123 said:
OK, I will bite.
1. What is your cost of capital?
2. Over what time frame are thinking?
I would always want to own an appreciating asset over the long-term to mitigate short-term price fluctuations.
I cannot see any financial upside to the long-term ownership of a depreciating asset (think of a series of car ownership experiences)
You need to separate beneficial interest and economic ownership. As has been pointed out above, you do not avoid the depreciation by renting, in general, you simply pay for it in the monthly payments and through the deposit.1. What is your cost of capital?
2. Over what time frame are thinking?
I would always want to own an appreciating asset over the long-term to mitigate short-term price fluctuations.
I cannot see any financial upside to the long-term ownership of a depreciating asset (think of a series of car ownership experiences)
If the contention is that car leasing places are all getting their numbers wrong and not remembering to charge their customers for the depreciation then that is a different argument, but one that I’d probably be sceptical of.
I thought I was against PCP, but then I got a 5.3k deposit contribution and 0% interest, on only a two year deal so zero maintenance required. Sort of thought, why not? I had just spent 2.5k to run a 9 year old car for 5 months (bad luck / bad purchasing I know), so knowing my car was going to cost 224 pcm a month and that was it was quite refreshing. £5626 to run a 21k brand new car for two years. Not bad.
Edited by Integroo on Monday 16th July 18:47
Helicopter123 said:
I would always want to own an appreciating asset over the long-term to mitigate short-term price fluctuations.
I’d love to know in advance which assets are going to appreciate and which won’t, but I don’t because I don’t have a crystal ball!You can say that assets have a long-term expected return, sure, but the efficiency of the capital market means that this return is going to be correlated with the amount of risk taken.
Helicopter123 said:
I cannot see any financial upside to the long-term ownership of a depreciating asset (think of a series of car ownership experiences)
That’s just optics though, otherwise the leasing company’s business model would fail (setting aside the bulk discounts they get on new vehicles).Whether you had leased or owned those vehicles the ex post depreciation over the time period you owned them will be the same.
The only difference financially is whether the depreciation was priced correctly by the lease company (who takes the residual risk) and whether the marginal return on your cash was greater or lower than the financing cost of the lease.
My personal cost of capital for what it’s worth is my offset mortgage which is ~ 1% on a tax adjusted basis (it’s not deductible of course). Very few consumer finance products can compete with that.
Having said that, do I lever myself up on the offset to invest in the stock market at ~7% long-term equity return? Not beyond what I can do tax free in an S&S ISA. Maybe that’s excessively risk averse.
DSLiverpool said:
Rolls said:
The Cardinal said:
Assuming a £20k price, £1k deposit and 36 month term... a PCP at 8% APR costs £3,200 in interest.
A £20k bank loan at a typical 3% would cost £925 over the same term, with no need to find the deposit upfront.
That buys a lot of servicing, aftermarket warranty and wind deflectors.
repayment per month may be a tiny bit different though...A £20k bank loan at a typical 3% would cost £925 over the same term, with no need to find the deposit upfront.
That buys a lot of servicing, aftermarket warranty and wind deflectors.
One year we had a mustang and I actually lost hardly anything inc deposit and repayments.
The convenience of monthly payments is often cited as a PCP attraction - and I just wanted to show how the same discipline of a monthly approach - but with a bank loan rather than PCP - can save a lot of money.
Yes, the repayments would be higher in my first example. In the 8% PCP scenario above, the monthly cost would be £422 - assuming a £7k balloon. The lower rate bank loan would be around £580pcm - if paid over 3 years.
However, it could be paid off over a longer term if cashflow was important and still be substantially cheaper.
Incidentally, if the same 3% loan was repaid over 4 years instead of 3, the repayment would match the 8% PCP at £422pcm (albeit for 1 more year, but with no balloon). The overall amount of interest would be around £1,250 - which is still a saving of £2k compared to the 8% PCP; and you would own the car at the end.
swerni said:
A car can be a liability whether you own it or pcp it.
Is an asset a good thing? Depends if it appriciates or depreciates.
A PCP can be a smart idea or can be a bad one depending on the circumstance and the deal offer.
One of my bikes is on pcp. The dealer / manufacturer paid the £2500 deposit and the rest is interest free. If I’d walked in and offered cash, I wouldn’t have got it this cheap.
It’s not a binary answer.
+1Is an asset a good thing? Depends if it appriciates or depreciates.
A PCP can be a smart idea or can be a bad one depending on the circumstance and the deal offer.
One of my bikes is on pcp. The dealer / manufacturer paid the £2500 deposit and the rest is interest free. If I’d walked in and offered cash, I wouldn’t have got it this cheap.
It’s not a binary answer.
Wholly agree.
Currently own 3 cars two of which are cheap (less than £5k) bought in cash, the other is an Exige that I bought 8 years ago also for cash (£18k).
I have bought cars on finance in the past, but over the last few years I've not had the most secure employment due to ongoing restructuring in my company so I've minimised my exposure to debt (mortgage on my own house is paid off, so it seemed sensible to not needlessly take on other debt).
I have bought cars on finance in the past, but over the last few years I've not had the most secure employment due to ongoing restructuring in my company so I've minimised my exposure to debt (mortgage on my own house is paid off, so it seemed sensible to not needlessly take on other debt).
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