Cash purchase or PCP?
Discussion
Looking to buy a new car.
I could buy it outright but then I had another thought, PCP. Assume on both options that you haggle hard & end up with the same discount on list price.
Buying outright, you tie up all of the cash purchase price, & after 2 years, on a highish value car you end up having to sell to the trade, either for cash or p/x, because as a private vendor trying to sell an expensive car you will struggle to find a private buyer because you can't offer finance or warranty or the comfort of buying from a dealer to the potential buyer.
The other option is PCP. I've worked out that overpaying the loan (which is the depreciation only element), if you can, by the full amount with the initial payment means you avoid interest altogether & are only stumping up the depreciation up front. The balance (GTV) is effectively financed at 0% by the manufacturer. At the end of the term, you can still choose whether to buy, trade in or walk away depending on how the GTV stacks up against actual value. You also get the safety net of the GTV if the market suddenly falls out of the type of car you bought. If prices firm up, you can buy for the GTV or trade in
Seems like a no brainer, am I missing something?
I could buy it outright but then I had another thought, PCP. Assume on both options that you haggle hard & end up with the same discount on list price.
Buying outright, you tie up all of the cash purchase price, & after 2 years, on a highish value car you end up having to sell to the trade, either for cash or p/x, because as a private vendor trying to sell an expensive car you will struggle to find a private buyer because you can't offer finance or warranty or the comfort of buying from a dealer to the potential buyer.
The other option is PCP. I've worked out that overpaying the loan (which is the depreciation only element), if you can, by the full amount with the initial payment means you avoid interest altogether & are only stumping up the depreciation up front. The balance (GTV) is effectively financed at 0% by the manufacturer. At the end of the term, you can still choose whether to buy, trade in or walk away depending on how the GTV stacks up against actual value. You also get the safety net of the GTV if the market suddenly falls out of the type of car you bought. If prices firm up, you can buy for the GTV or trade in
Seems like a no brainer, am I missing something?
Dealers and selling finance packages are less than truthful and do tend to squirm and look awkward when you point out the actual cost!
Case in point...
Just bought Mrs H a previous shape RRS Autobiography, I told them I was doing it outright... They said... Let us tell you about the options for financing it... It is cheaper and you are better off etc etc
The guy was so focused on look it only costs you £380 a month... But when you added the deposit, to the interest to the balloon I would have been paying nearly £10k more for the car!!
I pointed this out and he was mostly lost for words and kept trying to focus on the monthly payments... I mean it must work with some people I am sure!
Case in point...
Just bought Mrs H a previous shape RRS Autobiography, I told them I was doing it outright... They said... Let us tell you about the options for financing it... It is cheaper and you are better off etc etc
The guy was so focused on look it only costs you £380 a month... But when you added the deposit, to the interest to the balloon I would have been paying nearly £10k more for the car!!
I pointed this out and he was mostly lost for words and kept trying to focus on the monthly payments... I mean it must work with some people I am sure!
Edited by heppers75 on Monday 10th March 23:32
CooperS said:
No you don't!
As part of your monthly payment, you pay interest on the full outstanding balance. That outstanding balance includes the GFV / Balloon PaymentFrom a PCP company website
"The GFV plus any deposit you have made will be deducted from the cash price of the new car and your monthly payments will be calculated based on the outstanding balance, plus interest on the balance and the GFV"
Edited by cuprabob on Tuesday 11th March 00:04
cuprabob said:
As part of your monthly payment, you pay interest on the full outstanding balance. That outstanding balance includes the GFV / Balloon Payment
From a PCP company website
"The GFV plus any deposit you have made will be deducted from the cash price of the new car and your monthly payments will be calculated based on the outstanding balance, plus interest on the balance and the GFV"
Exactly, so you only pay interest on the loan amount which is effectly the projected depreciation. Going back to my original point, if you can pay off the loan amount on day one, the overall cost, if you ended up wanting to buy outright, is exactly the same as buying for cash in the first place. Or you have the other options after the term.From a PCP company website
"The GFV plus any deposit you have made will be deducted from the cash price of the new car and your monthly payments will be calculated based on the outstanding balance, plus interest on the balance and the GFV"
Edited by cuprabob on Tuesday 11th March 00:04
I cannot see any saving or advantage to buying for cash. In fact with the PCP route you can earn interest on the GFV value for 2 years whilst you keep it in the bank.
This. If you intend to buy car outright then you would pay more in total. If you change at end or walk away you only ever pay for roughly 3/4 of the purchase value of the car.
PCP works best for cars with low depreciation. And as they do offer better finance to shift new cars, often cheaper than financing a second hand car (per month).
Plus you keep several grand in an ISA. My rule is never finance a car that I couldn't have bought outright!
PCP works best for cars with low depreciation. And as they do offer better finance to shift new cars, often cheaper than financing a second hand car (per month).
Plus you keep several grand in an ISA. My rule is never finance a car that I couldn't have bought outright!
This. If you intend to buy car outright then you would pay more in total. If you change at end or walk away you only ever pay for roughly 3/4 of the purchase value of the car.
PCP works best for cars with low depreciation. And as they do offer better finance to shift new cars, often cheaper than financing a second hand car (per month).
Plus you keep several grand in an ISA. My rule is never finance a car that I couldn't have bought outright!
PCP works best for cars with low depreciation. And as they do offer better finance to shift new cars, often cheaper than financing a second hand car (per month).
Plus you keep several grand in an ISA. My rule is never finance a car that I couldn't have bought outright!
Just to clarify how a PCP works!
Let's assume you're buying a car at £30,000 and putting a £5,000 deposit down. Your finance agreement is 36 payments plus a balloon of £12,000 for example.
The amount of money you are borrowing from the finance company is £25,000. You are then paying this back to the finance company by way of monthly payments comprising capital and interest payments, and you are deferring a lump sum of the capital until the end of the agreement (the final balloon).
Interest is charged on the whole £25,000 and the total interest charges are higher than on an equivalent hire purchase agreement as you're paying off less capital as part of your monthly payments.
At the end of the term, the finance company agree to buy the vehicle back from you for an amount that is equal to the final balloon payment.
PCP certainly works for a lot of people, I've been selling it for nearly 19 years now but it's also worth considering a longer term hire purchase agreement too - there are no mileage restrictions on a hire purchase term and you can still settle up early and benefit from a regulated settlement figure should you wish.
Let's assume you're buying a car at £30,000 and putting a £5,000 deposit down. Your finance agreement is 36 payments plus a balloon of £12,000 for example.
The amount of money you are borrowing from the finance company is £25,000. You are then paying this back to the finance company by way of monthly payments comprising capital and interest payments, and you are deferring a lump sum of the capital until the end of the agreement (the final balloon).
Interest is charged on the whole £25,000 and the total interest charges are higher than on an equivalent hire purchase agreement as you're paying off less capital as part of your monthly payments.
At the end of the term, the finance company agree to buy the vehicle back from you for an amount that is equal to the final balloon payment.
PCP certainly works for a lot of people, I've been selling it for nearly 19 years now but it's also worth considering a longer term hire purchase agreement too - there are no mileage restrictions on a hire purchase term and you can still settle up early and benefit from a regulated settlement figure should you wish.
rfoster said:
Let's assume you're buying a car at £30,000 and putting a £5,000 deposit down. Your finance agreement is 36 payments plus a balloon of £12,000 for example.
The amount of money you are borrowing from the finance company is £25,000. You are then paying this back to the finance company by way of monthly payments comprising capital and interest payments, and you are deferring a lump sum of the capital until the end of the agreement (the final balloon).
+1 This.The amount of money you are borrowing from the finance company is £25,000. You are then paying this back to the finance company by way of monthly payments comprising capital and interest payments, and you are deferring a lump sum of the capital until the end of the agreement (the final balloon).
If want to keep your cash nest egg you will be better off with a personal loan. The interest rates for pcp are 2-3 times higher than for a personal loan.
You will probably find that your balloon value you would hand your car back for is less than trade-in when the time comes, so you will end up doing something other than handing it back if you care about getting value for your sale.
You will probably find that your balloon value you would hand your car back for is less than trade-in when the time comes, so you will end up doing something other than handing it back if you care about getting value for your sale.
+1 on the above comment, you have to go personal loan.
The other advantage is that when you come to sell the car there is no finance marker on the vehicle which is a common topic on here when selling privately.
The rates are so much better.
What we tend to do is work out our budget say £8k and find out what the best deal on that is personal loan wise and then see what the dealer can do on hpi or pcp (remember the later has a balloon at the end so the monthly payment will be much lower). Usually they can't get close on monthly payment on hpi v personal loan.
Our loan was £160 pm and the dealer wanted £193 pm on hpi (over 5 years)
The other advantage is that when you come to sell the car there is no finance marker on the vehicle which is a common topic on here when selling privately.
The rates are so much better.
What we tend to do is work out our budget say £8k and find out what the best deal on that is personal loan wise and then see what the dealer can do on hpi or pcp (remember the later has a balloon at the end so the monthly payment will be much lower). Usually they can't get close on monthly payment on hpi v personal loan.
Our loan was £160 pm and the dealer wanted £193 pm on hpi (over 5 years)
PCP - it suits some customers extremely well but not others, exactly the same as hire purchase or a personal loan
There exists no such thing as a great PCP deal that is great for everyone - it depends on a combination of factors, the car, the financials and the customers requirements
In the uncertain times we live in PCP has one major advantage - it limits the loss - if there is equity at the end of the agreement its the customers to keep, if there is a loss (car not worth the Guaranteed Minimum Future Value) then as long as the car is in good condition (look at BVRLA terms and conditions) then the loss is the finance companies loss to bear
PCP does not guarantee equity at the end, it depends entirely on how the deal is structured. Some finance houses (and customers for that matter) want a low GMFV - the aim being that the car is worth more and therefore they have equity, the downside is that the monthly payment will be higher
A high GMFV will usually mean little or no equity at the end of the agreement but the advantage is that there are lower monthly payments
In legal terms a PCP is a hire purchase, the only difference being the payment profile and the potential safety net of a GMFV. The ability to change your car at any point in the agreement is exactly the same as in a Hire Purchase agreement
In my experience PCPs work better on new vehicles as the vehicle manufacturer (and usually linked finance house) offer deposit subsidies and usually lower rates, certainly in recent times if you are a BMW / Audi / Mercedes buyer its usually cheaper (in terms of monthly payment AND total amount payable) to buy new a car less than 18 months old
Every customer is different - every PCP deal is different - its a case of bringing the two together and deciding if its a good deal for YOU or not
There exists no such thing as a great PCP deal that is great for everyone - it depends on a combination of factors, the car, the financials and the customers requirements
In the uncertain times we live in PCP has one major advantage - it limits the loss - if there is equity at the end of the agreement its the customers to keep, if there is a loss (car not worth the Guaranteed Minimum Future Value) then as long as the car is in good condition (look at BVRLA terms and conditions) then the loss is the finance companies loss to bear
PCP does not guarantee equity at the end, it depends entirely on how the deal is structured. Some finance houses (and customers for that matter) want a low GMFV - the aim being that the car is worth more and therefore they have equity, the downside is that the monthly payment will be higher
A high GMFV will usually mean little or no equity at the end of the agreement but the advantage is that there are lower monthly payments
In legal terms a PCP is a hire purchase, the only difference being the payment profile and the potential safety net of a GMFV. The ability to change your car at any point in the agreement is exactly the same as in a Hire Purchase agreement
In my experience PCPs work better on new vehicles as the vehicle manufacturer (and usually linked finance house) offer deposit subsidies and usually lower rates, certainly in recent times if you are a BMW / Audi / Mercedes buyer its usually cheaper (in terms of monthly payment AND total amount payable) to buy new a car less than 18 months old
Every customer is different - every PCP deal is different - its a case of bringing the two together and deciding if its a good deal for YOU or not
Edited by Andy665 on Tuesday 11th March 11:22
Sounds like, if you are in a position to, go for cash purchase. You guys are telling me that even if you pay off the depreciation part of the loan at the outset, you will still pay interest on the ballon element, even though the balloon capital repayment is deferred.
Cash is (still) king.....
Cash is (still) king.....
volvos60s60 said:
Sounds like, if you are in a position to, go for cash purchase. You guys are telling me that even if you pay off the depreciation part of the loan at the outset, you will still pay interest on the ballon element,even though because the balloon capital repayment is deferred.
Cash is (still) king.....
Cash is (still) king.....
I spose I'm old skool but I buy my cars outright as I just see it as another bill which I can do without.
Another rule is I never buy new for the obvious depreciation, but a car that's low miles and less than three years old.
In fact even if I won the lottery the head would really have to fight the heart to buy a brand new car.
Another rule is I never buy new for the obvious depreciation, but a car that's low miles and less than three years old.
In fact even if I won the lottery the head would really have to fight the heart to buy a brand new car.
Cash for the family car has always proved cheaper when buying new over the past few years but I won't mind PCP or CH if it's cheaper overall but I can't afford it so I pay cash.
The current Qashqai is looking like it will have cost £175 to £190 / month depreciation over 36 months, even pessimistically. This compares well against CH at £260/month which is the cheapest it was at at any point during the period. The other benefit being that the cash would have eroded if we had kept it what with inflation at 2.5% and ISAs (for only part of it anyway) at 1.5%... Cash is still king in many cases, but there are exceptions.
The "secret" is obviously to buy at a large discount through a broker and not a dealer. My brother churns a car every year like that and suffers half the depreciation compared to me.
PCP is a fantastic man maths booster IMO.
The current Qashqai is looking like it will have cost £175 to £190 / month depreciation over 36 months, even pessimistically. This compares well against CH at £260/month which is the cheapest it was at at any point during the period. The other benefit being that the cash would have eroded if we had kept it what with inflation at 2.5% and ISAs (for only part of it anyway) at 1.5%... Cash is still king in many cases, but there are exceptions.
The "secret" is obviously to buy at a large discount through a broker and not a dealer. My brother churns a car every year like that and suffers half the depreciation compared to me.
PCP is a fantastic man maths booster IMO.
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