Benefits of leasing over PCP?
Discussion
I'm sure this has been covered loads of times.
What benefits is there to leasing over PCP (personal contract purchase) or other HP deals?
It seems that in both cases you have to pay a "deposit or initial rental" then have monthly payments over a fixed duration.
Both give the option to hand the car back at the end of the duration. Is there any benefit in leasing?
What benefits is there to leasing over PCP (personal contract purchase) or other HP deals?
It seems that in both cases you have to pay a "deposit or initial rental" then have monthly payments over a fixed duration.
Both give the option to hand the car back at the end of the duration. Is there any benefit in leasing?
Leasing=
fixed price contract, you agree to pay £XXX per month, for use of the vehicle for set amount of mileage. It is basically a fixed price rental. Tough to amend/ get out of, as you generally still have to pay off the remaining term of the lease (eg 6months left of the lease, you'd still have to pay the full cost of that to hand back early)
PCP=
its just a dressed up finance agreement. instead of a traditional HP loan (car valued at £10k, you borrow £10k, once its paid off you own the car), it uses all different permutations of deposit/ regular payment/ final payment, to work out a way that you finance the 'depreciation' of the car. You can settle a PCP at any time, as it is just a finance agreement, with an outstanding balance regardless of deposit/ duration/ final settlement. They can be very good financially, some dealers off big discounts/ deposit contributions/ incentives if you take out PCP's with them (for example BMW were offering 0% finance plus big contributions on some models).
However get it wrong and its very easy to get into a financial mess, for example- PCP on brand new £30k car, put in £5k deposit, pay £400/month for 48 months, balance/ final payment of £10k. try changing that car after 12 months car now valued at £20k (trade in value) you've paid £9,800, but you still owe £24,400 to the finance company (£10k final payment + 36months @ £400). you are now in negative equity in the car of £4,400......... Or if you did run the PCP for the full 48 months, whats to say the car is going to be worth £10k at the end? it might only be worth £8k, so you wouldnt buy it and wouldnt have any value to 'trade it in' on your next car
Obviously figures used above are just hypothetical/ made up numbers. but its an extreme example to illustrate how it can go wrong if you dont think about the whole picture.
fixed price contract, you agree to pay £XXX per month, for use of the vehicle for set amount of mileage. It is basically a fixed price rental. Tough to amend/ get out of, as you generally still have to pay off the remaining term of the lease (eg 6months left of the lease, you'd still have to pay the full cost of that to hand back early)
PCP=
its just a dressed up finance agreement. instead of a traditional HP loan (car valued at £10k, you borrow £10k, once its paid off you own the car), it uses all different permutations of deposit/ regular payment/ final payment, to work out a way that you finance the 'depreciation' of the car. You can settle a PCP at any time, as it is just a finance agreement, with an outstanding balance regardless of deposit/ duration/ final settlement. They can be very good financially, some dealers off big discounts/ deposit contributions/ incentives if you take out PCP's with them (for example BMW were offering 0% finance plus big contributions on some models).
However get it wrong and its very easy to get into a financial mess, for example- PCP on brand new £30k car, put in £5k deposit, pay £400/month for 48 months, balance/ final payment of £10k. try changing that car after 12 months car now valued at £20k (trade in value) you've paid £9,800, but you still owe £24,400 to the finance company (£10k final payment + 36months @ £400). you are now in negative equity in the car of £4,400......... Or if you did run the PCP for the full 48 months, whats to say the car is going to be worth £10k at the end? it might only be worth £8k, so you wouldnt buy it and wouldnt have any value to 'trade it in' on your next car
Obviously figures used above are just hypothetical/ made up numbers. but its an extreme example to illustrate how it can go wrong if you dont think about the whole picture.
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