|
Couls someone tell me why I (a private buyer, but mainly business use) can't have Contract Hire? Or maybe I can. Have just been reading the feature on showroom4cars.com and like the look of a few deals. Or are PCP's a better option?
|
Usually there's not much difference in the cost of PCPs and contract hire, once VAT is added.
Because of the VAT rules, buying a car is given special treatment - if it is used partly for private use, VAT cannot be reclaimed, at least not in full. The VAT on contract hire cars, however, is fully reimbursed as input VAT on a business expense. There are also different rules with regard to corporation tax, which often makes leasing much more tax efficient for businesses, even after the lease company's interest/profit margin.
As an individual, however, you're stuck with paying the full amount. Also, contract hire ties you in to the provider's deal and a good cash deal may come with a bad finance rate, or the other way round. A way around this is to use Alliance and Leciester's www.smartermotoring.com which has a low APR and a balloon payment (though this is not guaranteed and you WILL need fully comprehensive insurance). Even then you might end up with negative equity, but it is unlikely if you choose your car well.
|
|
Thanks for the info, have seen the site you mention and it looks quite a good option. One of the alternatives they suggest is going for a longer term, say 5 years. It all gets a bit muddled: should I do this, should I do that? Is there a clear winner in financing or is it so narrow it just boils down to personal preference. Am in the ex-company car bracket (enforced) and not particularly enjoying the experience:-))
|
There is no clear winner, and a lot depends on the use you will be making of the car and the amount of deposit you have. There are advantages of going for a 5 year term, primarily if you do a fairly low mileage and intend to keep the car that long. There is also guaranteed to be no negative equity in the car if you keep the car for longer than the finance period; however, a bank loan won't be secured on the car so this may not be a practical problem.
If you do 30,000 miles a year, you are unlikely to want to keep the car 5 years, plus you may find that you can't afford for the car to need more maintenance as it gets older and changing cars more often is therefore right for you.
My feeling is that SmarterMotoring is ideal for people who want to buy cheap-ish cars up to about £12,000 which they will change fairly frequently (every 2-3 years) but don't necessarily want to buy brand new. For instance, an 02 Mondeo with 12k can be had for £8.5k if you look around. That works out at £168 per month over 3 years with a £500 deposit, compared to £330 for a new one from tins.co.uk at 20k PA. The only disadvantage is that there is no guaranteed value, but the £3200 still owing at the end is not an unreasonably high price for a 3.5 year old new Mondeo with 72k on it.
SmarterMotoring makes some sense for more expensive cars but the monthly payments are directly proportional to price, whereas conventional leasing will pay more attention to the car's actual resale value, so although the interest rate is low and the overall package is likely to leave you with more equity at the end, the payments will often be higher this way.
If you have a large deposit (I get the impression that you don't though) it will probably make sense to use that against a car as you would get a slightly lower APR, would pay interest on a smaller amount, and would be able to use the car's full value as a trade in next time round.
|
One point that I don't think gets the consideration it should:
If you are entering into a contract (contract hire/PCP) you should be confident about your circumstances for the period of the contract. Are you sure about the amount of miles you will do? If your mileage turns out to significantly different from the contract amount you will have made an expensive mistake. Will your work change in the period of the contract? if you need to change the sort of vehicle you need it can be expensive.
I know people have a monthly budget to work to and want the best car they can find for that figure, but you need to give some thought to the longer term. I favor convential finance/loans over a longer period to keep the payments down, you can always settle the finance early if circumstances change.
|
Why not look at re-mortgage you can get a 5 year loan, very low interest which can be fixed for 5 years. Advantages are no worry about annual mileage limits or ballon payments or a deposit. Also you own the car at the end of it all. Worth considering if you have a mortgage and equity in your house.
VD5D.
|
With regard to both of you - obviously you should be aware of risk and confident in your circumstances. Generally I am against credit protection insurance as, if they thought that the risk of non-payment came anywhere near justifying the premium (typically 15% or so), they wouldn't dream of offering you the loan in the first place.
However - VD5D - remortgaging the home to buy a car is almost certainly not a good option. If you are a high risk debtor, you probably shouldn't be signing the long loan agreement. If you are a good risk, you can get rates as low as 6.9% APR from Lombard Direct on a standard, unsecured personal loan - and that is also fixed. If you can't make the payments, you can alwyas sell the car as the finance isn't secured on that, and choosing a good car or having a decent deposit means you are very unlikely to have negative equity. That way, your house is in no way at risk.
As for Paul's point on settling finance early - you can do that with most PCPs if you get the cash or you sell the car. With PCPs there is typically a small penalty and this is something you should look into - it is not necessarily greater than with some unsecured personal loans though. There is more likely to be some negative equity, but again, choosing the car carefully means this is not likely over the longer term and makes good financial sense even if you keep the car to the end of the contract.
|
I forgot to mention the invoices I've seen over the years for vehicles returned in a condition that's claimed to be not in accordance with the contract. Plus penalties for other breeches of the terms and conditions of the contract.
Read the small print carefully!
|
|
|
David
Agree, a re-mortgage wouldn't suit everyone, but if you have a lot of equity in your property, say £100k plus why not use some of it to raise a cheap loan? Then you don't have to worry about the small print in the PCP, and the car is basically yours. I've had friends who have had these PCP arrangements and at the end of the term they have been charged for excess mileage and minor damage i.e stone chips, damaged interior trim etc. Also sometimes the car isn't worth what is being asked for the final payment, not a position I would want to be in.
VD5D.
|
All true, but my point is - why link your car to your house when, at 6.9% APR from Lombard Direct, there is no financial incentive to do so - or at least a very small one indeed.
I'm not especially pro or anti PCP - they work for some people, not for others. It is a particular problem if the car is returned in anything less than mint condition, I agree.
Alliance & Leicester's SmarterMotoring isn't secured on the car, you can pay the balloon payment any way you like. There's also no penalty for the condition of the car other than it's worth less if you do want to sell it. If you don't want to sell it, you can carry on making the payments as before until the loan is paid off.
Also, you may want the value of the car at the end of the PCP to be as high as possible, if you can hand it back (as you can with PCPs, not with A&L) because that keeps your payments down. If the car's not worth what's being asked for it, you can hand it back and essentially sell it to the finance company for an inflated price. A&L works on a flat system, after 1,2,3 or 4 years, the balloon is 60,50,40,30%, which is good for most cars up to 20k pa and as I said, if it's not good, why buy the car in the first place?
If possible, I'd recommend the outright purchase method (with a low rate, unsecured loan if necessary) but failing that, SmarterMotoring seems to come as possible to squaring the circle - low APR, low monthly payments, no security, choice of deals. You also get to drive a newer car, which should mean lower fuel and maintenance bills.
|
I agree about the re-mortgage angle, not a good idea at all as the term is 25 years and the general principle about the loan being shorter than the life of the purchase is important especially with a depreciating asset like a car.
The basic facts are;
Gross company monthly payment towards car = £400
Tax rate = 40%
Business miles =13,000
Private miles = 13,000
My very rough conservative calculations work out that over 3 years I receive aprox £23k in various forms of income/allowances.
If I borrow £15k to buy, plus deposit, a Passat diesel estate costs aprox £23k to run. Not my first choice car. 320d touring is and A4 Avant diesel is second.
Current car is 2.0l Accord with 95k on the clock and uses a litle oil!! The clock is ticking.
|
A remortgage is a good idea... if you overpay by the monthly amount you would have been paying on another method thereby paying the extra loan off in less time than you would otherwise have done. Why pay 6.9% when you can pay 4.9% or lower? I have a mortgage from firstdirect (brilliant bank BTW) which links all savings and loan accounts under the mortgage umbrella, so your loan, although attracting the mortgage interest rate of 4.75% (4.9% apr) is in a different pot, not your mortgage account. Likewise, all positive balances such as your current account, effectively earn 4.9% APR tax free.
Several lenders now do this, it's an excellent way of managing your money if you have the self discipline not to go mad with the equity in your house.
|
|
Take your point, but haven't done the calculations to see the impact of overpayments. Like a previous poster said, is not neccessarily fo everyone.
|
|
Go to www.firstdirect.com, there's an excellent 'what if' mortgage calulator that gives you the results of overpayments.
|
>>I have a mortgage from firstdirect (brilliant bank BTW) >>which links all savings and loan accounts under the mortgage >>umbrella, so your loan, although attracting the mortgage >>interest rate of 4.75% (4.9% apr) is in a different pot, not >>your mortgage account. Likewise, all positive balances such >>as your current account, effectively earn 4.9% APR tax free.
Nick
Exactly the point I was trying to make. I wasn't suggesting the complete re-mortgage of a property for 25 years, that would be stupid, just a loan against it for 5 years, which building societies are keen to do at the moment.
VD5D
|
|
|
