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If you like a new car and want to change it regularly then leasing really is the best way to go.Low deposits,lowish monthly payments,keep it nice and give it back at the end of the term.Makes a lot of sense to me.
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Mr. Lucas makes exactly the right point.
>>If you like a new car and want to change it regularly then leasing really is the best way to go
So compare like with like which is that you want a new car every 2 - 3 years. Should you buy it or lease it ? It makes no sense to compare leasing a new car with bangernomics.
The starting point needs to be the new car/3 years bit. If you don't care about that, then a new car makes no sense however you buy it.
I've had my fair share of new cars and these days I get more pleasure from the 2 - 3 year old car which I keep a while.
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I find a lot of the responses amusing not least because buying a lotus is a purchase of the heart not the head and going into the N'th degree to work out finance is probably wide of the mark ;-)
As an IFA i hope my maths is pretty good, and i'm pretty sure borrowing a straight £21k over 5 years is going to cost a bit more than £350 a month - hence the affordability of a PCP.
Also a MK1 elise is a different look design of the MK2 with less potential to use every day. still nice tho....
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Some of these deals also have maintenance thrown-in. This means that you can have company car-style low hassle, risk-free(ish) ownership.
Also, you don't have to do this sort of dear via the dealer. When I last looked at this (a few years ago), some of the big leasing companies (often owned by large banks) were doing just this kind of finance and would also source the car for you.
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Watch the mileage rates on the PCP. Most advertised deals are based on 12,000pa but exotica is often based on 6kpa. The pence per mile over and above the contracted mileage can be crippling.
You can opt for a higher band at the inception of the contract but the Residual or Balloon payment will drop like the proverbial, dramatically increasing your monthly costs.
Oh, and whilst you will get stung for going over, you can bet your last penny (assuming you still have one) that you won\'t get any extra back if you are under mileage at the end of the contract. Many dealers see a PCP as an excuse to throw the price guides away when it comes to the end of the term, focussing instead on the amount of equity they think they can get away with offering the punter.
Allegedly.
I should raise my hand at this point and confess to conducting a fair bit of training/coaching of Ford dealers when Options was launched in the early 1990s.
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As an IFA, you no doubt encourage your clients to save & save & save. So no doubt do the same yourself (!). Borrowing on one side whilst saving on the other seems a little silly.
Anyway, though the purchase itself is obviously a heart over head issue, the financing shouldn't be; that's just asking to be ripped off!
I appreciate that you're not going to drive a bangernomical car, but we were just trying to encourage you to save sixpence by not getting that rush of deprecation that comes with a new car! £80 of valeting can make ANY car smell like a new one. And realistically that's all that you're paying for...
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Mapmaker, i do think you have my role very much misjudged :-)
I deal in HNW portfolio management and so saving has already done by most of my clients. I also speak to many people who have a lot of money and all they do is save and nothing else - life is for living and theres no point being the richest corpse in the graveyard.
I encourage my clients to protect themselves first from tax (i've already done this), save for a rainy day (already done this) and invest where needs be (done this too). I earn well and want to enjoy my lot, and so saving for something for 5 years time when i'll probably have a life revolving around school holidays, people carriers and childrens savings schemes doesnt fill me with joy!
In terms of blindly entering a finance agreement without looking at the ins and outs is just not my thing - my job has given me some financial credence. You also mention putting your car purchase on your mortgage - no,no,no,no,no. It may be cheap each month but the overall cost for the term of most mortgages can double the cost of the purchase - far more expensive than any pcp. Also buying the car in 3 years or a 3 year old car just defeats the object of buying this car - i want a mk2 not a mk1! My original thread was about how such a car can be bought for a small amount each month not the composite of the entire deal - and of course it costs to borrow money. A lease deal will cost you money, a straight loan will cost you money, and at potentially higher amounts each month.
Anyway, i already covered the cost of the depreciation with gains made from a 2nd property. Whats the point in making money, earning well and just saving it by so you can 'feel reassured'. Enjoy and maybe spend a little.
If i dont spend i'm sure the wife will!!!!
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p.s And i must say no dosh has made the most valid points yet on PCP arrangements. cheers ND.
Leasing will be my next port of call!
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Phoenicks,
Whilst I appreciate and applaud your 'live for today' philosophy I am not clear about some of the financial points you are making.
Presumably earning well and having saved for a rainy day you could afford to pay for the car cash - otherwise you don't anticipate much precipitation in your life! Does it not make sense therefore to use those savings(and/or separate investments unless these are tied up) to finance the car and put the PCP payments back into your savings? If however your savings are producing a better return than you would be paying out in PCP payments you are a better man than any IFA I have known.
Secondly why is "putting your car purchase on your mortgage - no,no,no,no,no." ? We are talking about borrowing money here and mortgages are cheap money. It only "doubles the cost" if you leave that sum outstanding for the whole term of a mortgage. Paying back £350 a month at, say, 5% will be a better deal than anything you are likely to get borrowing from a commercial firm.
C
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Cardew, I'm with you on PCPs as a whole, but with Phoenicks on the mortgage issue.
The mortgage rate APR (which is rarely quoted) is usually in the 5%+ bracket, whereas the best personal loans are only 5.9%.
If you can and do put the £350 away every month, it's fine of course, but I am sure that the vast majority of people would only make the minimum payment or at least a token effort.
Look at "interest free option" deals whereby you borrow money, interest free for a year and then, after a year when the loan is not paid off, 2/3 of people prefer to pay it back in monthly instalments at 29.5% APR or something insane like that.
If you're one of those with the self-discipline to pay money back like that, it's fine, but I think the extra 0.4% PA or whatever (if your credit is good enuogh, naturally) is worth it as 'insurance' against taking 10+ years to pay off the loan and all the interest that that would entail.
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Some of the benefits of a leasing type deal are the low deposits,known monthly costs and that you know that at the end of the term you make a phone call and the old car is collected and a new one delivered.No messing about,no worrying what the dealer will offer for your car and if you have a problem with the car the lease company will sort it out.Makes a great deal of sense to me.
As regards funding,lowest deposit,lowest monthly, shortest term,not many individuals could match the cost of running a new car in this way.
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financing new cars or any other purchase;
my 2p worth - not advice but just what i personally do to suit my circumstances.
never borrow on personal loans, or pcp or whatever.
never take advice from professionals whose interest is only to make money for themselves. even if they call themselves independent.
to buy your car or whatever, use an offset flexible savings current mortgage combined openplan oneaccount.
sorted.
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David,
I think we are in agreement on everything.
I would not dispute that many will fall for the temptation of not paying back, but in strictly financial terms it is a 'yes yes yes' as opposed to a 'no no no.'
Cheap money is Cheap money and an IFA should deal in finance not psychology!
C
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"An IFA should deal in finance not psychology!"
I would beg to differ.
I qualified as an actuary and well understand most financial niceties. However, people are always people and any adviser who doesn't take this into account isn't doing his job IMHO.
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With you on this Peter. Any professional adviser has to take into account the client's comfort level with risk and the desire for flexibility. The other issue is that, by extending your mortgage rather than taking a personal loan, you're granting security over a fixed asset to purchase a depreciating one.
While that's probably not as bad as it sounds - there's already a lot of security, and it's only a small increase on what's already there, I don't see the risks justifying the reward.
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Not quite sure what you see as the increase in risk.
Surely if there is any default on an unsecured loan the lender company can always apply for a court order to secure a charge against your assets. It is straightforward for a lender to convert an unsecured debt to a secured one.
Overall reducing the interest rate from say 6.0% to 5.0% will save say £400 over three years on the purchase price considered here. Seems a good deal to me.
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Let me phrase it a different way.
Pheonicks is an IFA, a high earner with savings and investments who has carefully planned his finances, and is contemplating buying a £25k fun car. His original post extols the virtues of buying for himself on a PCP and he asked for other views.
Now I and others in the thread would not agree that buying on PCP is the best financial option for a private individual. That clearly is a purely a matter of opinion. However it doesn't, in my book anyway, justify the rubbishing(no no no no) of the extended mortgage plan on the logic that it "can double the cost of the purchase - far more expensive than any pcp".
Bear in mind that Pheonicks was talking about himself - whose job has given him "some financial credence" - and not about the financially naïve.
On the psychology issue I would accept that an advisor should take into account a client's means and I could have put it differently. That said he still has a responsibility to present factual financial information and too often bad advice has been justified on the grounds that they took into account the client's personal circumstances.
I think Dalglish hit the nail on the head not only with his financial advice but in saying "never take advice from professionals whose interest is only to make money for themselves. even if they call themselves independent."
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I think Dalglish hit the nail on the head not only with his financial advice but in saying "never take advice from professionals whose interest is only to make money for themselves. even if they call themselves independent."
LOL!! I bet there's a few million people out there who would agree with that statement!
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Up early for work so thought i would respond.
I actually feel quite offended by some of your comments regarding my line of work. I am not some shafter out steal peoples money nor is my intentions to solely make money for myself above else.
For all your information if someone wishes to invest, pretty much all investment companies pay pretty much the same rate of commissions for the different investments of unit trusts and the same rate for investment bonds - therefore i get paid the same regardless on each investment class. It is therefore in my best interests to do make the possible recommendation i can at the time the advice is given, as i get paid the same yet if i do a good job a client will return, and yes my earnings will therefore be increased. Makes more sense than shafting people so that they never return yes?
I didnt spend 3 years of studying undertaking advanced financial exams to have a level of knowledge that i would hope outweighs most peoples general financial knowledge to be labelled as a con artist. I can save people rather a lot of money in tax planning as well as well as making them money through decent financial planning , so please dont make such offensive comments regards my line of work and in the process offending me and my own integrity - this is based on myself mentioning my line of work, it being attacked yet having nothing to do with this thread (i said what i do to defend against people thinking i am financially inexperienced).
You may have had a bad experience of an adviser but dont tar us all with the same brush. I have had rip off experiences with solicitors, plumbers, car dealers (yes people just like HJ), builders, dentists and photographers, but i dont instantly dislike all of them and mistrust their work - treat each one as they treat you and dont be so judgemental and narrowminded.
Now back to the original thread - my actual thread was about how cheap the PCP deal was but i should have explained more that i really meant the monthly. Its a cheap way to get into a new lotus.
If i got a normal unsecured loan at 5.9% (which is possible) over say 5 years (in order to pay it all off as mentioned it would still cost me £3,392 in interest with a monthly payment of £423.21 - a fair bit more each month.
I decried it within a mortgage because if you already have a good rate deal they dont allow -a) more borrowing or c) over payments. As such putting it on the mortgage isnt always a possibility. Also the mortgage rates now arent that different from say the best available rates on personal loans so why would i want to secure a car purchase on my house with the added risks that has. If you default on credit the last thing a court will take is the house, they generally take other items of value first - such as the car itself....
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Thank you for the clear explanation.
For everybody else, please lay off the personal comments or I'll use the edit button and you'll feel hard done by and then we'll have to argue about whether or not I should have deleted stuff and then I'll delete that discussion and then we'll argue in e-mail about whether or not I should have done that and then I'll come home and be mean to the dogs.
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Increasing your mortgage to buy a car and paying off over 25 years is a bad idea, but there's nothing wrong with drawing down and increasing your payment by what another type of loan would have cost and thus paying the extra back quickly at a lower rate.
Many lenders, like the brilliant first direct bank, offer offset mortgages where your current and savings account balances are offset against the mortgage outstanding efectively giving gross interest for those sums. Loads of flexiblity (you can draw down within your agreed limit, overpay or vary your monthly payment with the click of a mouse) and a decent interest rate, though you do need financial self-discipline.
BTW I have no connection with fd other than as a customer.
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So they ways proposed to buy a car if you need to borrow for it are:
straightforward loan
PCP
Lease
Put it on the mortgage.
hmm - a few choices me thinks.
If you have a flexible mortgage already then thats a decent idea if you are to borrow more, are strict with your repayments and have a decent rate (i dont deal with mortgages so i'm not sure what sort of rate these mortgages tend to offer). I suppose a normal mortgage will have fees to amend it?
PCP - cheap monthly but stung on the residual payment/condition of car?
Lease - never really yours. also as expensive as a normal loan but can have maintenance included.
normal loan - expensive each month but straight forward
Anyone got any thoughts on these?
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Phoenicks, hope you don't think I was being offensive, apologies if so, maybe my incredulity that came across like that. Apologies also if I started something. I suspect also that most of the contributors to this thread are financially sophisticated. But... my points summarised are:
1. For a financially responsible & financially sophisticated person with a decent job such as yourself, IMHO a flexible mortgage is far & away the best, allowing generous overpayments when one is flush & disciplined, yet permitting one to take back money when needed for ones new toy/house extension/engagement ring etc.
2. Mk II rather than Mk I - that's entirely your choice of course; I was just trying to save you money! Go and enjoy your new toy.
3. I am astonished that you completely rubbished the idea of increasing a mortgage. If I went to an IFA and suggested borrowing money I would expect his first question to be to ask if I could draw down on my mortgage, as it is doubtless the cheapest source of money. (If it's not then the mortgage is in the wrong place.) If the purchaser has a fixed rate mortgage, when general feeling is that interest rates will go up in the future then this is even truer.
4. If you have savings, in the long term you'll be better off spending the savings & then reinstating them at £423.21 per month, rather than borrowing the money. You have to allow for a 'turn', plus the IFA's commission, plus tax-on-savings yet no-tax-relief-on-investments. I appreciate that if you have the money locked away tax free the sums might be different, but then if you're going to borrow you'd probably be better having your ISAs etc with a provider who permits you to borrow against your investments. As Cardew says 'If however your savings are producing a better return than you would be paying out in PCP payments you are a better man than any IFA I have known.' Or indeed any stockbroker, investor etc. At 6% interest cost, your invested money has to be earning 10% p.a. in order to break even.
5a. Your initial PCP offers £350 per month, £4k up front & £15k after 3 years.
5b. You then compare this to a 5 year loan and say that a 5 year loan of 22k would cost you £423 per month. At the end of 5 years you have a car worth £10k.
Firstly you should compare like with like (3 years with 3 years). But at the end of 5 years the car would be yours, whereas after 3 years of £350 per month, you are not left with even a wheelnut (as was put so poetically).
It's horses for courses, and your course isn't for my horse. Whenever I'm tempted by a brand new Elise, I go and lie down for a few minutes and look at the inter-galactic numbers on my mortgage statement...
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Leasing has to be the best option,why do you need to own it,also with lowest deposits/payments,rather than just paying for the car upfront from savings etc you can leave your money invested/working elsewhere.
In other parts of the world,notably USA,they would not consider any other option.
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In other parts of the world,notably USA,they would not consider any other option.
And we all know that the Merkins get it right 100% of the time.
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I thought it was closer to 96.8%,anyway as regards cars they must know something we dont,they wont buy Renault,Peugeot,Fiat,Alfa,Citroen or Lancia,whether on lease or HP.
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But they bought the AMC Pacer by the thousand.
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did they rust more or less than alfa's/fiats/lancias?...;-)
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did they rust more or less than alfa's/fiats/lancias?...;-)
Fords, Austins, Triumphs, Volkswagens, ooooh, lemme see. Shall we just list every popular car from the 70s?
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a couple of considerations come to mind:
1. whats the chance of me persuading the wife to put a weekend toy in the form of a lotus on the mortgage,regardless of saving: NIL!
2. How often do people buy a car with an amazing deal on cheap finance but buy a car that depreciates like a PC so that any finance deal saving is eroded very quickly?
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1. If an 'IFA' cannot persuade his wife of the validity of his 'FA' then there's no hope for the rest of the world! What you need to do is to persuade her to put her money under your control and then you have full charge.
2. Every time somebody buys a new car on finance. Remember, most car manufacturers don't make money on the cars they sell, but on the finance they sell with the cars. Avoid the finance, and you're the winner - which I suppose is the basis of my rather long-winded approach.
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thanks for your apology Mapmaker - appreciated.
It doesnt matter what you do for a job the wife rules, and always will!!!
I also understand i can actually get a better deal if i take finance. that seems to be what most garages are offering when i point out that they are making on both fronts.
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Pheonicks,
Now back to buying a car. Many of us read this forum for the excellent advice we find here. Your opening post gave details of a method of financing a car and asked for views - which you got. The consensus was against PCP and that there were better methods.
Left unchallenged your advice as an IFA might have persuaded the less financially sophisticated who visit the Backroom.
C
note heavily edited by me. Not so much that the points were invalid or that I disagreed with them, more that I don\'t want this thread to again turn away from a debate about motoring oriented issues. Mark.
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Lets see what advice our IFA has given us about borrowing 22k.
\'If i got a normal unsecured loan at 5.9% (which is possible) over say 5 years (in order to pay it all off as mentioned) it would still cost me £3,392 in interest\'
Total cost of 22k loan over FIVE years is £25,392
Let us now compare this to Bobby\'s calculation (that takes our IFA\'s numbers) which shows that after merely THREE years you have forked out 12,600 of payments, and then need to pay the final 15k.
Total cost over THREE years is £27,600.
So the advice is to pay an extra £2,208 (an extra 66%) for the privilege of having a loan for a shorter period of time (60% of the length). Wouldn\'t you expect that a loan for a shorter period would be cheaper than one for a longer?
\'If i got a normal unsecured loan ... it would still cost me ... a fair bit more each month [than the PCP].\' Perhaps Phoenicks you would be so kind as to explain where my maths is wrong.
Now if you want the convenience of a PCP that\'s another matter. But you cannot argue financial benefits of a PCP.
(what does PCP stand for, anybody?)
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An interesting subject which I am enjoying;
but can we please keep it non-confrontational.
What I consider to be controversial comments have been taken out in order to preserve otherwise interesting notes. However its a lot of work and deleting a note is easier so I would appreciate your cooperation.
Thank you.
[p.s. Mapmaker - you lost track of your \'/\'s and used one less than was needed]
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[Thanks, Mark, for so kindly changing that - you wouldn't believe how much it was edited first... And thanks for the '/'. Some forums have a preview button where you can see how your post is going to turn out. If we had one then incompetents like me would be able to check our posts.]
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>>Some forums have a preview button....
And just what would you think the button marked "Preview" right next to the button marked "Post this Message" would be ??
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Re. the option of putting it on the mortgage - look out for arrangement fees of £200 - £300.
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That was really brilliant of you to add that feature so quickly, thank you.
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What price convienience?and why pay the final £15,000,just order a new car on a similar deal.
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What price convenience, T Lucas? About £1,000 per annum by my calculations. That's about £100 per month (and Phoenicks complains about the difference between £350 and £423 pm). So £3000 every time you change your car. I think that's a lot of money. It's almost 2k per annum of untaxed income.
And that's just the extra cost of a PCP (whatever that stands for) over a loan.
If you can get out of the terrible trap of always buying brand new & on credit, then you end up miles & miles ahead financially.
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Well i think £20 a week for the convienince of running a new expensive car on top of the loan/lease costs is not a lot to pay.
Keeps the economy moving and supplies plenty of used stock to the people that dont want to drive new.
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I suspect that some posters in this thread misundestand the purpose of buying a new car, tho TLucas comes close.
The reason for buying new is to maintain the supply of cheap s/h cars for the rest of us, who don't mind applying CarNuSmel with an aerosol rather than having it pre-installed.
So it's regrettable that some of those performing this important duty seem a little unclear about their role, and try to save money in the process. Save money???? For goodness sake, folks, this is a luxury, not a trip to KwikSave.
Anyway, those hundreds of pounds of monthly payments are a bargain when you consider what they buy you -- the privelige of being the person to run in and fault-check someone else's car.
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Mapmaker's last sentence puts it very neatly. Debt scares the proverbial out of me and I have always avoided it.
Time was (sigh) when my annual bonus would have bought that Lotus with enough left to fly club class to Orlando and back. Not any more. I wish.
But I know how Phoenicks feels.
My philosophy has always been if you want it badly enough do it. There are so many ways of doing the sums you end up with analysis paralysis and you will always be tossing and turning wondering whether there might have been a better way instead of enjoying the object of your desires.
You will always find a way to deal with the cost. On the othere hand sun may not come up tomorrow for all we know. In 2-3 years life will be different anyway.
Absolutely useless advice, sorry!
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And T Lucas's final sentence puts it nicely for me. That's me, waiting for the old cars to drop off to me at no cost. And I'm very grateful to Phoenicks for this kind generosity. But as a fellow member of our BR community, I'd rather that he's not the one being stung!
But I'm not entirely certain what convenience he gets for his £25 per week.
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My original interest in a PCP was keeping the monthly cost low. The difference of £70 per month between PCP and Loan would pay for all servicing and insurance for the year. Hence a loan may not in end figures be not be more expensive, but it will feel a helluva lot more expensive every month.
Also i was hoping there might be an element of residual to get into a new one every 3 years rather than waiting till end of a 5 year loan, but on hindsight, and with ND's post that may not be possible.
My point as an IFA is that everyone is different and so its not always about the end figure but how it suits the individual on an ongoing basis if thats what they require. A PCP will not be so stretching on a monthly basis as a straightforward loan. Thats my whole point.
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If you can get out of the terrible trap of always buying brand new & on credit, then you end up miles & miles ahead financially.
After reading all 40+ posts in one sitting my head is spinning, my eyes are crossed and I've got "money talk" coming out of my ears...the only bit that I really identified with was the above statement.
Chad.
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a little lesson on financial advice Mapmaker - it is not always the end result, its the means to get there that are important and how that actually suits each individual....
this is not some very very important life decision, but a purchase of the heart. Head wise i would take the longer route with a higher monthly cost but lower overall figure. however i cant afford that so i'm taking the cheapest monthly route so i can get it without bankrupting myself. Yes financially overall not as economic, but life isnt all about economics. Perhaps we should go back to talking about the best deals, skodas and seats instead of purchases with no reason....
And just to confirm i am an IFA on investments, not a debt adviser, nor am i advising anyone how to finance their car.
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Phoenicks... you could however
£4k deposit
6 year loan of £22k - £360 per month
Balance still owing at month 36 - £12,200
Saving - £3k+; monthly payment £10 more, but as an investment adviser, £10 a month over three years giving £3,000 in cash would be one that you'd heartily, recommend, no?
You then have the choice of continuing to finance the car, or selling it and hopefully walking away with about £4k of equity.
A PCP is just another word for a balloon payment loan and there is nothing stopping you deciding not to balloon the loan and simply pay it off yourself over a longer period of time. While I wouldn't recommend this for an everyday car, where the depreciation and the usage are heavier, and likely to be mission critical, I'd much prefer it in financing a comparative extravagance like a Lotus.
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Phoenicks wrote: 'this is not some very very important life decision'.
It would be to me. It's pretty hard to earn 3k. And pretty easy to spend it.
Thank you David for doing the hard work for me! (Alternately, pay £350 per month, and owe £12,600, i.e. £2,400-odd saving. Which before tax is £4k of commission you won't have to earn.)
'As an IFA i hope my maths is pretty good, and i'm pretty sure borrowing a straight £21k over 5 years is going to cost a bit more than £350 a month - hence the affordability of a PCP.'
On a different matter, IMHO, If you really are somebody whose budget is so tightly stretched that £73 per month is the difference between being able to afford a swanky prestige car, and not being able to afford it, then you should resist purchasing it.
I knew somebody when I was a student who was 21, a secretary and had bought herself a huge (I suppose it was a 2 door 3 series or something like that) swanky new BMW. We once stoppped at a petrol station, and of course I offered to fill her tank. Which I did. To the top. And she ended up in a blind panic, as she could only afford to fill it less than half full. Unsuitable car for the person. She spent every penny she had on that car, and of course couldn't afford to have the scraped bumper fixed etc. etc.
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I think there is a little envy going on here :-)
These people have a good range on contract hire:
www.prestige-car-leasing.co.uk/special-offers.asp
www.dvl-sw.net/special-offers-display.asp?Make=Lot...s
The above looks very like the deal your lotus dealer offered you. I assume the price doesn't include vat though.
teabelly
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Not on my part! I cannot conceive ever being wealthy enough to think that blowing £26k on a car for use at weekends would be an enjoyable experience.
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Pheonicks,
"You also mention putting your car purchase on your mortgage - no,no,no,no,no. It may be cheap each month but the overall cost for the term of most mortgages can double the cost of the purchase - far more expensive than any pcp."
"nor am i advising anyone how to finance their car."
Well I am glad that is cleared up!
C
PS
Have a look at Mapmaker's profile.
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I'm reminded of another thread containing 'invaluable' 'advice'.
www.honestjohn.co.uk/forum/post/index.htm?v=e&t=20...0
PS Mapmaker is thinking of amending his profile to saying merely 'Learned to touch type at school and has been stuck with virtual verbosity ever since being given his first computer.'
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Ok people, choose....
1) We can continue this thread without the confrontational stuff.
2) Mark locks it.
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Conclusion (if anybody else can be bothered to read this far) for the sake of anybody else who might want to buy a swanky new car and is relying on this thread to help.
Proposition: The cheapest way to have a swanky car for 3 years is to do it by PCP.
Conclusion: No, in fact a personal loan is almost certainly cheaper than a PCP. In this example it's about £1,000 per annum cheaper not to borrow the money from the Lotus dealer, but instead to borrow it from your building society. (Subject, of course, to interest rates changing.)
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Now I\'m curious.
I understand the following
Deposit plus PCP Mthly Payments plus Final Payment = x
Deposit plus Loan Mthly Payments = less than x
But for those more expert than me, and certainly with more time, how does the following work out ?
(Personal Loan Cost for 3 years) - (money received from selling car after 3 years) = Money spent
(PCP cost for 3 years) then NOT paying the last payment so not taking the car = Money Spent1
How does that compare ?
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Despite appearances, I'm not sure I have time either...
I don't see why it makes any difference, unless the car is worthless (or just worth less) at the end.
Broadly, you're taking 'x' and 'less than x' and then subtracting current market value, so the difference between the two is the same.
To illustrate this, imagine
1 that there's nil depreciation in the used car market over your 3 years. Under those circumstances under PCP you'd borrow 15k, buy the car, and then sell it for 26k. If you'd bought the car with a loan, you'd still smile and sell it for 26k. So no difference.
2 that there's 100% depreciation in the used car market over your 3 years. Then under PCP you wouldn't pay them 15k, as you wouldn't want the car. You'd run off laughing. Alternatively, with a loan, you'd be sobbing into your beer.
On the other hand, do 24,500 miles instead of the permitted 24,000 over 3 years, and then they'd want more money from you, so you lose under PCP if you trade it back to them.
Alternatively, keep the car dry-stored for 3 years, and they wouldn't give you a bonus, so under PCP you lose (unless you then buy it from them as in scenario 1).
So ('x' - 'less than x') = (MS - MS1) subject to above comment on excessive depreciation.
Guessing (as I really know nothing about such schemes), I imagine that with PCP there will be additional profit in it for them if you don't buy the car at the end of 3 years. DavidHM?
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I guess it depends on how the final payment they want for the car comapres to its market value.
Now I suspect that the payment that they would want is likely to be the high end of what you could sell it for, if not even higher than that.
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I'm going to guess that they're going to be similar, or to the low end of what you might get.
If as you suspect, Mark, 'the payment that they would want is likely to be the high end of what you could sell it for, if not even higher than that.' then you would never bother making the final payment. (But that may be what they want. So that you are tied in to a new one.)
The final confusion is going to be through the turn between 'forecourt' and 'private sale' and 'trade-in'. So if you want to keep it after 3 years then you will compare forecourt with 15k; if you want to sell it privately, then that is the crucial figure to compare; if you would only sell it back, then 'trade in' is the threshold. I imagine that a car like this will have quite a large turn between forecourt & trade in.
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>But that may be what they want. So that you are tied in to a new one.
I recall as a child our decorator saying very proudly, 'My current car costs me £50 per month, I'm going to have paid it off next month. Then I'm going to trade it in for a new one, which will still cost me £50 per month. So I can get a brand new car and it won't cost me anything.'
Poor chap never seemed very well off, and I think we worked out why just then.
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Fair points - especially about forecourt/trade/private.
>>then you would never bother making the final payment.
Except that to you, having known the car for 3 years, you may well be prepared to pay more than its strict value.
I think, in the end, it would be the worries about excess mileage which would worry me.
M.
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just to tidy up a few points/questions raised earlier. i hope this is tken as non-confrontational, as it is meant to be purely factual and in view of phoenicks admission that his expertise is not mortgage finance.
1. someone asked what pcp stands for: personal contract purchase
2. someone said there are arrangement fees to put extra finance on mortgages: not if you have a mortgage of the type i referreds to; i.e. "oneaccount-flexible-reserve-offset-openplan-current-savings" mortgage. you can overpay, underpay, borrow, do-what-you-like without hassle or extra arrangement charges as long as your house value covers the loan.
3. phoenicks asked what is the mortgage rate charged on these flexible: i have a tracker openplan which charges base rate + 0.75% apr. in effect and in fact i pay much less due to the effect of my savings and income payments automatically being ofset against the mortgage constantly. due to ever increasing positive equity of my house, i have a large drawdown facility for any purpose (be it expensive holiday, gambling, cars or any other habit) without any questions or prior authority from the bank/bldg.soc.
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Just would like to stick my oar in:
1) In my opinion extending ones mortgage to buy a car (or any other consumption for that matter) is bad news. You are taking on a secured (ie you don't pay, they take your house) loan for a depreciating asset. If I lost my job I don't fancy losing my house because I can't pay the loan on a car. And if you don't pay the capital back over the period during which you own the car you will find it has become a very expensive way to finance the car. Given ever rising house prices it would be a habit very easy to get into and likely to have a bad hangover when (err sorry if) house prices fall.
2) It seems to me that any type of arrangement where the ultimate ownership of the car is vested with a finance company (eg HP, PCP ... ) is going to be an expensive way of buying the car. Don't forget that the other party is taking all the risk on things like depreciation (say it depreciates faster than expected) or even fraud.
3) Unless you can obtain a risk free rate of return on cash (ie in a deposit account or index linked government bonds) greater than the finance rate it is a no brainer to use cash if you have it to buy a car. Otherwise I reckon a personal loan would have the lowest rates.
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Ok, time for me to chuck my handful of coppers into the pot. There are a lot of valid points on here (in fact I'm struggling to find a single post where I'm not agreeing) but one thing has been missed by some of those posting.
Choice.
Individual circumstances may be such that slapping £26k onto your flexible mortgage and paying it off over 2-3 years is affordable on a monthly basis. A low interest rate combined with monthly affordability means it isn't a scary proposition (or at least no more so than any other debt).
PCP suits others as they may have a relatively low deposit but can still afford £350-£400pm, possibly due to a recent change in circumstances or unexpected depletion of savings. They may be able to afford £700pm but derive greater comfort from saving £350 whilst paying back £350. Doesn't make sense on a balance sheet, but if we all made our decisions based on what is best based on numbers alone, the place would be in chaos (anyone remember Equitable life? We don't pay commission to middle men so the numbers look good.... Ah, forgot to mention we were a bit rash back in the 80s).
Psychology is very much part of financial advice. You have to establish where people's comfort zone is. The best course of action may be entirely alien to the client and outside their comfort zone. If presented with this as the only solution to their dilemma the client will more than likely procrastinate. There may be a less ideal solution, still well on it's way towards the ideal, which is more familiar/acceptable to the client. In this instance they are more likely to act.
So faced with best solution, not taken up by the client, possibly turning the client off the concept of providing solutions
or
Compromise solution that goes 80% of the way and provides comfort
Which is the best adviser? The one that sticks to the first option because he knows what's best? Or the latter, providing best-fit solutions?
Same applies to borrowing, car purchase, building work, in fact pretty much anything where advice is sought.
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