Author Topic: PCP v Cash v HP Purchase  (Read 4056 times)

Offline brettblade

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Re: PCP v Cash v HP Purchase
« Reply #10 on: 15 March 2017, 13:50 »
How much debt are you ever realistically in?  The cash amount is offset against an asset.

If you accept that you are renting a car, then I guess none, but if you consider it as a way of purchasing a car that you will eventually own, lots.

As opposed to buying it outright and watching it depreciate?  With the offers that have been and are still available in terms of APR and dealer contributions, plus projected inflation for the next 3-5 years, I could make a very solid argument that it's cheaper to finance than it is to buy outright.  That's without considering any gains that can be made on the capital that would have otherwise been outlaid - if the base rate rises then saving accounts should follow.
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Offline greencode

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Re: PCP v Cash v HP Purchase
« Reply #11 on: 16 March 2017, 13:57 »
As opposed to buying it outright and watching it depreciate?  With the offers that have been and are still available in terms of APR and dealer contributions, plus projected inflation for the next 3-5 years, I could make a very solid argument that it's cheaper to finance than it is to buy outright.  That's without considering any gains that can be made on the capital that would have otherwise been outlaid - if the base rate rises then saving accounts should follow.

How can it cheaper to finance than buying outright? APR is usually around 6.2% with VW and you might be lucky and get £1000 deposit contribution but you're still paying a hell of a lot in interest over that time.

Offline brettblade

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Re: PCP v Cash v HP Purchase
« Reply #12 on: 16 March 2017, 14:23 »
How can it cheaper to finance than buying outright? APR is usually around 6.2% with VW and you might be lucky and get £1000 deposit contribution but you're still paying a hell of a lot in interest over that time.

5.4% and £2k here.

Inflation likely to be hover around 2% per year, base rate (so associated savings rate) likely to rise within the next 3.5 years (when my agreement ends).

With the £2k deposit contribution that I had (that was only available on a PCP deal), the effective cost of finance for me is c£800 over 4 years.  £25k in the bank even at an extremely modest 1% rate (Barclays currently have a 4 year bond at 3% AER gross - plus it's flexible and allows withdrawals should you need to access the cash) would yield over £1k in interest after year 4.

If you have £25k in cash and opt for 6.2% (with £1k contribution), you'll just about break even (interest out vs interest in) if you were to invest that £25k in one of the better 4 year fixed bonds currently available.
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Offline greencode

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Re: PCP v Cash v HP Purchase
« Reply #13 on: 16 March 2017, 14:27 »
How can it cheaper to finance than buying outright? APR is usually around 6.2% with VW and you might be lucky and get £1000 deposit contribution but you're still paying a hell of a lot in interest over that time.

5.4% and £2k here.

Inflation likely to be hover around 2% per year, base rate (so associated savings rate) likely to rise within the next 3.5 years (when my agreement ends).

With the £2k deposit contribution that I had (that was only available on a PCP deal), the effective cost of finance for me is c£800 over 4 years.  £25k in the bank even at an extremely modest 1% rate (Barclays currently have a 4 year bond at 3% AER gross - plus it's flexible and allows withdrawals should you need to access the cash) would yield over £1k in interest after year 4.

If you have £25k in cash and opt for 6.2% (with £1k contribution), you'll just about break even (interest out vs interest in) if you were to invest that £25k in one of the better 4 year fixed bonds currently available.

Mmm, interesting. Do you mind me asking what dealer was offering that rate? Also, paying only £800 over 4 years, how much did the car cost, deposit etc as that seems extremely low. Sorry for so many questions.

Offline brettblade

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Re: PCP v Cash v HP Purchase
« Reply #14 on: 16 March 2017, 14:49 »
Mmm, interesting. Do you mind me asking what dealer was offering that rate? Also, paying only £800 over 4 years, how much did the car cost, deposit etc as that seems extremely low. Sorry for so many questions.

That was VW's rate on new cars ordered before Q3 of 2016.  The £800 over 4 years is after the £2k contribution, so total interest is closer to £3k but is offset by the contribution.
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Offline Medic1281

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Re: PCP v Cash v HP Purchase
« Reply #15 on: 16 March 2017, 21:48 »
i don't understand why people say that dealer contributions make the pcp the cheaper option. you can still get dealer contributions and buy outright. You have a cooling off period for any finance, so just take out the pcp with all contributions made, then pay off the pcp within the cool off period without penalty. The loan amount to be paid off will be only what you have borrowed.
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Offline brettblade

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Re: PCP v Cash v HP Purchase
« Reply #16 on: 17 March 2017, 08:26 »
i don't understand why people say that dealer contributions make the pcp the cheaper option. you can still get dealer contributions and buy outright. You have a cooling off period for any finance, so just take out the pcp with all contributions made, then pay off the pcp within the cool off period without penalty. The loan amount to be paid off will be only what you have borrowed.

Because in my particular instance, 5.4% was an acceptable rate, and the £2k deposit contribution (granted I could have still had this as you rightly said) meant that the "effective" APR was much, much lower to the point that it wasn't even worth contemplating buying outright (or re-financing elsewhere with what is traditionally a cheaper form of lending, e.g. bank loan).  Of course, everyone else's mileage may vary.

A PCP also has the halfway get out clause should circumstances change within the length of an agreement - a security not offered with lease deals.
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Offline JonnyG

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Re: PCP v Cash v HP Purchase
« Reply #17 on: 24 March 2017, 21:06 »
I'm surprised no one has mentioned personal leasing on here.  If I had £25K cash I would invest it cautiously in stocks and shares under an ISA wrapper perhaps and take out a personal lease for a Golf (as I am doing).  Over two years I would hope my investment has grown to £26,500 plus any dividend income.  In the meantime my lease would cost me around £7500 over the two years with very little else to pay on the car (tax being included in the lease, full warranty and breakdown cover).
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