To PCP or not to PCP

[scotview]

Remember, I’m including the cost of fuel.

Yes, you are right, my monthly is a lot higher if I include fuel and insurance.

[AF62]

I've looked at leasing and it does seem cheaper, particularly for Tesla.

It’s because with PCP they are building into the payment an allowance for the GFV to be more generous than the real value at the end of the term to create a surplus for the deposit for the next PCP, whereas with leasing it is the actual depreciated value.

My only concern is what happens if there is a fault with the car. For example, with our ID3 (PCP), we take it to the local VW dealer (15 miles) who have trained technicians and a workshop. Our Duster (PCP) garage is 2 miles away. How is a leased car repaired? (thats for ICE, PHEV or BEV)

For faults it’s just a new car under warranty, so take it to any dealer. They get paid by the manufacturer the same as any other warranty work.

For servicing the T&Cs usually allow you to take it to any VAT registered independent garage if they use the proper parts and follow the service schedule, but often it is just as cheap to take a manufacturer’s two year service plan for a three year lease - two years because you make sure you hand it back just before the end of the third year (and when the MOT would be due as well).

[Howard]

Hope this is helpful. Do have a look at Leasing.com if you are interested and play with a few different car options to see what's available.

Howard

Great post Howard, thanks.

I've looked at leasing and it does seem cheaper, particularly for Tesla. My only concern is what happens if there is a fault with the car. For example, with our ID3 (PCP), we take it to the local VW dealer (15 miles) who have trained technicians and a workshop. Our Duster (PCP) garage is 2 miles away. How is a leased car repaired? (thats for ICE, PHEV or BEV)

Thanks

Having leased four cars with maintenance contracts it's been very easy as, with one minor exception, the cars have been totally trouble-free so I have only had to visit a main dealer for an annual (or two year service). Because the leasing companies are such large customers, the dealers treat us leasers very well (even snooty BMW dealers!). One just calls up the finance company helpline and they approve the service and usually have the facility to put you through to your dealer of choice who then books the car in and provides courtesy car if needed.

Mrs H did have a slight disagreement with a wall when backing in her BMW. I decided it was a minor issue and took it to our local bodyshop who repaired the damage for, if I remember, less than £200. I paid this myself and was very happy with what I considered an immaculate repair. When the car was inspected just before I returned it at the end of the contract the inspector asked me if I'd had the bumper resprayed and (luckily) I replied truthfully. It turned out he was a retired BMW paintshop manager and he showed me two tiny specs of dust which had been trapped in the resprayed paint. He reassured me that there wouldn't be any penalty as it was a good repair but couldn't resist demonstrating his expertise and attention to detail!

If one doesn't have a maintenance contract then one would have to arrange service/warranty repairs through a recognised dealer as though the car was personally owned.

One other advantage of a contract is that it covers punctures and I have had two. Both involving tyres which I believe would have cost over £300 each plus fitting. Again, the repairs were organised by the leasing company who have contracts with tyre repair companies, who came to my house next day and replaced the tyres and rebalanced the wheels.

regards

Howard
.

[redsturgeon]

There are various questions to ask yourself in order to decide.

Do you want a brand new car or are you happy with an older one?

How many miles will you be doing and how predictable is that?

What is your attitude to risk?

Do you maintain your car or are you happier never looking under the bonnet?

I had a PCP on a 2018 Golf for 2 years at 24+3 x £243 for a 10k miles per year max . It was faultless, actually never needed a service since it was due the day I handed it back. I Pumped the tyres, filled the wash bottle, put petrol in and cleaned it occasionally. It was the ultimate in trouble free motoring.

I then I needed a car for business, estimating I would do 30,000+ motorway miles over the next year or so. I looked at the leasing options and realised it was very expensive for high mileages. I bought a diesel Honda Accord with 70k miles on it for £3000 and it now has 110,000 miles and has required one new ABS sensor and the fixing of a diesel leak, total cost £300 plus new pads and discs which I did myself for £50. It drives perfectly has just passed it's MOT with no advisories and gets over 60mpg on a motorway run. I'm keeping it until it falls apart and I will continue to maintain it myself.

We also have a BMW PHEV bought for £32k cash in 2016 so coming up for 7 years old. We get it serviced every year and apart from a new steering rack it needed under warranty in the first year it has been faultless in 85k miles. It is now worth about £11k so has cost about £3000 per year in depreciation. I never really look under the bonnet on this one although I have replaced three bulbs, fortunately all very easily accessible and about £7 each!

John

[Arborbridge]

A difficulty in assesing some of these schemes is that you don't totally know how much you are really paying for the car.

Is this referring to PCP? Well, unless they are talking porkies, I know exactly how much it will be. There's a downpayment, n payments of x plus a stated final payment. They've given the total including interest, and I've checked that interest rate myself and agree with them that it is 5.2% apr on the amount borrowed.

Did you mean something different?

Arb,

[Alaric]

Did you mean something different?

Would the car price for cash be the discounted value of the payments?

[Arborbridge]

Did you mean something different?

Would the car price for cash be the discounted value of the payments?

What does that mean?

[Howard]

Did you mean something different?

Would the car price for cash be the discounted value of the payments?

I used to buy a new car for cash and one time was delighted to get a brand new stock Mercedes in exactly the trim I wanted for a discount of 12.5%. I think this was probably my best purchase deal. The car had been in stock in the UK for some months.

Now when changing a car, I watch the lease quotes for the car I’m interested in for a few months before I have to return the old car. The costs can vary quite a lot. The car I leased over four years ago had a high retail price. When I collected it from the main dealers the Sales Manager did the hand-over. He (ruefully) told me that I must have got a good deal because the broker (who mainly supplied to big company fleets) bought cars for less than he paid as a main dealer. He said the reason was that the broker purchased more than 1,000 cars a year direct from the manufacturer. I later learnt from chatting to the broker that his firm had bought the car (a factory order to my specification) at a discount larger than 20%.

The leasing cost to me reflected the discount achieved. (With a good margin to the broker of course .)

If I’d gone to the main dealer and made a factory order, I doubt if they would have given me a discount for cash but maybe at most 5%. The leasing cost was very attractive by comparison.

Answering your question, leasing can look very competitive compared with the discounted cash price of a new car in some market conditions. But it all depends on whether the manufacturer is wanting to achieve volume at the particular time you want the car. Four years later, the demand and supply restrictions for new cars are quite different and at the moment it is more of a sellers market as new car supply is quite tight.

I’m guessing that supply will increase again now that the chip shortage is over and given economic conditions are quite tight there may be some even more competitive lease deals again soon. Well I’m hoping. It's much like investing.

By the way, when leasing, if one spots a brilliant deal, it is easy to give the old car back early. Currently with second hand prices still very high the finance company is usually delighted to get a lowish mileage, well maintained, car back and sell it on. This was the case when we handed Mrs H’s Golf back three months early a couple of years ago. VW Finance charged no penalty and waived the final three payments.

regards

Howard

[Newroad]

Hi All.

I'm with the people who (broadly) prefer to pay cash. I don't like borrowing money for a depreciating asset.

However, I have found even when "paying cash", it often pays to pretend to borrow some money - as the car manufacturers give the car dealers "bonuses" as far as I understand it, for meeting targets in this regard. So, for my last (new) car, I paid as much as I could in cash to still get some form of lease deal (the figure was 92.8% IIRC) from the main dealer. The remaining 7.2% or so I paid off over 4 years at somewhat peppercorn monthly amounts. The car price discount was around 11.5% from list price.

I was also advised, though I never had to test this, that because the lease company had an interest in my car for those four years, it would be easier to get the manufacturer to correct any faults which may manifest.

Regards, Newroad

[Alaric]

By the way, when leasing, if one spots a brilliant deal, it is easy to give the old car back early.

I suppose that answers a possible question as to what happens if you want or need to terminate the deal early. The other question is what happens if the car becomes a write-off by accident, fire or theft.

[BullDog]

By the way, when leasing, if one spots a brilliant deal, it is easy to give the old car back early.

I suppose that answers a possible question as to what happens if you want or need to terminate the deal early. The other question is what happens if the car becomes a write-off by accident, fire or theft.

You need gap insurance to pay a possible shortfall on what your normal motor insurance policy pays in the event of a write off.

[Alaric]

You need gap insurance to pay a possible shortfall on what your normal motor insurance policy pays in the event of a write off.

How then does the lease arrangement decide "who pays what" in the event of a write-off. "Gap insurance" would just increases the cost. Why don't leasing companies bundle it with the lease payments?

[servodude]

You need gap insurance to pay a possible shortfall on what your normal motor insurance policy pays in the event of a write off.

How then does the lease arrangement decide "who pays what" in the event of a write-off. "Gap insurance" would just increases the cost. Why don't leasing companies bundle it with the lease payments?

Cos you might want to self insure?

[BullDog]

How then does the lease arrangement decide "who pays what" in the event of a write-off. "Gap insurance" would just increases the cost. Why don't leasing companies bundle it with the lease payments?

Cos you might want to self insure?

Correct. And some regular motor insurance policies as a benefit will pay for a replacement new vehicle if in the first 12 months it is written off. In that case, gap insurance is only required after the first year of the lease. Not all policies have that benefit, but some certainly do. Have to check the small print.

[Arborbridge]

When I ordered my car - ID3 at the end of November 21 - there were absolutely no financial incentives on offer, and no discounts. Neither was there the possibility - which one of my friends had a year earlier - of taking out finance only to pay it off immediately for some bonus payment. All of that had ceased because of the tsunami of orders coming in - just my luck!

However, to set against I had good luck also. Although I've waited 16 months for delivery, I had some advantages: the price was held, the interest rate on PCP was honoured as was the government incentive of £2500 for going EV. Perhaps just as more interesting, I had the later model with various bits which were added like park assist and side sensors, plus the latest software from the factory. I know many people with cars bought before mine who are struggling to get the software updated by their dealers, whereas I have it on board.

Luck was swings and boundarounds for me.

Arb.

[Padders72]

Hi All.

I'm with the people who (broadly) prefer to pay cash. I don't like borrowing money for a depreciating asset.

However, I have found even when "paying cash", it often pays to pretend to borrow some money - as the car manufacturers give the car dealers "bonuses" as far as I understand it, for meeting targets in this regard. So, for my last (new) car, I paid as much as I could in cash to still get some form of lease deal (the figure was 92.8% IIRC) from the main dealer. The remaining 7.2% or so I paid off over 4 years at somewhat peppercorn monthly amounts. The car price discount was around 11.5% from list price.

I was also advised, though I never had to test this, that because the lease company had an interest in my car for those four years, it would be easier to get the manufacturer to correct any faults which may manifest.

Regards, Newroad

Certainly when I bought my last new car 3 and a half years ago, it was indeed the case that the best discount was to be had by taking either PCP or HP as there was a central contribution of a few thousand over and above what a cash buyer might negotiate with a dealer. My BMW had a list price inc many options or over £46K, but thanks to the various discounts I paid less than £36K. I paid off the HP in a matter of weeks (you could of course refinance this any way you choose). The dealer didn't mind this at all and it seems had no financial interest in me continuing with the payments. Had I been a pure cash buyer the best price would have been I think £3K higher. This may have changed of course, discounts dried up rather when Covid then the semi conductor shortage bit. Second hand prices were artificially high for a while meaning those on PCP were in positive equity when coming to the end of contracts, it is doubtful if that will happen now though since prices are returning to normal.

While it may make good financial sense, personally I dont like the idea of PCP or leasing because you don't actually own the car. Some would consider this an advantage but it does mean you are limited in various ways including mileage, condition and modifications. As already noted in an earlier post, PCP or leasing does rather encourage people to tie themselves into more expensive vehicles than are actually wise. Circumstances change, if you own the vehicle with little debt or better still none, you are much better able to adapt to this. Better a cheaper vehicle you can afford over a flashier one you can't when the roof falls in.

[BullDog]

Hi All.

I'm with the people who (broadly) prefer to pay cash. I don't like borrowing money for a depreciating asset.

However, I have found even when "paying cash", it often pays to pretend to borrow some money - as the car manufacturers give the car dealers "bonuses" as far as I understand it, for meeting targets in this regard. So, for my last (new) car, I paid as much as I could in cash to still get some form of lease deal (the figure was 92.8% IIRC) from the main dealer. The remaining 7.2% or so I paid off over 4 years at somewhat peppercorn monthly amounts. The car price discount was around 11.5% from list price.

I was also advised, though I never had to test this, that because the lease company had an interest in my car for those four years, it would be easier to get the manufacturer to correct any faults which may manifest.

Regards, Newroad

Certainly when I bought my last new car 3 and a half years ago, it was indeed the case that the best discount was to be had by taking either PCP or HP as there was a central contribution of a few thousand over and above what a cash buyer might negotiate with a dealer. My BMW had a list price inc many options or over £46K, but thanks to the various discounts I paid less than £36K. I paid off the HP in a matter of weeks (you could of course refinance this any way you choose). The dealer didn't mind this at all and it seems had no financial interest in me continuing with the payments. Had I been a pure cash buyer the best price would have been I think £3K higher. This may have changed of course, discounts dried up rather when Covid then the semi conductor shortage bit. Second hand prices were artificially high for a while meaning those on PCP were in positive equity when coming to the end of contracts, it is doubtful if that will happen now though since prices are returning to normal.

While it may make good financial sense, personally I dont like the idea of PCP or leasing because you don't actually own the car. Some would consider this an advantage but it does mean you are limited in various ways including mileage, condition and modifications. As already noted in an earlier post, PCP or leasing does rather encourage people to tie themselves into more expensive vehicles than are actually wise. Circumstances change, if you own the vehicle with little debt or better still none, you are much better able to adapt to this. Better a cheaper vehicle you can afford over a flashier one you can't when the roof falls in.

For any new car in reasonable demand I doubt there's any incentives to pay cash. Waiting times of several months seem normal and for some vehicles the waiting lists are closed. You can't order a new one if you tried.

I suspect the big car manufacturers and their dealers have realised that by keeping cars in short supply the profitability per unit is far higher. Sell fewer cars but make more money.

Time will tell if this is a permanent shift in the market or not. I suspect some manufacturers are handing the cheaper car market on a plate to Chinese imports. It happened before with Japanese motorcycles in the 60/70's. This time around it will be Chinese EVs that come from nowhere to take a very large market share.

[Alaric]

Cos you might want to self insure?

You might of course. It would still remain a potential hidden cost when comparing the relative financial merits of outright purchase versus leasing, PCP or HP.

Is the contractual point that you still remain liable for the lease payments and not being able to return the car in working order if the car is a write off? The amount recovered frim insurers wouls compensate some but not all of the loss. Presumably the lease company will quote for what they want back to terminate the deal without returning the car in one piece.

[Arborbridge]

Mention of the new car delivery situation right now, reminds me that after waiting 16 months for my VW to be delivered, I had only driven it for a week when I started getting invitations to new car events from VW!

Arb.

[Howard]

I’m not sure I would consider leasing a car as borrowing?

A lease contract is like hiring a car from Avis on holiday.

You are paying a known fixed amount monthly for the use of a brand new car for a fixed period.

In my experience if you take out a maintenance contract you have a concierge service par excellence . You are backed by a massive leasing company who gets the best service from dealers and tyre companies. When I’ve had punctures, both repair companies told me I wouldn’t have got a next day home repair service as a private customer. One tyre guy, said “it would have cost a thousand pounds to get your specialist run flat tyre from the stockist a couple of hundred miles away and fit it this quickly”.

I don’t know this for a fact, but from my experience of getting help from leasing companies I’d guess if your car is a write-off it will almost certainly be easier to deal with as the lease company would talk to the insurer and agree the write-off value.

If you’d bought a brand new car for cash and written it off then you are on your own dealing with the insurance company.

At the end of the lease there is no problem selling a car privately or dealing with Webuyanycar, especially if it is higher value. I’ve been there, giving test drives on an expensive car and then exchanging multi thousands of pounds at the bank!

When I leased nearly five years ago the car’s list price was well over £42,000. Let’s say I could have negotiated a 5% discount for cash. So net cost around £40,000. Leasing the car, including all costs and insurance (but not petrol), costs me under £5,000 a year, so at the end of five years total cost of £25,000.

From an investor’s viewpoint, the biggest holding in my portfolio is Fundsmith so (like Arboridge) to pay cash I might have taken the 40k out of that for the car.

Despite the recent fall in Fundsmith prices it’s up 80% over five years so that 40k is now worth £72,000. So my net worth has changed by 72 -25k ie plus £47,000.

I will end up with no car to sell but a nice total return.

Others might be able to calculate the comparison with a cash purchase of £40k plus service and puncture costs of maybe £2,000 over five years. and a second hand car worth around £20k to sell?

A new car isn't everyone's desire and there are much lower cost methods of transport. Also I’m sure that, in other circumstances, my investment return might not have been so good but given a mileage of less than 15,000 miles a year and the pleasure of a new car, for an investor, leasing is probably worth considering?

regards

Howard