PCP/Leases

Chives

Chives

Chives

Soldato
Joined
17 Dec 2009
Posts
3,664
Location
Wales
Morning all,

I am in the fortunate position that I have managed to secure a good graduate job (having just graduated).

I would very much like to change to a nicer car, from my current, slightly tired first car (an 03 1.2 Seat Ibiza) that I've had since I was 17.

I have my eyes on a Golf GTi, growing up it has been a car I've always wanted. Now potentially?! :D I may get the chance to drive one every day.

I've run some insurance quotes and to my delight, I can insure one for around £700 (not bad for 21yr old bloke I thought?)

My question is, what is the best way to do this financially? I have read online and on forums such as Pistonheads about people leasing a car over 2/3 years and then handing it back.

Could some explain the ins and outs of how it all works to me? I would also welcome alternative options :)

Many thanks guys :)
 
Isn't insurance included if you lease a car, I'm not sure as I've only every 'bought' cars (disclaimer I would've owned the cars if I had kept them long enough) and had to provide my own insurance.
 
Maundie said:
Isn't insurance included if you lease a car, I'm not sure as I've only every 'bought' cars (disclaimer I would've owned the cars if I had kept them long enough) and had to provide my own insurance.
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Not normally, no. Only the special (and rare) 'just-add-fuel' programmes will include insurance.
 
Basically for a monthly fee you get to 'borrow' a car. You will have a yearly miliage allowance and when you hand it back they will inspect it for damage. Best to find a deal you like the sound of after reading the small print and asking on here whether it's a good dealer not.

An alternative could be getting a low interest loan and buying one rather than financing a car as on finance the interest would be around 15%
 
Chives said:
Morning all,

I am in the fortunate position that I have managed to secure a good graduate job (having just graduated).

I would very much like to change to a nicer car, from my current, slightly tired first car (an 03 1.2 Seat Ibiza) that I've had since I was 17.

I have my eyes on a Golf GTi, growing up it has been a car I've always wanted. Now potentially?! :D I may get the chance to drive one every day.

I've run some insurance quotes and to my delight, I can insure one for around £700 (not bad for 21yr old bloke I thought?)

My question is, what is the best way to do this financially? I have read online and on forums such as Pistonheads about people leasing a car over 2/3 years and then handing it back.

Could some explain the ins and outs of how it all works to me? I would also welcome alternative options :)

Many thanks guys :)
Click to expand...

In simple terms you have 3 options when buying a car:

- Buy with cash or a personal loan (i.e. nothing secured against the car)
- Take out finance against the car
- Lease/hire the car from a company who charge you an upfront amount and monthly figure to cover the depreciation and their profit.


Generally leasing/hiring can work out the most expensive option, this is due to having to cover the depreciation of the car, the leasing companies profit plus at the end of the lease you have to pay for damage/wear above a certain threshold. There are some exceptions where manufacturers have surplus cars or where errors are made but they are few and far between.

In this scenario you will never own the car, and you have to hand it back at the end of the lease. You are also committed for the full term so if you change your mind, circumstances change etc you are still stuck with the car. Also if you go over the agreed mileage you will be charged, but if you do under you get nothing back.



The second option is finance against the car. The two common options are PCP and HP.

PCP - You only make payments that cover the depreciation over the period of the loan. At the end of the period (2-5 years) you still owe a significant payment but this will be less than the car is worth. You then have the option to re-finance to keep the car, or trade it in against another one. Note you still don't actually own the car, the finance company does. This is usually the lowest montly amount option and therefore one of the most common option.

HP - This is the traditional finance, whereby you simply borrow against the car and pay it off over x years. The monthly amount will be far higher than PCP but at the end of the finance you own the car.



The third option is a personal loan then using this cash to buy the car. Often if you have a good credit rating you can get better interest rates just by taking out a personal loan. You can also mimic PCP by taking out a loan for a longer period than you intend to keep the car (i.e. 5 years) on the basis that the amount you owe on the car after 3 years will be less than the value of the car. You are usually limited to £15k or £20k depending on where you get the loan.


What age / price Golf GTI are you looking at?
 
Some good info on the options:

https://www.moneyadviceservice.org.uk/en/articles/whats-the-best-way-to-finance-buying-a-car

Be very aware that if you don't do your homework and know the different options it's very easy to get taken for a ride by a dealer. I've seen many examples where a buyer has become so fixated on the monthly amount they don't see the bigger picture that they are ultimately paying £1000s in interest. For example Audi are currently offering 10.9% APR on their finance when I can get 3.3% APR from a personal loan.

To put that into context:
£15k over 5 years at 10.9% APR means £4,295.77 in interest
£15k over 5 years at 03.3% APR means £1,272.45 in interest
 
It depends on what you want, really. I'd personally wait and give it 3-4 months before you consider swapping anyway. No point getting tied for either way if you find the new role isn't for you.

I'd also double check the insurance costs on the exact car you want to purchase. £700 quid for a 21 year old seems incredibly low so there might be some holes in that (are you including commutting, for example, or very low millage conditions?).

Which graduate role are you going into (or what sector). You might find that down the line you're offered a company car anyway.
 
If you're buying new and not likely to keep the car for more than a few years then leasing is most likely the lowest total cost.
 
ov_sjo said:
If you're buying new and not likely to keep the car for more than a few years then leasing is most likely the lowest total cost.
Click to expand...

No, leasing is most likely the highest total cost. The exception is the odd bonkers cheap deal, but generally leasing is the most expensive way to have a car.

PCP, HP or cash purchase will generally be cheaper.
 
Joe T said:
Not normally, no. Only the special (and rare) 'just-add-fuel' programmes will include insurance.
Click to expand...

One of the manufacturers who do offer such a scheme is Peugeot... if that is a brand which appeals to you.

The monthly payments include insurance, breakdown cover, service and road tax (if any), so all you literally have to do is "just add fuel"!

Personally, I found the amount this added to the monthly payments a very attractive option, and I am delighted with my Peugeot 2008, which is now nearly 2 years old! :)
 
Afternoon all,

So this got forgotten about as my job very much took over for a while!

I am thinking that getting a bank loan may well be the best way to do this. My concern is that at the moment I don't think I have any form of credit history really.

Apart from small things like Spotify/Netflix, and a soon to be bought phone contract I have no fixed monthly outgoings. Would this be a problem when seeking a bank loan? Obviously I can prove I have income with payslips.



Abyss said:
In simple terms you have 3 options when buying a car:

- Buy with cash or a personal loan (i.e. nothing secured against the car)
- Take out finance against the car
- Lease/hire the car from a company who charge you an upfront amount and monthly figure to cover the depreciation and their profit.


Generally leasing/hiring can work out the most expensive option, this is due to having to cover the depreciation of the car, the leasing companies profit plus at the end of the lease you have to pay for damage/wear above a certain threshold. There are some exceptions where manufacturers have surplus cars or where errors are made but they are few and far between.

In this scenario you will never own the car, and you have to hand it back at the end of the lease. You are also committed for the full term so if you change your mind, circumstances change etc you are still stuck with the car. Also if you go over the agreed mileage you will be charged, but if you do under you get nothing back.



The second option is finance against the car. The two common options are PCP and HP.

PCP - You only make payments that cover the depreciation over the period of the loan. At the end of the period (2-5 years) you still owe a significant payment but this will be less than the car is worth. You then have the option to re-finance to keep the car, or trade it in against another one. Note you still don't actually own the car, the finance company does. This is usually the lowest montly amount option and therefore one of the most common option.

HP - This is the traditional finance, whereby you simply borrow against the car and pay it off over x years. The monthly amount will be far higher than PCP but at the end of the finance you own the car.



The third option is a personal loan then using this cash to buy the car. Often if you have a good credit rating you can get better interest rates just by taking out a personal loan. You can also mimic PCP by taking out a loan for a longer period than you intend to keep the car (i.e. 5 years) on the basis that the amount you owe on the car after 3 years will be less than the value of the car. You are usually limited to £15k or £20k depending on where you get the loan.


What age / price Golf GTI are you looking at?
Click to expand...

I would like one that is 3/4 years old perhaps? My ideal scenario would be to find a good one with the options etc that I want. Perhaps the VW Approved Used site is a place to look?

Abyss said:
Some good info on the options:

https://www.moneyadviceservice.org.uk/en/articles/whats-the-best-way-to-finance-buying-a-car

Be very aware that if you don't do your homework and know the different options it's very easy to get taken for a ride by a dealer. I've seen many examples where a buyer has become so fixated on the monthly amount they don't see the bigger picture that they are ultimately paying £1000s in interest. For example Audi are currently offering 10.9% APR on their finance when I can get 3.3% APR from a personal loan.

To put that into context:
£15k over 5 years at 10.9% APR means £4,295.77 in interest
£15k over 5 years at 03.3% APR means £1,272.45 in interest
Click to expand...

Thank you, will have a read of the link :)

Kuros said:
It depends on what you want, really. I'd personally wait and give it 3-4 months before you consider swapping anyway. No point getting tied for either way if you find the new role isn't for you.

I'd also double check the insurance costs on the exact car you want to purchase. £700 quid for a 21 year old seems incredibly low so there might be some holes in that (are you including commutting, for example, or very low millage conditions?).

Which graduate role are you going into (or what sector). You might find that down the line you're offered a company car anyway.
Click to expand...

It is the public sector, no chance of a company car. The pay is bad enough :D
 
With a bank loan all you can do is see what rates places will offer. Best I could get from a high street bank was 9.9%. Got 5.9% with Zopa instead which is actually more flexible than most banks anyway.
 
Skillmister said:
With a bank loan all you can do is see what rates places will offer. Best I could get from a high street bank was 9.9%. Got 5.9% with Zopa instead which is actually more flexible than most banks anyway.
Click to expand...

That can't have been recently. Lloyds are doing 3.3% for example.
The flexibility angle is all there with Lloyds as well.
 
[TW]Fox;30057973 said:
Never seen a good lease deal on a Golf GTI. Weirdly enough the R is often cheaper.
Click to expand...

The_Dark_Side said:
That can't have been recently. Lloyds are doing 3.3% for example.
The flexibility angle is all there with Lloyds as well.
Click to expand...

Depends on his credit rating. Not everyone gets the headline rate remember.

If your looking for one 3-4 years old, then the best way is to try and get a personal loan, if you can get the headline rate. But that might be difficult with little / no credit history.

So that leaves the likes of VWFS. Which might well turn out to actually be the best route for you. Assuming you can find a dealer with a 3-4 year old car. Dealers around here don't generally stock anything older than about 2 years old. But probably not the same everywhere. But dealer finance MAY be the best rate you can get with little credit history.
 
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