What makes personal leasing for a car better than PCP or HP?

Posted by TroublesomeButch@reddit | AskUK | View on Reddit | 17 comments

Hi,

I'm relatively new to this, as I bought my current car in cash.

It's now time to sell and change, and I am looking at finance options this time, as we want to go bigger.

I'm not originally British, and where I'm from, leasing means you pay a monthly fee and you don't care about anything at all: maintenance, tyres, insurance (comprehensive), taxes, it's all in the monthly fee.

Here it's not: 90% of them don't include maintenance (or you can add extra) and none of them have insurance.

Considering we're interested in:

Personal, non business
3 or 4 years contract, depending on the car
6k miles per year
Ability to travel Europe
Very low deposit (I like the fact leasing allow you 1 month only, but they slap more less another month on it as fees)
Looking for a SUV or estate car in the 45k to 60k bracket
Hybrid or electric car
Looking at chinese brands or Korean. I'm saying this because the car being chinese I think might affect potential value at the end (real value being lower than the forecasted one)
Happy to give the car back at the end of contract

I am not sure which would be my best option? Given the fact leasing is not the way I am used to it, I struggle to understand what convenience it would give me against a PCP for example.

Thanks

[-]

romeo__golf@reddit

PCP - Personal Contract Purchase

This is essentially a loan in which a final payment ("balloon payment" or "guaranteed minimum future value (GMFV)") is deferred, making the monthly sum due lower that a traditional loan. At the end of the fixed period the buyer has the choice to either pay the final payment, or return the car to the manufacturer.

These deals are often structured in such a way that the final payment is lower than the value of the car, which allows the buyer to use the difference between the two as a deposit for another loan. This value can be used at any manufacturer, as effectively the new dealership will be paying the market value for the vehicle with part of this being used to pay off the existing loan, and the remainder being used to fund the new car.

PCP deals have mileage limits, with fees for exceeding this during the contract, and vehicles are expected to be returned in a good condition, again with fees for damage beyond acceptable wear and tear.

Criticism of this method is often calls this "perpetual car prison" as it accustoms the owner to a certain quality of vehicle at a much lower monthly cost than it would otherwise be. In order to own the car outright they need to make that final payment, which is often 30-50% the value of the car when new, so most drivers will simply trade it in for a new model, with another monthly payment.

In most scenarios, under a PCP deal you are not the owner of the vehicle until the final payment is made, however due to the structure of the deal being a loan for a fixed amount you have the flexibility to repay some/all of this early, and to exit the agreement earlier by returning the car. This is known as "Voluntary Termination" and is applicable when 50% of the borrowed amount has been repaid.

PCH - Personal Contract Hire ("lease")

Both maintained and non-maintained leases are available in the UK, and these often have comparable monthly payments to a PCP deal. The key difference is that under a PCH contract, the car always gets returned to the finance company at the end of the term. There is no legal right to buy the vehicle and own it beyond the end of the contract.

PCH deals are sometimes cheaper than PCP as manufacturers might offer incentives on certain models to get them on the road, but there's often less choice in trim levels or colours than there would be under a PCP. A PCP customer will often be able to make a custom order, with the exact configuration they want, while PCH customers will be limited to manufacturer availability without paying much higher costs.

With a PCH contract, you cannot exit early or without paying significant penalties.

HP - Hire Purchase

This is essentially a regular loan, except the loan is secured against the vehicle and the vehicle is owned by the finance company until you make the final payment. The finance company can repossess the car if you fail to make payments. A hire purchase often requires a deposit and can offer lower interest rates than a standard loan.

Beginning_Hotel_5056@reddit

Financing cars is a mistake, I did it for years and now I would only pay cash for a car I can afford and keep it as long as possible knowing I have no monthly cost to concern myself with and most importantly I am not compounding interest losses on something that’s already loosing money by the day.

TroublesomeButch@reddit (OP)

I understand where you're coming from. But I think it depends on your relationship with cars. I believe there is an angle for leasing. I am used to rent my house, and it's the same. You pay for a product that's giving you a service, and once you don't need it you send it back. Also gives you the option of having something different frequently. If you look at it this way I believe it makes sense or it does for me at least. Of course the lesser isn't there for charity and so the amount you pay has to cover their service, but for me the ability of not caring about what if the car breaks, the residual value is bad, etc it's worth it. It's also important to chase the deal, not the car itself. For me, I'm happy not to have the exact car I was longing for, if I find a great deal on a similar one.

I get it, I used to care about having the latest car, keeping up with the Jones’s but for me now it’s just waste of money. Having a £60k car sitting in my finances is less preferable when I looked at overpayment of mortgage the figures are staggering. Put car payments into mortgage say £600 a month, reduces the term by 12 years and saves £80k - £100k in interest over the term! Thinks like that excite me more than the car.

indeed! I don't have a mortgage and prolly that helps. Also I think you don't have to look at 60k sitting in the garage, but at 3/400 per month (600 is too much indeed) for 2 or 3 years, in my opinion.

Thankfully I'm past the "latest car" love as well, but i still want the car to be a bit enjoyable, with tech we love and comfortable. I am totally with you we should not spend money in cars that are over 40k, perhaps 45k now with EVs. that's a waste of money indeed, you can have chinese cars for a fraction these days, with all the tech you could imagine and more

D0wnInAlbion@reddit

Driving a 60k car when you don't have a mortgage is absolute madness. Surely you'd be better driving something more affordable and saving the extra for a deposit.

But why? The lease is 200 quids. Buying a cheaper car would be more expensive!

You aren't getting a 60k car for £200 a month.

Correct, it's leading. I rent it

exhausted-pangolin@reddit

PCP is usually one of the worst financial decisions you can ever make, from a purely financial pov. It is a truly astonishing waste of money - up front, monthly, and at the end. And then it traps you in the debt cycle too.

For your use case I imagine a pure lease will be the cheapest overall, even though it's a bit crap compared to your home country.

I am struggling to imagine you've actually found a PCP deal that is cheaper than a lease to be honest but happy to be shown to be wrong

itsapotatosalad@reddit

I bought my last car on pcp, sold it for a small profit which I put down on my current car on hp. I ran an M340i for 18 months for nothing and had a fuckin blast.

Minimum_Airline3657@reddit

Following

Sephyyyy@reddit

Whenever I've considered PCP vs PCH (leasing), leasing always wins if you're happy to give the car back.

PCH seems to always allow for a lower deposit amount and lower monthly repayment.

I genuinely don't understand PCP for used cars when you're looking at relatively high interest rates which sky rocket the monthly payments. I've been able to lease a new car for approx. 500 p/m and the 1 year old used equivalent with nearly 10k miles was 600 p/m on PCP. That was with a higher deposit too. New cars the manufacturer may contribute to the deposit and interest rates are typically lower which help but still it typically ends up more.

Also with most leases you can include maintenance as well so everything bar insurance is covered under one payment for a bit of peace of mind. Not that it should require anything significant other than routine services.

If you're in a financial position where x amount comes out for a car and you're happy with driving a new car then leasing is the way forward.

buzzlightyear999@reddit

Also consider how you look after the vehicle. Image PCP as a loan with a big payment at the end to keep the vehicle, but you might part X it if you’re in positive equity before. Leasing as others have said is like long term rental. If you damage the vehicle beyond simple wear and tear, from experience PCP is easier to deal with… dealers tend not to be too fussed when you trade in a car with the odd bit of exterior damage as long as you’ve serviced the vehicle properly etc, they’ll simple prep and fix bodywork and remarket. When I say damage, think scuffed wheels stone chips etc. Leasing I’ve found like rental cars, they inspect with a fine tooth comb and expect it to be in near new condition, and will charge for any small scrape and dent. Also… leasing is like a phone contract, if you want to finish early you have to typically pay out the remaining contract, where PCP if you have positive equity can leave early, or you can exit via a process called voluntary termination (from memory you need to be at least part way through the contract).

When replying to submission/post please make genuine efforts to answer the question given. Please no jokes, judgements, etc.
Don't be a dick to each other. If getting heated, just block and move on.
This is a strictly no-politics subreddit!

Please help us by reporting comments that break these rules.

I am a bot, and this action was performed automatically. Please contact the moderators of this subreddit if you have any questions or concerns.