Controversial Opinion?

[GeorgeSymonds]

It's all about risk

The actuary friends of mine explain it like this:

When a finance looks at a car, they don't have a guess what the price is in 3 years, they have a spread of prices - say a £50k car has a 25% chance of being worth in 3 years £25k, a 50% chance of being woth £28k and a 25% chance of being £30k

On a lease they'll set the payments based nearer the middle - so say 28k, knock a bit of for admin, add interest etc and that sets the price. They win some, they lose some but on average they think know what the car whould be worth.

With PCP, because there is no upside to them if the car is worth more at the end, they set the prices at the lowest end, or 25k. If in the future its at the worst end, they've covered themselves, if it works out in the middle of their range, the person witht he PCP feels great and has a bit of equity and if its much better then the PCP buyer is even happier, but the company providing the PCP doesn't really car about the upside, they generally don;t get any of it, they just need to guard against what the worst case for them is.

So... leases generally have a higher prediction on the future value of the car than PCP for their calculations. which means generally you pay more for a PCP than a lease to cover the difference in future value expectations. What you pay extra is includes the difference between the worst expected future value and a more average one and what is likely to be the equity in the car at the end,

There is no magic bullet here. PCP is great if depreciation turns out to be less than they the expected, if ts pretty much as expected you're in a fairly neutral position but have the hassle of having to buy the car from them or somehow recycle the equity in the car into another deal, and if depreciation is worse than expected you're no different.

Company schemes are complicated differently because of the way VAT works

Take a quick example
Tesla website - M3 RWD
Personal Lease = £4k + 48 * 567 = £29,500
PCP = £7k + 48 * 538 = £32.800

In 4 years would you be happy if you had £3k equity in the car (ie its value was £3k more than the balloon payment)? You've paid £3.3k more to get there so you'd actually be neutral (give or take a few hundred) . If depreciation was bad, you give the car back but you've still paid that £3.3k extra in the monthly payments, if the depreciation was low, then you've made what ever the extra value was, less the £3.3k you've paid extra over the 4 years. You are taking the risk on the 3k with PCP.

 

[interbear]

I know Ill take the hit come resale but over the last 48 years driving I've lost a shed load on all cars I bought but to me the car is a hobby - and hobbies cost money.

On the lease vs buy argument, I tend to agree with the comment above. Cars cost money.

I’m not entirely comfortable with leasing a car as I don’t own it, I don’t like being limited in terms of mileage and the end of lease charges are always, I think, a potential risk factor. So since leaving the world of company cars I’ve always bought them outright. Of course you need to be fortunate enough to have the capital to do so, so leasing works for those who prefer to pay monthly.

I’ve had 4 years of Tesla ownership - Model 3 then Model Y. I worked out that after buying both new from Tesla and selling both via Motorway, my net cost over those 4 years (depreciation effectively) works out at £17k or £355 per month. This made up of an excellent selling price for the Model 3 after 3 years of ownership and a less than excellent return on the Model Y after a year. All based on timing and used values at the time of selling, obviously. Over the 4 years though, I don’t think that’s an unreasonable cost for driving arguably the best BEVs over that period. I’ve no idea what a lease would have cost but I’ve a feeling it would be more than that.

 

[Matrel]

I have found previously that the flexibility of a PCP can really play to the situation you are in after the three years. Firstly I think you have to make peace with the fact that it could end up being just like a lease and you give the car back having paid a fortune and effectively just rented the car as you say.

For me, the benefit comes in what you can do at the end of the PCP because you have choices. If the balloon payment is way more than the car is worth, you can give it back - or if you feel you've sunk a ton of change in to it, you can pay the balloon regardless and ride out a couple more years yourself where hopefully it balances out when you sell further down the road. Alternatively, if the car is worth more than the payment, you can give it back and use the excess as deposit for the same brand again, take it to another brand dealership who will do the same or buy it yourself and then sell or keep. Also, it's the flexibility of how you finance the balloon payment - a used car PCP, savings or a straight loan.

The thing for me with PCP is being able to make affordable payments for 3 years or whatever, then make a call. You at least have choices, not just more 'rent' or giving it back.

 

[EVMeister]

I've never leased a car, but I view leasing as a way to have a brand new car fairly frequently - a bit like keeping up with the Jones's. Lease is for those that have a car as a tool to do a job and rarely do people look after another's property like their own - so they tend to be abused - not cherished. They are cars for people that don't like cars.

I spend so much time cleaning my car, I like to keep it looking brand new, retired and don't drive any great mileage, always defensively park wherever I go, but I do love my cars - none of them have ever been less than spotless. If I leased I wouldn't have any interest in doing that because it isn't mine, plus i spend a lot of money on them adding stuff but even the cleaning products cost a lot of money

I know Ill take the hit come resale but over the last 48 years driving I've lost a shed load on all cars I bought but to me the car is a hobby - and hobbies cost money.

My 2020 M3P is without scratch, dink, dent, it absolutely gleams better than new, just over 8K on the clock, always garaged when not in use and garage is heated in the winter. I took it for its first MOT in March - had to test the screen washers as I had never used them, bad weather and car stays in garage - the beauty of retirement.

Depends on the person. So far I have PCP'd or PCH'd all my vehicles, including the Model 3 which is 3 years into a 4 year lease. I'm pretty obsessive with cleaning and simply keeping the car in good condition. I even got my Model 3 professionally ceramic coated... But I'm obviously the exception to the rule, because when I returned my leased Jaguar the person inspecting for damage said I'd kept it in astonishingly good condition.

 

[yessuz]

It's all about risk

The actuary friends of mine explain it like this:

When a finance looks at a car, they don't have a guess what the price is in 3 years, they have a spread of prices - say a £50k car has a 25% chance of being worth in 3 years £25k, a 50% chance of being woth £28k and a 25% chance of being £30k

On a lease they'll set the payments based nearer the middle - so say 28k, knock a bit of for admin, add interest etc and that sets the price. They win some, they lose some but on average they think know what the car whould be worth.

With PCP, because there is no upside to them if the car is worth more at the end, they set the prices at the lowest end, or 25k. If in the future its at the worst end, they've covered themselves, if it works out in the middle of their range, the person witht he PCP feels great and has a bit of equity and if its much better then the PCP buyer is even happier, but the company providing the PCP doesn't really car about the upside, they generally don;t get any of it, they just need to guard against what the worst case for them is.

So... leases generally have a higher prediction on the future value of the car than PCP for their calculations. which means generally you pay more for a PCP than a lease to cover the difference in future value expectations. What you pay extra is includes the difference between the worst expected future value and a more average one and what is likely to be the equity in the car at the end,

There is no magic bullet here. PCP is great if depreciation turns out to be less than they the expected, if ts pretty much as expected you're in a fairly neutral position but have the hassle of having to buy the car from them or somehow recycle the equity in the car into another deal, and if depreciation is worse than expected you're no different.

Company schemes are complicated differently because of the way VAT works

Take a quick example
Tesla website - M3 RWD
Personal Lease = £4k + 48 * 567 = £29,500
PCP = £7k + 48 * 538 = £32.800

In 4 years would you be happy if you had £3k equity in the car (ie its value was £3k more than the balloon payment)? You've paid £3.3k more to get there so you'd actually be neutral (give or take a few hundred) . If depreciation was bad, you give the car back but you've still paid that £3.3k extra in the monthly payments, if the depreciation was low, then you've made what ever the extra value was, less the £3.3k you've paid extra over the 4 years. You are taking the risk on the 3k with PCP.

or alternatively:
Tesla Loan: 7k + 72 * 628 = 52,216 but you have a car after 6 years which will be still well above 15k I presume.

 

[Leejmoff]

Talking of PCP, I was looking at a Y and was astonished how much PCP was, mainly because of the interest rate going up. It made me think twice and I'll probably just end up keeping the 3 at the end of the 4 year term, if it remains that high. I think I lucked out when I got it before the rises.

 

[GeorgeSymonds]

or alternatively:
Tesla Loan: 7k + 72 * 628 = 52,216 but you have a car after 6 years which will be still well above 15k I presume.

I'm sure, but you've also avoided paying interest on a fair amount of cash. With a lease or PCP there is a bigger average debt against the car for the period of time you have it which needs to be paid for.

At the end of the day, if you own a car it costs:

- the depreciation of the car over the time of ownership
- the cost of money to finance the car (or the opportunity cost of that money if you bought outright)

buying, hp, lease, pcp.. they all have to deal with these things one way or another. I buy outright as at least I avoid the profits the finance companies make on the deal but I carry the risk of big depreciation, and there doesn't appear to be bulk buying deals the finance companies can tap into with Tesla were they can also make money on the cheaper purchase price than we might be able to get. The last 8 months has been bad news though and carrying the depreciation risk hasn't been so clever - I just try and take a longer term view.

 

[yessuz]

I'm sure, but you've also avoided paying interest on a fair amount of cash. With a lease or PCP there is a bigger average debt against the car for the period of time you have it which needs to be paid for.

At the end of the day, if you own a car it costs:

- the depreciation of the car over the time of ownership
- the cost of money to finance the car (or the opportunity cost of that money if you bought outright)

buying, hp, lease, pcp.. they all have to deal with these things one way or another. I buy outright as at least I avoid the profits the finance companies make on the deal but I carry the risk of big depreciation, and there doesn't appear to be bulk buying deals the finance companies can tap into with Tesla were they can also make money on the cheaper purchase price than we might be able to get. The last 8 months has been bad news though and carrying the depreciation risk hasn't been so clever - I just try and take a longer term view.

if you are fortunate to have 50k laying in your account as spare - then yes, of course

 

[GlynG]

Awesome

Yeh we keep ours in great condition, always treated our cars great. How much was your MOT?

I think it was £48. The company have a super reputation, very friendly but quite thorough, they will advise on even the minutia but they are fair, I had to phone them to see if they did EVs. I was unsure about one thing - I fitted new rear reflectors in the rear bumper when i took the bumper off to install a powered boot kit, the new reflectors illuminate, tail and brake lights but also give sequential indicators - but they do there thing in red not amber. I could install a switch to just switch the indicator bit off for an MOT but I decided to just chance it, good news not a problem because the car complies with the law as it has the amber original indicators and red is allowed to be shown to the rear of the car.

 

[WannabeOwner]

if you are fortunate to have 50k laying in your account as spare - then yes, of course

Still have a choice to finance it

I've bought cars, within company, for "cash" for quite a long time. Accountant thinks I am nuts not to "finance" them. I tell him "Car is going to lose 50% value depreciation, I don't also want to pay 25% in finance"

There have been times when finance rates have been "near 0%" and I agree that is tempting. I bought a car a decade or more back on 3 years 0% finance. I asked "How much discount for cash" and the answer was "none". I still have no idea how 0%-finance has no cost associated!

My view is that "things change". During COVID I went from 35K miles a year to zero. We've had company cars on finance for an employee who left and then discovered we were lumbered with them, and wound up giving a prestigious car to a junior staff member - with all the upset that caused from his contemporaries. And so on.

I'd prefer to have the risk of depreciation (don't care about that, the "make up" money to buy the replacement is going to reduce if the price goes down, and if depreciation goes with it and "make up" is similar then "so what")

Outright ownership means I don't care about anything. I can take care of the car and polish every weekend ... or not (I do the latter!) if I bump it I can live with it, or get it fixed. If I want to pass it to a colleague, or have a tax advantage to buy it off company at WBAC price ... I can do any of those things, and I am not bound by the small print in the lease.

Whenever small-print has been involved I've been stitched up.

 

[Kansalis]

One of the main benefits of PCP over PCH for me is that you can repay a PCP whenever you want, with (usually) no fee. If you repay early, you save the interest on the remaining debt & pocket any equity.

TL;DR the below - If you think you may want to change car more often than 3 or 4 years, PCP is better than PCH

I was very fortunate with my timing for my last few cars, all on PCP. I traded in my fully-owned Octavia as the deposit for an eGolf on PCP, which I kept for 12 months. Then VW were virtually giving away ID3s & the eGolf was worth as much as I paid for it, so I used the equity to get out of the PCP & change to the ID3. Then the ID3 value rocketed up as they were massively delayed at the factory, so the car was worth significantly more after 14 months than I paid for it. I traded in my ID3 to Tesla as the deposit for my M3LR, on PCP. All in all I made around £1000 profit on the eGolf & ID3, over 26 months. Completely ridiculous for new cars, and probably never to be repeated!

I won't be so lucky with the M3, but as I had a large deposit thanks to the previous appreciation of the tradeins it's worked out well for me. I doubt I'll keep the M3 for the full 4 year term of the PCP, I'll probably be looking at the available options around the 2 year mark. There are a lot of new EVs coming to market at the moment. On PCH I wouldn't have that option without a big fee & having wasted the down payment in the first place.

 

[yessuz]

Still have a choice to finance it

I've bought cars, within company, for "cash" for quite a long time. Accountant thinks I am nuts not to "finance" them. I tell him "Car is going to lose 50% value depreciation, I don't also want to pay 25% in finance"

There have been times when finance rates have been "near 0%" and I agree that is tempting. I bought a car a decade or more back on 3 years 0% finance. I asked "How much discount for cash" and the answer was "none". I still have no idea how 0%-finance has no cost associated!

My view is that "things change". During COVID I went from 35K miles a year to zero. We've had company cars on finance for an employee who left and then discovered we were lumbered with them, and wound up giving a prestigious car to a junior staff member - with all the upset that caused from his contemporaries. And so on.

I'd prefer to have the risk of depreciation (don't care about that, the "make up" money to buy the replacement is going to reduce if the price goes down, and if depreciation goes with it and "make up" is similar then "so what")

Outright ownership means I don't care about anything. I can take care of the car and polish every weekend ... or not (I do the latter!) if I bump it I can live with it, or get it fixed. If I want to pass it to a colleague, or have a tax advantage to buy it off company at WBAC price ... I can do any of those things, and I am not bound by the small print in the lease.

Whenever small-print has been involved I've been stitched up.

well, if financial instution has negative interest rate on depostis... then selling for 0% is better than keep it at bank at -0.5%

 

[DJP31]

Hi all.

I just don’t see what the attraction is over a PCP!

It’s just renting a car at the end of the day, you’ve got no equity at all, nothing and then you’ve got to lump up 1000’s more in another deposit. Am I missing something?

Love to hear what other people’s thoughts and experiences are?

I leased for the first time in Sept '20 (having PCP'd many many time previously) and it was pure maths. The total cost over the 4 years for my Model S was £10k more on PCP than on a Tesla lease (who were considerably cheaper than any other lease provider) . Knowing I wouldn't want to keep the car out of warranty I did not (and still don't) believe the car will by worth £10k more than the balloon payment. That wasn't a risk I was prepared to take.

Consequently a lease made sense to me, and I have money aside ready for the next car - whether that's another lease or PCP I'll crunch the numbers at the time.

PCP can work well, and I've had equity on a number occasions. I've also had occasions where it's worth less than the balloon and I've handed back.

 

[WannabeOwner]

if financial instution has negative interest rate on depostis... then selling for 0% is better than keep it at bank at -0.5%

Indeed, good point. However this purchase was well before those heady times.

In the same vein I don't understand how utilities / insurance decided "We need lots of new customers, incentive those, and make sure we offer lousy service/prices to existing customers so they leave".

"Costs 6x as much to get a new customer as to keep an existing one" was what I was taught.

 

[DJP31]

Indeed, good point. However this purchase was well before those heady times.

In the same vein I don't understand how utilities / insurance decided "We need lots of new customers, incentive those, and make sure we offer lousy service/prices to existing customers so they leave".

"Costs 6x as much to get a new customer as to keep an existing one" was what I was taught.

My bold highlighting. Inertia has historically resulted in huge numbers of consumers not shopping around and just renewing and staying with the devil they know.

 

[Bootneckshuffl]

It's all about risk

The actuary friends of mine explain it like this:

When a finance looks at a car, they don't have a guess what the price is in 3 years, they have a spread of prices - say a £50k car has a 25% chance of being worth in 3 years £25k, a 50% chance of being woth £28k and a 25% chance of being £30k

On a lease they'll set the payments based nearer the middle - so say 28k, knock a bit of for admin, add interest etc and that sets the price. They win some, they lose some but on average they think know what the car whould be worth.

With PCP, because there is no upside to them if the car is worth more at the end, they set the prices at the lowest end, or 25k. If in the future its at the worst end, they've covered themselves, if it works out in the middle of their range, the person witht he PCP feels great and has a bit of equity and if its much better then the PCP buyer is even happier, but the company providing the PCP doesn't really car about the upside, they generally don;t get any of it, they just need to guard against what the worst case for them is.

So... leases generally have a higher prediction on the future value of the car than PCP for their calculations. which means generally you pay more for a PCP than a lease to cover the difference in future value expectations. What you pay extra is includes the difference between the worst expected future value and a more average one and what is likely to be the equity in the car at the end,

There is no magic bullet here. PCP is great if depreciation turns out to be less than they the expected, if ts pretty much as expected you're in a fairly neutral position but have the hassle of having to buy the car from them or somehow recycle the equity in the car into another deal, and if depreciation is worse than expected you're no different.

Company schemes are complicated differently because of the way VAT works

Take a quick example
Tesla website - M3 RWD
Personal Lease = £4k + 48 * 567 = £29,500
PCP = £7k + 48 * 538 = £32.800

In 4 years would you be happy if you had £3k equity in the car (ie its value was £3k more than the balloon payment)? You've paid £3.3k more to get there so you'd actually be neutral (give or take a few hundred) . If depreciation was bad, you give the car back but you've still paid that £3.3k extra in the monthly payments, if the depreciation was low, then you've made what ever the extra value was, less the £3.3k you've paid extra over the 4 years. You are taking the risk on the 3k with PCP.

This is class mate, thanks for taking the time out to explain this so good. One thing I have looked at is the GFV that Tesla are quoting on a MY LR PCP 10k miles. I’ll not do anywhere near that 10k but as far as I know, there’s no tailoring that 10k lower. Hence, the car would be worth more potentially at the end of the term cos of the lower miles right?

 

[DJP31]

This is class mate, thanks for taking the time out to explain this so good. One thing I have looked at is the GFV that Tesla are quoting on a MY LR PCP 10k miles. I’ll not do anywhere near that 10k but as far as I know, there’s no tailoring that 10k lower. Hence, the car would be worth more potentially at the end of the term cos of the lower miles right?

Yes, all things being equal a lower mileage car should be worth a bit more.

 

[WannabeOwner]

My bold highlighting. Inertia has historically resulted in huge numbers of consumers not shopping around and just renewing and staying with the devil they know.

Yup. Short term thinking at its best though --- enterprising folk then come up with uSwitch websites to make it easy (don't suppose the original marketing genius had anticipated that), people can phone up and say they are leaving to then be talking into staying and "given a special rate". Whole thing stinks (even if creating a stink wasn't the original market genius's intention ...).

I had a mate who knew a thing or two about it, when it first started. He told me they were making more money selling Names and Address than they were out of the "Margin" on selling the Electricity/whatever. So maybe that was the original genius's M.O. !!

And government then has to step in to say "You have to give existing customers 'best rate'" because the whole edifice that has sprung up smells so much. (And then Smart Genius figures a way around that or uncovers a loophole ... rather than deciding to play with a straight bat.

Greed at work, sadly.

Must be old age creeping up on me ... I seem to remember when my Father got old he sounded like me!

 

[02bluesuperroo]

I live in the US so things might be different. I always buy my cars with a loan. Usually very competitive rates, even 0% sometimes from the manufacturer. Usually the monthly payment is more than a lease, I end up keeping the car for 3 years and then I trade it in with a small amount of equity. Maybe $3-$5k for a $40k car. I do put a lot of miles on my cars but thinking you’ll have a bunch of equity in a car you bought with a loan isn’t going to pan out.

 

[Wattsisname]

Brilliant insight mate, thanks. Yeh, guy from Zen earlier on commented on the “good deal” I’ve had from 2020, that said, I didn’t think they’d attempt to penalise me for a years extension on the lease.

That aside, decision time I guess, lease or PCP. It’ll be going through my business like before but think this time around I might want to purchase the car at the end ya know.

My first PCP with which I am, thus far, happy.
If I hand it back at 3 years, the cost won't be much greater than had I leased. However, I have the option of paying the balloon and keeping the car. Also, if I wish, the balloon could be financed.

As a cash purchaser in the past, I kept my cars a long time, to amortise the capital and avoid crystallising the depreciation, a strategy that probably makes little sense except to me in some self delusionary way just as now, the PCP makes sense in that I feel less tied to the car; from delusion to illusion. However you slice it, nice cars are expensive indulgences...,
....and why not

P.S. Thanks to the state of the market last year, I sold the BMW for a decent price.
I am not holding my breath for similar good fortune next time but for now, I am loving my Y.