Car Finance

bluenose1940 · December 13, 2014

(Quote)"Funny thing this morning, I walked into a shop and tripped up a step as I
didn't notice the 'MIND THE STEP' notice as I was looking at the chap
who was holding the door open for me. We exchanged pleasantries and
each went about our business. Fifteen minutes later I was walking back
to my car and there was the same chap sitting in a beautiful red IS300h
Premier and so I tapped the window and got chatting to him again. he has
had the car for 12 months and he is part exchanging it at the end of
December as he is getting an NX300h as it will be easier to get into and
out of. The car has only got 4000miles on the clock. Lucky chappie
eh!" (unquote)

The above quote is taken from post #57 in my thread 'Your thoughts/comments will be appreciated'

Many of you are aware that I was planning on getting a CT200h to replace my current IS250 but then I had my head turned by the IS300h (see my thread 'Oh Blimey')

Well yesterday, a bit of a situation arose. I telephoned Lexus and they have told me that the car mentioned above is coming in within the next week and, if I'm interested I can have the first option on it. During our conversation the salesperson mentioned PCP as a finance option. I had not come across this previously and am wondering if any of you kind fellow members that have used the system could highlight any potential pitfalls that I may come across.

The thought has crossed my mind that by using this method of finance, I could keep my capital within my own control and, could always pay it off at any time if I wanted to. I am going to the dealership mid-week next week to see what sort of deal I can get on that beautiful Mesa Red Premier IS300h, with Ivory Leather (just what I am looking for!). If I can go armed with a bit of 'inside info' from you chaps, this would be helpful.

And so once again I say 'Your thoughts/comments will be appreciated. Thank you.

ganzoom · December 13, 2014

PCP give you lower monthly payments, but there is a large final payment to pay off at the end if you wan to own the car. Dealers call the large final payment as the 'Guaranteed final value', and if your car is worth more than this value at the end of 3 years, you can use the difference on a new car/PCP plan.

Dealers love PCP because they can sell to the customer on the basis of low monthly payments, and than entice you with the fact at the end of the 3 years you can choose not to pay the larger payment. I will bet my house/car ect they will 100% try to sell you the car with PCP, pushing the low monthly cost, and the fact at the end of 3 years you can use any equity left in the car as deposit for a new car....

But don't get fooled by all the sales talk, and don't sign anything on the day...they will try to perused you if you don't sign on the dotted line someone else is going to walk in and buy the car 10 second after you leave. Talk to the dealer, listen to all their sale pitch, push them for the best price, and than get them to print out the PCP agreement, make sure they include the TOTAL payments and APR% in the print out.

Than go home, and get a calculator out and work out the numbers......PCP nearly always works out the most EXPENSIVE way to finance a car, especially if you plan on keeping the car beyond the agreement period.

Occasionally it can work in you favour, for example we are buying our new Lexus on PCP, but only because Lexus is including a £1000 deposit as part of the deal to incite people into buying a new car....but even taking in the 'free' £1000 deposit, if we were to let the PCP agreement run its course (2 years in our case), and pay the final sum at the end of period to buy the car outright, we would have paid £3K of interest for roughly a £23K loan over 2 years. This works out as an APR of nearly 8%, where as most 'normal' high street loans of the same value is about 6%.....Which equates to £1.5-2K profit for the dealer/Lexus when you take out their PCP finance product compare to a normal loan. So you can now see why dealers love to sell you PCP, its nothing to do with helping you keep your capital or wanting to help you change cars after 3 years, its all about pure profit for the dealer/Lexus.

We are going to pay our PCP agreement off as soon as the finance period starts, there will be an early repayment charge, but unlikey to the £1000, which is the Lexus 'contribution'. Still waiting for final paper work, if Lexus put too many conditions in regarding paying off early, we'll just pay cash up front, though that will add £1000 to the price of the car.

Incidentally I'll be interested to see how much they want for the IS, we're paying just under £35K for a factor order premier with metallic paint and advanced safety kit....So for 12 months old car, I would expect at least £5-7K of deprecation, so may be 27-28K?

Good Luck ..... We still have another 3 months to wait for our IS to arrive :(

bluenose1940 · December 13, 2014

Many thanks for your very interesting contribution Gang, much appreciated.

Can you tell me, is it possible to stipulate your own level of deposit on a PCP, i.e. can you opt to put a larger amount down if you wish, thereby reducing the level of 'borrowing' and subsequently the amount of monthly repayment or, does the dealer insist on a certain deposit which gives him more profit at the end of the day.

They have mentioned the fact that they will be chucking in £1000.00 if I utilise the PCP. How do they make their profit from someone who chooses to pay off the loan as soon as it has started?

ganzoom · December 13, 2014

You can tell the dealer how much deposit, max is 30% and the length of the contract (between 2-3 years), but the final payment is determined by Lexus. Our monthly payment is only £270 ish...but the final payment is £20K!!

Regarding paying off early, I believe in the past they have been caught off guard by people cancelling almost straight away, and Lexus lost money. But these days they write stuff into the terms and conditions about early repayment penalty. My dealer told me 6 months worth of interest is the early penalty charge, but I'm pretty sure legally they are only allowed to charge 2 months....I haven't signed any paper work, and wouldn't till I get to read the full terms and conditions, if it's too complicated to cancel than we'll just buy with cash.

The key is avoid been pressured into signing/agreeing to anything on your initial vist....trust me they will use every trick in the book to take a deposit off you before you leave the show room, but stand your ground, get all the details in writing than leave, and than go over everything at home......I speak from past mistakes, in younger days I fell for the PCP/sales pitch trap once, but I learnt from my mistake so these days just play along with the games, 'supra guard' paint protection is another well used cash generator, however no-one is getting a penny out of me unitll I've decided all the numbers work out when I've looked at everything in the comfort of my own home.

Nissan, Honda, Seat, BMW, Lexus dealers, they might all be selling different priced products to different consumer groups, some talk to you nicer than others, some wear sharper suits than others, but when it comes to closing deals their tactics are all the same.

bluenose1940 · December 13, 2014

I seem to recall that during the initial converstaion over the phone, the were talking around £350.00 per month with a final payment of £13000.00.

As you say, I will get all of the information and study it carefully at home before making any decision. In fact, out of interest (no pun intended!) I am going to call in on the Mercedes dealer first and have a look at their 'C Class' jobby and get their PCP details, I will then be able to do a bit of a comparison.

Thanks a million for your input, it's very helpful to me.

ganzoom · December 13, 2014

Would be good to hear your feed back on the C class, it was the only other car on our shopping list before getting the IS300H.

DJP · December 13, 2014

Typically PCP is a great way of dealers getting people into cars they can't afford, because of the balloon payment at the end. A normal bank or hire purchase loan would be more expensive per month as the whole cost of the car has to be paid for over the period.

I've used PCP a few times and have always over estimated the mileage, which is a factor that's built into the calculations at the start. The higher the allowed mileage the lower the guaranteed future value. My thinking was that at the of the period the trade in value would be higher than the GFV. This would provide a deposit for the next one. I've been wrong every time despite my actual mileage being well under the stipulated maximum.

I also had a real battle with Merc finance when I decided to hand my CLK back. They tried to stripe me for all sorts of damage etc that was beyond normal wear and tear. It was a blatant attempt to extract money but they picked on the wrong customer.

My experience with Lexus and PCP has been fine. No pressure from sales at all and paperwork galore. I bought my IS250 at the end of the period as I wasn't ready to purchase.

I have bought my IS300 F Sport using PCP. APR is sub 6%. My balloon payment is £14k and I have that invested. For me, it gives me options. I can't quite match the return on the investment to the interest being charged without taking investment risk, and that I'm not prepared to do. The small difference between the two is the price I pay for the flexibility of not having to buy the vehicle, being able to hand it back early, and keeping cash available for other things should an emergency arise.

15 months in and my thinking is that I probably won't buy the car. Not because I don't like it, I love it, but because I will be bored and will want to change it. This is where buying a car becomes something beyond pure maths and value for money. It's all very subjective and lots of factors come into play.

I will probably hand it back and use some or all of the £14k towards a nearly new NX. I've taken a hit on the depreciation on the brand new IS, if I buy a nearly new NX that helps soften the blow on the next one.

PCP can work, there's no such thing as a free lunch and go in with your eyes open. And Supaguard is a waste of money IMO. The alloy wheel cover on an F Sport, fantastic VFM.

Just my opinion.

Sent from my Iphone using Lexus OC

bluenose1940 · December 13, 2014

Thanks for your input David, once again, some useful information.

"The alloy wheel cover on an F Sport, fantastic VFM."

I've not heard of that one, how does that work then?

If you hand the car back at the end of the term, you still have your £14K in the bank but you don't have a car, doesn't that equate to expensive motoring over the three years or am I looking at it all wrong.

bluenose1940 · December 13, 2014

Would be good to hear your feed back on the C class, it was the only other car on our shopping list before getting the IS300H.

What made you go for the IS300h in the end then?

I must admit that the 'C Class' is the only car outside of Lexus that is catching my eye at the moment. (wifey likes it too!) I will have me a bit of a drive next week and will explore their terms re the PCP, although I don't much like what DJP had to say about Mercedes.

DJP · December 13, 2014

Would be good to hear your feed back on the C class, it was the only other car on our shopping list before getting the IS300H.
What made you go for the IS300h in the end then?
I must admit that the 'C Class' is the only car outside of Lexus that is catching my eye at the moment. (wifey likes it too!) I will have me a bit of a drive next week and will explore their terms re the PCP, although I don't much like what DJP had to say about Mercedes.

I handed it back partly because I was fed up with the Merc 'we've done you a favour in allowing you to buy one of our cars' attitude, and partly because a two door coupe just wasn't practical. Merc finance knew when it went to auction it wouldn't meet book value as the market was in dire straits, so they tried to recoup by charging me for all sorts of breakages and damage that frankly didn't exist. Luckily I'd taken photos so they were on a hiding to nothing. If you do PCP and hand back, I'd advise taking plenty of photos, even though you get a sheet of paper after the car has been appraised before being driven away.

Sent from my iPad using Lexus OC

DJP · December 13, 2014

Thanks for your input David, once again, some useful information.

"The alloy wheel cover on an F Sport, fantastic VFM."

I've not heard of that one, how does that work then?

If you hand the car back at the end of the term, you still have your £14K in the bank but you don't have a car, doesn't that equate to expensive motoring over the three years or am I looking at it all wrong.

The alloy wheel cover gives 10 repairs for kerbing or other damage done to the wheel. I think the premium was £499 and each repair is £85 ish (according to the guy I use who takes the wheel away - the F Sport wheel is impossible to colour match so they do the whole wheel each time).

Not sure why you think it's expensive motoring if I hand the car back?

Sent from my iPad using Lexus OC

bluenose1940 · December 13, 2014

I'm looking at it like this, (not accurate figures by the way) I give them say £13K deposit and then give them £350 per month for 36 months equals £25600.00, that comes out at around £700 per month over the three years and I don't have a car anymore.

DJP · December 13, 2014

I'm looking at it like this, (not accurate figures by the way) I give them say £13K deposit and then give them £350 per month for 36 months equals £25600.00, that comes out at around £700 per month over the three years and I don't have a car anymore.

If you give them the £14k you've paid £40k and got a car. I've got £14k cash and could buy another car of the same age etc as the one I've just handed back. So we've both spent £40k and both have a car. The difference is at the end of the period I have a choice about whether I keep the one I'm in or not.

Also, suppose in a years time some major issue crops up with the IS300h and nobody wants them, or the tax benefits of hybrids are removed? I can walk away with my £14k. Yours is tied up in a car that nobody wants. In reality I don't think either will happen (although I can see HMRC changing the max claimable per business mile for privately owned cars) but the PCP route gives me some options, and I like options.

Sent from my iPad using Lexus OC

bluenose1940 · December 13, 2014

With you now. Thanks.

ColinBarber · December 13, 2014

The thought has crossed my mind that by using this method of finance, I could keep my capital within my own control and, could always pay it off at any time if I wanted to.

If you have the cash available then you need to consider what you are able to do with that money. Earning 1% interest in a savings account, and then paying tax on that interest, isn't great when you are paying out 6% interest on a lease.

If you get a good offer with dealer and Lexus contributions then it makes the deal more attractive, especially if you cancel straight away however as others have said it seems the contributions can be withdrawn if you cancel within a certain timeframe.

DJP · December 13, 2014

The thought has crossed my mind that by using this method of finance, I could keep my capital within my own control and, could always pay it off at any time if I wanted to.
If you have the cash available then you need to consider what you are able to do with that money. Earning 1% interest in a savings account, and then paying tax on that interest, isn't great when you are paying out 6% interest on a lease.
If you get a good offer with dealer and Lexus contributions then it makes the deal more attractive, especially if you cancel straight away however as others have said it seems the contributions can be withdrawn if you cancel within a certain timeframe.

The flat rate is nearer 4.5% so comparison of 6% to 1% not quite fair. Not sure if '1940' in the handle name is a clue but if so, new 3 yr Pensioner Bond at 4% for 3 yrs could be a good home for a balloon payment. As ever, DYOR.

Sent from my Iphone using Lexus OC

ganzoom · December 14, 2014

How you finance your new car is a very personal decision. I tend to try and plan financial things 5-10 years in advance. The IS300H will be with us for at least 5 years and most likely 10, so a cash purchase makes most sense for us :)

If you want to change cars every 2-3 years lease deals is another option, where you have pay a small deposit and than at the end of the agreement hand the car back, although lease deals on premier models aren't really that cheap.

Lease deal: £651/months for 23 months + £4000 deposit = £19k

PCP deal: £270/months for 23 months + £12k deposit = £18k

Either way if we than got a similar deal on the next car, at the end of a 4 year cycle we will have spent £36k on finance/lease payments, without a car to show for it at the end.

Where as by buying with cash upfront now, in 4 years we will have a car that I estimate will have at least £10-15k of equity, and I certainly aren't clever enough to generate a £10-15k profit from a £36k investment over 4 years to make up the difference between buying with cash versus finance/lease.

Ofcourse the lease/PCP deals mean a brand new car every 2-3 years, and I must admit that is an attractive thought. In the long run the additional financial cost of these deals means I highly doubt we'll ever try them....But do the maths your self, and pick the option that suits you best :).

DJP · December 14, 2014

As i often say to people there are no right or wrong answers, just a series of options that have pluses and minuses. Decide which you are most comfortable with and run with it. The key is having all the information necessary to make an informed decision.

bluenose1940 · December 14, 2014

Yes DJP, you've got it, the 1940 is a big clue, I'm 75 next birthday and looking forward to the 'FREE' TV licence in 2015, if they haven't scrapped it by then lol

Some very interesting responses to this thread, which are much appreciated. I've been having a few more thoughts in the last few hours snd, it is possible that this will/could be my last car purchase. If I keep it for 5 years say, I will be 80 (my dad was 86 when he stopped driving) and who knows what my abilities will be at that point. My wife is 10 years younger than me and so I may possibly be driven around by her at that time or, it may be me who will be driving her everywhere still, who knows.

I don't have to break my neck to make a decision, i'll give it plenty of thought.

I have spotted the new bonds that are being made available and will give them due consideration.

Scoops · December 18, 2014

The way we finance cars is hugely subjective and, like the previous posts have illustrated, offer a huge amount of choice. If you want to change your car every three years then a lease or PCP is the way to go. It makes things very simple and despite what people may say, lease vehicles nearly always have an option to purchase them at the end of the hire term. The big issue facing Lexus is the fact that compared to their German rivals, they are way more expensive on the lease market against comparable cars that may even have a higher P11D value. I think exclusivity isn't always a good thing...