[TW666]

I have never really studied PCP in detail but with simple example below cannot see how paying off PCP “immediately” is cheaper than cash unless PCP gives you a huge discount or you can escape the interest charges. Just calculated the following PCP on BMW UK website for a used car over 48 months/10000 miles a year:
Price advertised £30000, APR 10.8%, total paid £38000 (including £5000 deposit, £14000 final payment, instalments and loads of interest). To buy car (to keep) costs £8000 more with PCP than paying cash ?
Or am I missing something ?

[aquazi]

Originally Posted by TW666

I have never really studied PCP in detail but with simple example below cannot see how paying off PCP “immediately” is cheaper than cash unless PCP gives you a huge discount or you can escape the interest charges. Just calculated the following PCP on BMW UK website for a used car over 48 months/10000 miles a year:
Price advertised £30000, APR 10.8%, total paid £38000 (including £5000 deposit, £14000 final payment, instalments and loads of interest). To buy car (to keep) costs £8000 more with PCP than paying cash ?
Or am I missing something ?

When i got my car in Sept it was my first pcp deal through bmw.

Basically went in as a cash buyer... £52k list, £6k discount. On 0% PCP it was still £52k list, with the £6k discount by bmw finance gave an additional £5k deposit contribution on top.... so basically total cost of ownership with 0% was £5k less! So was a no brainer!

However as i understand it even without 0% they will just increase the discount.... so whole you pay £2k interest you’d have received another £2k discount.... again this wouldnt have been available as a cash buyer....

So buy on finance, pay off immediately (a days interest on the total) and you basically pocket the additional finance discount available.

[Nobby Clark]

Originally Posted by TW666

I have never really studied PCP in detail but with simple example below cannot see how paying off PCP “immediately” is cheaper than cash unless PCP gives you a huge discount or you can escape the interest charges. Just calculated the following PCP on BMW UK website for a used car over 48 months/10000 miles a year:
Price advertised £30000, APR 10.8%, total paid £38000 (including £5000 deposit, £14000 final payment, instalments and loads of interest). To buy car (to keep) costs £8000 more with PCP than paying cash ?
Or am I missing something ?

You're missing several things.
On a *new* car PCP rates are low. Sometime 0%. Never 10%! Finance contributions are given by BMWFS. So Take out the PCP, and pay it back with cash and you'll win on the finance contribution.

When the rate is low (and for me I work on <6%) I can make more than 6% with investments so I use the money for that and draw down on the PCP payments.

[Igor-]

Originally Posted by Nobby Clark

When the rate is [...] <6% I can make more than 6% with investments so I use the money for that and draw down on the PCP payments.

To confirm, you're happy to borrow at 6% because you can make more than 6% with investments?

[RickLS7]

Where? I”ll have a bit of that.

[Nobby Clark]

Originally Posted by Igor-

To confirm, you're happy to borrow at 6% because you can make more than 6% with investments?

If I borrow at 6, and make 8 why wouldn't I?

[Igor-]

Originally Posted by Nobby Clark

If I borrow at 6, and make 8 why wouldn't I?

Are we talking about the same amounts...?
I am not an expert with car finance, but usually there are three parts: Initial Deposit, Monthly Payments and Optional Final Payment. Monthly payments is the resulting difference of (total car cost) minus (initial deposit) minus (final payment).

So, are we talking about £20k-£25k over 48 months?

If so, you can borrow that at 3% APR:

£20k to £25k:
Yorkshire - 2.8% APR
TSB - 2.9%
Sainsbury's - 3%
Tesco - 3.1%

Up to £30k:
First Direct - 3.3%

And, with Return on Investment at 8%, purely from arbitrage principles, there must be risk premium added, making such investment not guaranteed at all..

Are you sure about this..?

[Quakered]

I fear the World is locked into instant gratification and too many are doing it via debt. This short term gratification is likely to lead to long term penury. As an old pensioner, I can report I have only ever bought cars for cash, be that a grotty Vauxhall Viva when first married or my current car that seemed the ideal car for the elderly. I see the F31 as the Morris Traveller for the millennial pensioners!

The only money I have ever borrowed was a mortgage and that was paid off before I reached 52.

I am also happy to report that the quote from BMW did include the option to rent it and when I told the I only paid cash for cars, I got all the discount offered on the rental option - so no penalty in paying cash. Also so much more flexible. Had I rented I would have had to go through all the hassle after 3 or 4 years of getting a new car. The car will be 5 years old in June and has cost me almost nothing - oh more savings!

On the topic of getting a return of 8% on investments, please don't confuse savings (in a bank account) with investing. I have invested for the nearly half a century and last year was an excellent one for most Stock Markets and certainly delivered vastly more than 8%. I accept this involves risk but how else do you hope to make decent returns?

Those renting expensive cars before they have got their foot on he property ladder need to wake up and smell the coffee before it is too late!

[Nobby Clark]

Originally Posted by Igor-

Are we talking about the same amounts...?
I am not an expert with car finance, but usually there are three parts: Initial Deposit, Monthly Payments and Optional Final Payment. Monthly payments is the resulting difference of (total car cost) minus (initial deposit) minus (final payment).

So, are we talking about £20k-£25k over 48 months?

If so, you can borrow that at 3% APR:

£20k to £25k:
Yorkshire - 2.8% APR
TSB - 2.9%
Sainsbury's - 3%
Tesco - 3.1%

Up to £30k:
First Direct - 3.3%

And, with Return on Investment at 8%, purely from arbitrage principles, there must be risk premium added, making such investment not guaranteed at all..

Are you sure about this..?

I already have the money invested. So I could draw off that monthly to pay the PCP. The bulk of the investment is earning until I cash it in.

If I loaned the money, I could do exactly the same thing - given your example. But I already have the money so I don't need to.

I could also borrow £25K and invest it separately with the aim of making 8%+ on it, yes, but as you say that's risk and then you are playing with someone else's cash.

I wouldn't take out a loan and put it on a horse, but I might use my own money to make the same "investment".

[Nobby Clark]

Originally Posted by Quakered

I fear the World is locked into instant gratification and too many are doing it via debt. This short term gratification is likely to lead to long term penury. As an old pensioner, I can report I have only ever bought cars for cash, be that a grotty Vauxhall Viva when first married or my current car that seemed the ideal car for the elderly. I see the F31 as the Morris Traveller for the millennial pensioners!

The only money I have ever borrowed was a mortgage and that was paid off before I reached 52.

I am also happy to report that the quote from BMW did include the option to rent it and when I told the I only paid cash for cars, I got all the discount offered on the rental option - so no penalty in paying cash. Also so much more flexible. Had I rented I would have had to go through all the hassle after 3 or 4 years of getting a new car. The car will be 5 years old in June and has cost me almost nothing - oh more savings!

On the topic of getting a return of 8% on investments, please don't confuse savings (in a bank account) with investing. I have invested for the nearly half a century and last year was an excellent one for most Stock Markets and certainly delivered vastly more than 8%. I accept this involves risk but how else do you hope to make decent returns?

Those renting expensive cars before they have got their foot on he property ladder need to wake up and smell the coffee before it is too late!

In the main I agree. However, a property is usually an appreciating asset that you would want to buy and own outright.
A car is not, therefore buying a car rather than leasing isn't the most financially smart thing to do.

[chris-c]

Another point to note is if you work out interest monthly your £25k sat in the bank will grow month on month. The 3% will be on 25k, then 25+3% etc etc.

The loan will be based on a depreciating amount of money.

£25k loan @ 3% = 26,173.09
£25k savings @ 3% = 27,351.29

When I bought my car the "bank of mum and dad" tried forcing 20k my way. They wanted no interest on it and they couldn't understand that the 2.9% rate I had got on a loan was the same as one of their savings accounts but the 20k would earn them more than it'd cost me.

They simply couldn't see it. I refused anyway!

I've survived for long enough without some fun toys and I felt I deserved something fun. I was considering waiting until I had the mortgage cleared but thought sod it. I'll do it now.

I'm 33 and the mortgage will be clear by my 40th birthday if the missus doesn't go back to work. It'll be clear before then if she does.

I felt no need to clear it any sooner and wanted a car that I could afford to repay.

[chris-c]

I on the other hand thought "I can afford it so I'll have it".

I didnt see any point in waiting for something that I'd buy anyway in X amount of time.

Our time on this planet is limited as is my attention span and patience.

[320dAsh]

You will get a bigger discount when you take their finance. So, take their finance and pay it off straight away.

Edit: Have since read the thread. Most people have already made the same comment. This igor fellow comes on boasting about holidays he's not going on and how he's swapping a suzuki for a 320i. Looking forward to more posts.

[Dave911]

Originally Posted by Quakered

Those renting expensive cars before they have got their foot on he property ladder need to wake up and smell the coffee before it is too late!

Maybe some people don’t want to get on the property ladder and have more interest in cars. At the end of the day people are free to choose how they spend their money and if they enjoy renting cars or houses or whatever then that’s their choice. Peoples lives shouldn’t revolve around getting a mortgage.

[320dAsh]

Originally Posted by Dave911

Maybe some people don’t want to get on the property ladder and have more interest in cars. At the end of the day people are free to choose how they spend their money and if they enjoy renting cars or houses or whatever then that’s their choice. Peoples lives shouldn’t revolve around getting a mortgage.

Well said. This is a car forum after all!

[Manivxr]

Originally Posted by Sasquartch

Just like me (although I'm 54)

Just like me ( although 47)

[Manivxr]

Originally Posted by 320dAsh

Well said. This is a car forum after all!

Yep. But some car owners are mortgage free. Others have mortgages and then some live with mum and dad with a flashy car. Each to their own I say.

I know which group I would belong to.

[320dAsh]

Originally Posted by Manivxr

Yep. But some car owners are mortgage free. Others have mortgages and then some live with mum and dad with a flashy car. Each to their own I say.

I know which group I would belong to.

Which one's that then?

[320dAsh]

Originally Posted by Manivxr

Yep. But some car owners are mortgage free. Others have mortgages and then some live with mum and dad with a flashy car. Each to their own I say.

I know which group I would belong to.

I have a mortgage. I could downsize to a 3 bed and live mortgage free but where's the fun in that?

[jnismith]

I'm lucky (and old) enough to have paid off the mortgage and have money invested. But i would consider going down the PCP route next time if a) the interest rate is 0 or low because the value of money today is more than tomorrow and b) it would cost me money on terms of CGT to realise the money from investments. But when you look at the BMW Mini AUC rate of 10.9% you realise why its such a big money spinner for BMW. That's why when you go into a showroom, they ask you how much you can afford per month, so they can tailor a deal accordingly.

I see so many posts on here with people talking about their monthly payments without saying how much deposit they put down or how many months or how many miles. Its a complicate equation and I am sure that BMW finance are much better at optimising their deals than the average buyer, hence the desire from dealers to get people onto PCP.

[Igor-]

Doesn't this remind anyone of a sub-prime mortgage crisis..?

[Manivxr]

Originally Posted by 320dAsh

Which one's that then?

Live with mum and dad and have a flashy car. Why not? You are young only once!