Member Since: 17 Sep 2005
Location: Living among Bawbags
Posts: 4528
Finance Insight Please
Reading a lot of posts on here lately about PCP's and final values, etc, etc....
What is the advantages of 'leasing' or whatever the term for it is over a traditional loan, that is repaid in full after the final monthly payment is cleared?
Not sure if I'm missing a trick here, or just being old-fashioned in my thinking, that you walk in on the day you pick up your car, with your trade-in, cash and balance in form of loan, which after the loan term then it is 100% mine.
Is PCP, etc, mainly a business tool you chaps use.
A little while back the mrs went into a VW garage and they tried to get her to sign to a deferred loan, with a ballon payment at the end. When she said not thanks, the VW financial expert looked at her as if she was daft Thank God she did, as that lost sale seen me buy a D3 on the way home
...John
27th Oct 2008 8:00 pm
SN
Member Since: 03 Jan 2006
Location: Romiley
Posts: 13710
Well the LR Freedom deal of just under three years ago has paid off for me - the car is likely to be worth £2-£3K LESS than the MGFV - so unless I do a 'deal' with the finance company it will be handed back and it will be THEM and NOT ME out of pocket
The balloon payment amounts at the end (MFGV) are MUCH lower now Steve N | 21MY Defender | 08MY Discovery 3 (history) | 06MY Discovery 3 (ancient history)
Deferred loans, balloon payments etc are what's got the economy into the mess it's in now........
Just remember, you get nowt for nowt, no matter what the chap in the suit tries to make you think The older I get, the more I realise that people confuse wrinkles for wisdom
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27th Oct 2008 8:22 pm
jkp
Member Since: 17 Sep 2005
Location: Living among Bawbags
Posts: 4528
SN wrote:
The balloon payment amounts at the end (MFGV) are MUCH lower now
I take it that this now reflects in higher monthly rates. I was looking over some of KAM's old postings in the finance and Insurance section. I may give him a shout at the turn of the year for a quote. Although maybe not for me. Mrs JKP has her eye on an LR now that the prices are so low. Anyone want to buy a Renault Scenic (full panoramic roof, .... )
27th Oct 2008 8:24 pm
jkp
Member Since: 17 Sep 2005
Location: Living among Bawbags
Posts: 4528
JMC wrote:
Keep with the old fashioned thinking John
Deferred loans, balloon payments etc are what's got the economy into the mess it's in now........
Just remember, you get nowt for nowt, no matter what the chap in the suit tries to make you think
Karen wouldn't entertain it anyway mate
27th Oct 2008 8:25 pm
SN
Member Since: 03 Jan 2006
Location: Romiley
Posts: 13710
jkp wrote:
SN wrote:
The balloon payment amounts at the end (MFGV) are MUCH lower now
I take it that this now reflects in higher monthly rates.
Oh yes Steve N | 21MY Defender | 08MY Discovery 3 (history) | 06MY Discovery 3 (ancient history)
27th Oct 2008 8:45 pm
kam100
Member Since: 27 Jan 2006
Location: Midlands
Posts: 265
Balloons and deferred payment packages are what have got a lot of people into hefty negative equity situations. It became a massive issue at the end of 2008 when the car prices went through the floor, but has eased off somewhat nowadays, but who know's whether we have seen the end of it all yet.
In terms of the rates and balloons nowadays, all the lenders we work with, now follow CAP guide balloons very stringently, and are very fearful of Voluntary terminations (half of agreement paid off - customer hands car in and walks away) and hence the bank's held stock of cars, both repo'd and VT'd are extremely high right now, which when they get round to disposing of them all may cause a slight dip in prices come the new year. But that's just my opinion not fact.
Best way always has and always will be to buy the car for cash, negotiate the best deal and get your debit card out.
However this isn't a massively good use of cash, but with interest rates so low and other investments performing so badly, there isn't much of a better place to put it, however people more so nowadays are retaining cash they have and just buying consumer goods like these cars, in the most cost effective way possible.
Next best is HP, whereby you agree an amount, pay a deposit you are comfortable with, and split the remainder of the balance over 2/3/4/5 years paying down to £0.00 at a fixed rate of income. (be careful to read small print of how much this will cost if you terminate early in fee, and also if the interest not yet payable is lumped on top or if it is refunded). Makes early settlement's a lot more difficult, especially if you are financing in a ltd company name, which allows the bank/lender to put you on a unregulated agreement, thus opening you up to the charges and front loaded type agreements as described just now. Most personal agreements are now regulated since CCA changes in 2008 which means there is no cap at £25k lend, and every agreement is subject to FSA regulation so this benefits the consumer with greater protection and more clarity in the small print.
Or finally, there are all these schemes with basically a deferred back balloon/residual value (RV).
It basically allows for the fact that the car after a set period of time, does NOT have a scrap value of £0.00 so they use CAP and other valuation specialists, mainly CAP across the market, and sometimes Glass’, to work out what the car will be worth after 2/3/4 years and allow you to have an end value on the agreement which will be covered by what the car should be worth at the end of the agreement term. PCP’s are Guaranteed values, which provide protection at the end of the agreement, so hence: carry a higher APR rate and the early termination policies are usually a little more, and then there is Lease purchase, which follows the same setup but the end balloon is not guaranteed, therefore you were traditionally more exposed on these types of agreements. However the rates are usually a lot lower, and if like the majority of customers you won’t keep your car the entire term and want greater flexibility to chop out and pex/sell the car and settle the finance early, LP provides an easier exit. However since the regulated changes, when you cross half way through any agreement term and have paid back ½ the amount borrowed, you can hand the car back at any time, subject to the usual t&c’s that a PCP would be subject to also: i.e.: Mileage expected, keeping car to manufacturer approved maintenance guidelines and general usage policies and handing the car back in reasonable condition with usual wear and tear associated with mileage use. So we always push LP deals if a balloon is required, and we don’t get many lenders over valuing balloons right now, and it is usually taken at a very prudent percentage of what CAP advises, so if you are buying/have bought a car recently on finance, the agreement will likely see you through very well come change/exit time.
In terms of the other types of car purchase, there is contract hire which is obviously better for business users as it carries VAT Elements which can be claimed back depending on type of business operated in, other advantages are, predictive costs, no depreciation worries, usually get maintenance packs too. Downsides: Usually on brand new/nearly new cars only, so very expensive, if brand new and buying on a car which needs speccing up, this becomes extremely costly as you have to pay for these items over the contract term.
The difference between our packages and dealer ones are, we lend direct from banks, and we are the only link in the chain. Most motor groups also secure funds from banks/lenders and either sell these direct via their showroom platform or repackage as own brand finance, but the rates usually reflect commission splits. So hence why private brokers, like us are more often cheaper alternatives.
Manufacturers also use rate grabbers, like 0% finance deals, cheap headline rates, like Mercedes offering 5.9% APR, however these are mainly funded via the metal or incentives from the manufacturer, so we would always advise the customer to do a direct comparison from a rival dealership group and approach stating a cash purchase and see whether the discount achieved will outweigh the savings made by purchasing through the dealer incentivizing the deal. Usually stating in small print: “This offer is not available in Conjuction to any other offer/schemeâ€. But please don’t get me wrong sometimes the trade is that eager to move stock the deals offered are truly unbeatable and I for one am always on the lookout for these for myself/our clients.
Sorry for the essay, got a bit carried away, just waiting for a call and thought I would kill the time and write a thorough response..
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Thank God she did, as that lost sale seen me buy a D3 on the way home 
| 08MY Discovery 3 (history) 
