PCP, PCH? Confused!!

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  • PCP, PCH? Confused!!
  • oldnpastit
    Member

    What’s the difference between these?

    For about the same amount of deposit I can get the same car for about half the monthly price with the joyously multicoloured flashing Lings cars (PCH) compared to the local garage (main dealer) on PCP.

    What am I missing?

    Premier Icon hot_fiat
    Subscriber

    Isn’t PCH leasing under another name, so you never own any of the vehicle?
    PCP you’re “buying” the vehicle, well, paying off the depreciation anyway, theoretically faster than it depreciates so you eventually own some equity in it.

    Premier Icon wwaswas
    Subscriber

    PCH – is a hire agreement.
    PCP – is a purchase agreement.

    You can get out of a PCP once you’ve paid 50%, a PCH is for life.

    itlab
    Member

    In a very simplistic way

    PCP : buying the car but with the option to hand it back at the end of the term

    PCH : renting the car

    Two very different ways of having a car on your drive. But both allow you to get a car for £xxx a month for x years

    With a PCH you end up with nothing at the end and hand it back with no option to purchase it. With a PCP you can purchase the car at the end by paying of the balence or you might* end up with some equity at the end to use a deposit on the next car(ie you’ve paid of more of the car than it’s lost in depreciation)

    *equity at the end of the deal is often something that’s promised by the dealer but as with anything said by a car dealer always take it with a pinch of salt

    Premier Icon Cougar
    Subscriber

    PCH, you hire the car for a given amount of time and then have return it.

    PCP, you hire the car for a given amount of time and then have the option of returning it, buying it outright for a final lump sum payment, or using it as the deposit on another agreement.

    You pay extra for PCP over a comparable hire agreement because at the end of it the vehicle has some degree of value to you as opposed to leaving you with nothing to show for it (unless you then just choose to return it and walk away anyway, in which case you’ve just paid over the odds for nothing).

    Premier Icon Cougar
    Subscriber

    Balls, pipped by 53 seconds!

    Tallpaul
    Member

    You can also ‘buy out’ of a PCH agreement. With Volkswagen Financial services, it will cost you 55% of the outstanding payments.

    PCP, PCH, HP, Personal Loan, Cash – all different ways of funding a new car. All have pros and cons, work out the cost and look at your personal circumstances. As above, getting out of PCP or PCH agreement before the term can be expensive!

    Premier Icon theotherjonv
    Subscriber

    equity at the end of the deal is often something that’s promised by the dealer but as with anything said by a car dealer always take it with a pinch of salt

    That was my worry but you don’t have to use the supplying dealer. assuming you’re under mileage and condition is good, you can tout it around any interested dealers or even a different marque. They will then offer a ‘fair’ price as part of you getting back into another car from them.

    Which is the real catch to PCP, the desire to get into a new car every three years. You won’t get offered any positive equity left overs if after three years you just hand it back, however you could buy it out for your balloon payment and then sell on the open market to release the equity assuming you have the cash available in the short term while you do it.

    Premier Icon oldtennisshoes
    Subscriber

    I bought out my last PCP and then 6 months later got it written off. I was pleasantly surprised that the payout was over £1,000 greater than the bubble payment I’d made – so there was equity in it even though I’d gone over mileage.

    Other considerations are modifications. I wanted a tow bar on my current car, and I was getting mixed messages about if that was doable/what would need to be done when I returned it on PCH. PCP for me.

    nealglover
    Member

    I bought out my last PCP and then 6 months later got it written off. I was pleasantly surprised that the payout was over £1,000 greater than the bubble payment I’d made – so there was equity in it even though I’d gone over mileage.

    Assuming no private sales or purchases are involved, The ballon payment is basically the “trade in” price.
    An insurance payout is pretty much the retail price (cost to replace)
    These two prices are often a way apart.

    What you can get as a trade in isn’t the same as what someone would need to spend to buy the same car.
    That’s the dealers profit margin.

    oldnpastit
    Member

    Thanks, very helpful.

    The guy in the garage was quite surprised by Ling’s price….

    Premier Icon russyh
    Subscriber

    The balloon payment in a PCP is not the trade in price. It’s the final payment needed to take ownership of the car. It’s called a Guaranteed future value (GFV) basically what that means is, when you come to PX for your new car, if the value is less than the final balloon the car will be taken back by the finance company. If the car is worth more then the balloon is settled as a normal HP settlement would be, any equity is rolled in the deposit on your new car and the dealer keeps the car for stock. I really would not recommend people to put in large deposits into PCP deals as all that does is lower the monthly payment, it does not alter the GFV

    PCH is probably the fastest growing financing method. It stands for Personal contract hire, so like a standard company car lease would be paid for privately. Rentals will vary dramatically depend on the mileage (please don’t underestimate your mileage as going over will likely involve big penalties) deposits (again only put in what you plan to lose) and if you are funding a service package. There is a big swing in changing from car ownership to usership, as car owners nowadays want new cars, with a consistent monthly fee. Basically as the demographic of car owners is changing. Younger buyers are more evolved into spending on a car like they pay for their mobile phones. It creates some interesting dynamics in the used car market. So expect more used car PCH packages to evolve over the coming years. Basically the margin on selling a new car will be spread across the vehicle life cycle. I have been working on some interesting stuff in recent years and it will be more interesting seeing how the market develops.

    andrewreay
    Member

    What russyh said!

    PCPs do not have a guaranteed future value, they have an optional final payment.

    If you come to trade it and it’s not worth the final payment you have two options.
    When you reach a point where you have paid 50% of the total PCP you can give it back at the 50% point this is classed as a voluntary termination, if you get to the end of the PCP and the trade in value is less you can give it back, however they will charge for excess mileage and fair ware and tare. A VT is not subject to excess milage.

    It can be common to not have any value in the car so it’s worth being mindful of the 50% point and just give it back and start again, this does not affect your credit rating, I’ve done this twice with VW/Audi and then went on to get another PCP from them.

    https://www.vwfinance.co.uk/en/privatecustomers/how_agreements_work/solutions_pcp.html

    Premier Icon russyh
    Subscriber

    That’s right they don’t have a guaranteed future value, but the balloon is called rather confusingly by the industry as a guaranteed future value or GFV for short.

    Of course you can VT the vehicle as part of your consumer right and it will not have adverse effects in your credit rating. Albeit the balloon can skew when you reach the 50% point.

    scooper
    Member

    High peak rider – I would say it is both a guaranteed value by the finance company AND and optional final payment by the customer. The finance co has asset value risk. If the bottom fell out the used car market they stand the contracted value on the HP(PCP) doc (save for the points below).

    To clarify, naturally you will only be charged excess mileage if you have exceeded the contractual mileage upon which the GMFV is calculated. Also, you don’t get charged for “fair wear and tear”. It’s the opposite – That is what is allowed (ref BVRLA fair wear and tear guide). Ie. If the vehicle has damage beyond that, you may be expected to pay for such damage. Eg tyres with zero tread left.

    Note that some finance companies are charging excess mileage at VT (based on pro rata at point of VT).

    ^^ BMW for one. I was charged for excess mileage on my VT. They were incredibly fair on wear and tear though.

    FunkyDunc
    Member

    The guy in the garage was quite surprised by Ling’s price….

    All garages know that PCH is cheaper, they just want to sell you a car with as much profit as possible. I’m looking at PCH hire at the min and Lings are not that cheap.

    Have you tried leasing.com / what car leasing and car2buy?

    PCP are ok if you want to stay with the brand or you know you want to voluntarily terminate but if you know you are keeping the car for the term then I can not see any advantage. In my experience the GFV never works out to be the £1,000’s they initials suggest

    Premier Icon bails
    Subscriber

    “In my experience the GFV never works out to be the £1,000’s they initials suggest”

    But isn’t that a good thing? The “guaranteed future value” sounds like something that’s good for you, but when it’s described as a “final payment” all of a sudden it sounds like something you want to be small.

    Premier Icon russyh
    Subscriber

    The GFV is set by the finance company, it’s based on projected wholesale costs at the end of the agreement. Given the volatility of the used car market it’s impossible to predict the price accurately. But then the benefit of the PCP is the ability to walk away. If the car is worth more than the balloon, then the balance is rolled I tot he deposit on your new car. Remember you only hear people’s negative experiences. The model works quite well for a significant number of the public.

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