In a thread on the Off Topic board about EVs, there was an interesting, brief but ultimately inconclusive side discussion (thank you Boxbrownie ) about the best way to finance a new car. As I’m considering my options on this very subject at the moment I thought I’d see what others thought about my conclusions.

First, some assumptions: I am looking at a car with an OTR price of about £38k; being an OAP I do not have any substantial cash resources that would enable me either to buy the car outright or put a large deposit down, e.g. 20% of the vehicle cost; and I’m looking ahead only for the next six years (which is plenty far enough at my age!). I’m assuming a deposit/first payment of £1k

Option 1 - Personal Contract Hire (Leasing)
With leasing you are simply renting the vehicle with no option to purchase. This is because a lease is considered a supply of services and giving a purchase option would turn it into a supply of goods with quite different treatment of VAT for the finance company. I’m assuming two consecutive leases, each of 3 years duration.

The monthly cost would be about £460 for the duration of the two leases with a total cost of around £35k

Option 2 - Personal Contract Purchase
With this option one enters into a finance agreement for 3 years with an optional 'balloon' payment at the end of the agreement which completes the purchase of the car. For the first 3 years the monthly cost would be about £570 with a balloon payment of about £20k. Assuming that this also needs to be financed for the next 3 years, the monthly payments would be around £550. Clearly it makes no sense not to take the option of the balloon payment as otherwise it’s just a very expensive lease.

The total cost over the 6 years would be about £42k, but, depending on how the balloon payment is financed, ownership of the car could be achieved at the end of year 3, but if not, at the end of year 6.

Option 3 - Hire Purchase
Hire purchase is still around but as it requires total payment of the loan in no more than 60 months, it is quite expensive on a monthly basis. The figures I looked at suggested monthly payments of around £700 for 60 months giving a total cost of about £43k, but with ownership of the car once the final payment is made.

The received wisdom seems to be that it’s better ultimately to own the car, but is it? With leasing over six years I’d have a new car after 3 years with an ongoing monthly outgoing of around £460, both cars would be under warranty and no MOTs to worry about, and I’d have spent around £7/8k less than the buying options. But I’d have no car at the end of the six years.

With PCP I’d have monthly outgoings of about £570 for the first 3 years and £550 for the second 3 years and would end up with a car that has cost me £7k (the difference between the PCP and PHP aggregate monthly costs) which might be worth more than that but it would have been out of warranty for 3 years so could incur some degree of expenditure in the second 3 years on repairs, plus MOTs, etc. so perhaps not much in it.

With HP I’d be having to pay £700 a month for 5 years and the total cost would be about £8k more than leasing. But, like with PCP, the car would be out of warranty for the last 3 years but would probably be worth more than the £8k it would cost me, subject to repairs, etc.

So over 6 years, the purchase options should leave me with a car that I own, with a value probably in excess of its cost, i.e. the difference between buying and leasing cost. But that doesn’t reflect repairs and maintenance of an older car that’s been out of warranty for three years, to my mind a consideration given the complexity of modern cars. And do I really want to spend another £150 a month for 6 years to be able to own the, by now, well used car?

What Does the Team Think? (showing my age here )

Can you finance the car with a personal loan from your bank (or other lender) at a lower cost than HP incurs?

Just thinking out loud here.

The HP rate I used was from my bank for a car HP loan with a competitive APR but indeed it might possible to shave a few pounds off it and bring it in line with the total cost of a PCP.

If you are looking at continuing only driving for the next 6yrs as for your age, why are you looking at cars that have a £38,000 price tag ?

How about Equity Release assuming you own your own home. Just spend the kids inheritance. MY 09 GS manual in Lago Grey, Wood Co arm rest and side bumper strips - now sold.

MY 15 SD4 SE Auto Orkney Grey with colour coded Bumper Door Mouldings

You may also want to factor in the incentives some (not all) manufacturers throw into the deal if you opt for PCP.

The recent perceived wisdom in marketing departments of various brands is that PCP massively increases the likelihood of brand loyalty and repeat custom, hence incentives of £1k-£3k are not uncommon, but only for PCP deals. I was able to take advantage of this on both the Merc and the Volvo. When factoring in other discounts and a bit of haggling I saved a total of just shy of £15k across these two cars.

Up-front prices are reaching the point where ownership is only achievable with some increasingly torturous wrangling of the balloon payment, which is a huge risk for the customer when changes in battery technology, legislation around ICE and therefore future values are moving so rapidly. For this reason, the industry as a whole is moving towards leasing and subscription models. Allows them to continue to raise list prices, safe in the knowledge the customer is focused on the monthly, and with no repercussions from finance regulators further down the line when the world and his dog is upside down on their balloon payment due to changes in market/legislation.

The Financial Conduct Authority (FCA) have poked around the subject of negative equity and mis-selling of PCPs for a while, but for a host of reasons too long and Machiavellian to go into, they backed down from taking action last time. They have bigger fish to fry in the Consumer Credit marketplace, but there is still an ongoing data gathering exercise behind the scenes so don't be surprised if at some point this resurfaces as an issue.

Conclusion: Personally I'd look at leasing if I didn't anticipate needing a car at all past 5-6 years from today. Known cost, no risk of negative equity, certainty of vehicle replacement. Current driveway contents:
2021 V60 Cross Country B5
2009 FL2 dog bus and shooting wagon

On Order: 2023 Fisker Ocean Ultra - deposit paid.

@tenet,
Thanks for the suggestion but I'm not convinced that equity release makes sense at the best of times, never mind using it to buy a depreciating asset.

@NoDo$h,
For sure each manufacturer has its own deals for PCP but I just can’t see that PCP makes any sense unless you are definitely going to make the balloon payment as otherwise you're just paying for a very expensive lease. And if you do opt to buy the car, the risks over a six year time horizon are that it will be expensive to repair if things do go wrong. Modern cars are just too complicated. And the same holds true of HP.

My reason for considering only six years is not that I anticipate no longer driving after that but simply that you need to have some time frame for a comparison of options and six years, being two standard PCP periods, seemed a reasonable choice. But the same analysis applies no matter how long the period under consideration. So I think your conclusion to lease, for all the reasons you state (apart from assuming I plan to give up driving in six years!), holds good, regardless of the time frame, which is the conclusion I’d come to.

(I’m not even going to respond to Jack Frost!)

I repeat this from the other thread as an alternative ----

Volvo Cars do 'All In' Leasing on their Battery Powered XC40.

If you scroll down to the bottom of the page, it will give you the cost of running a BEV of similar size to the FL2.

Quoted are a Flexible, 3 years Contract Lease and the cost of Buying outright.

From what I can see the leasing includes most things apart from insurance.

https://www.volvocars.com/uk/v/cars/xc40-e...D0QAvD_BwE

The main advantage of leasing seems to be the fact that you can more easily update your BEV quickly as the technology improves. FL2 XS SD4 Auto 2010 2012-2017 (21k - 91k miles) (MY2011)
FL2 Metropolis SD4 Auto 2014 2017- (16k - 77k+ miles) (MY2015)
Metro in its 11th Year of (Extended) LR Warranty / Full LR Service History
(Expensive, but Trouble/Worry free - hopefully?)

Buying any car on either PCP or HP as ones years increase past retirement is fraught with perils, my brother chopped in a 1 year old Focus estate for a new one and 9 month later diagnosed with vascular dementia and left the wife with a huge bill due to early cancellation and a poor trade value. Perhaps an insurance to cover the worst may be possible my PC is slightly to the right of Genghis
2012 HSE SD4 In Orkney Grey now gone, best car ever.

@IanMetro
Indeed I’d read your other post with interest but as I don’t have any facility for installing a charger unfortunately a BEV is out of the question. It’s a pity as it would suit our needs perfectly as the FL2 would remain as the tow car.

@Dartman the one
Good advice and indeed I’ve already been checking insurance possibilities as the same issues would arise with a lease.

Having just wrapped up a PCP deal early, on my Dad's vw golf, due to him passing away, I can not see the logic in it for retirees.

The £/mile is normally very high if you were to sit down and work it out

We were " lucky", in so much as the car went back without a mark on it, 2.5 k miles on the clock, and the fact that our local vw agents were desperate for stock due to the chip shortage. The residual price of the car was only 2.5k less than the purchase price. Amazing!

When you factored in all the other bits and pieces, it amounted to around a 25% loss on the purchase price.

However, this is a one off. I doubt that the "perfect storm " will happen again anytime soon.

Once you get on the merry go round of PCP, it's hard to get off. You become hooked for life.

Find a large balloon payment, which most people don't have, or pay an extra £100 a month and have the latest shiny thing that's sat on the forecourt, when the present pcp deal is finished.

Don't forget that you will probably need to have the alloys refurbed, that small scuff on the bumper sorted, hope you haven't exceeded the annual mileage allowance etc, etc.

It may work for some, but it certainly wasn't my Dad's best idea, considering his circumstances. He would have been far better off, buying the car outright.

My point in all this, is that no one knows what is around the corner. Obviously Dad thought he would be around to finish the pcp, buy the car at the end, and give it to one of the grandchildren when he no longer needed it. Things rarely go as planned!

Many thanks, Grimdog. I appreciate you sharing what must have been a difficult experience. For sure PCPs make no sense unless you actually intend to buy the car when the balloon payment comes due. If you do, it’s probably as cost effective a way as any of financing the purchase of a new car. For the reasons I explained above at the moment I’m not of a mind to go down the purchase route. But whether lease or purchase, insurance is clearly a prudent idea for us retirees. It’s actually not that dear for a decreasing term policy that would cover the cost of the remaining leasing payments were I to fall off my perch - about a tenner a month - although that wouldn’t cover the situation that Dartman the one recounted so that needs more research.

Just another small point, regarding insurance for older drivers. My Mum is 82. Whilst specifically JCT 600, they were more than happy to let her test drive a new car on their insurance, but after buying a new car and taking out a service plan, declined to give her a courtesy car, whilst hers was in for sevice, because she was over 80. They did however offer to change the battery in her remote fob (£7), for free, because of this oversight. Never again!!!!!

Well!!!
my take would be just keep the freelander and accumulate lots of spare cash to:
1. keep freelander on the road with no concerns about finding money
2. spend it on nice things

Surely £450 per month and therefore approx. £5.5k would keep most cars on the road and give some lovely lolly

Does it have to be a brand new car? Why not buy a 3 year old that has lost massive depreciation already? Money saved would cover any unexpected bills and leave you a few £££ better off each month.

I don't like the pcp / lease thing and don't want to get on that slippery slope. Landrover - turning owners into mechanics since 1948

2014 Orkney grey Freelander SD4 GS.
2004 Zambezi silver Discovery 2 Td5 (Gone)
1963 Surf blue Morris Mini Minor Super de Luxe (my little toy)