Hire purchase

[Slayer]

Hi all,

Does anyone have good or bad experiences with hire purchase +~ balloon buying a car? I know outright purchase is the best if one can afford.

Is PCP preferred?

Many thanks

 

[Magic919]

What is the question? Buying outright isn't best for everyone, but let's leave that discussion alone.

HP and PCP are different beasts. If you want a balloon, then that's a PCP usually. HP just has a small charge at the end as an option to transfer ownership.

It all depends on what you are trying to achieve. PCP will normally mean lower monthly costs, as the balloon is holding them down. But overall costs may be higher due to interest.

Best PCP deals are often on new cars with the manufacturer taking a bit of the cost.

 

[Slayer]

Thanks . Some finance companies are offering HP with balloon which could work like a PCP but no option of returning the car.
This made me wonder as to whether there is any catch in it? The balloon seems higher than what they offer on a PCP to keep the Monthly down.

 

[Magic919]

I see what you mean. One man's catch is another man's product feature

I'd say, for some, the 'catch' would be you cannot walk away at the end.

Car finance can range from a lease with no option of keeping the vehicle, to PCP, HP and even a good old-fashioned loan. There are probably names for all the variations.

It's pretty individual thing, so it depends on your plan for the car and whether that could potentially change. I no longer have cars I thought I'd keep and sometimes it goes the other way.

Deposit, monthlies, interest and exit deal are all variables here.

Keeping a balloon high keeps down monthlies to an extent, but you normally get more interest (to finance that balloon). Again, new cars sometimes break this when the manufacturer funds the finance somehow.

 

[wilpert]

I am no expert on finance but my two penneth is that the factors that influence my decision the most are whether I am buying new against used and the length of time that i intend to keep the car.

It seems that car companies have become complete magicians to influence their sales by offering structured payment packages that usually take an accountant to work out.

When I bought my current car, I had a shortfall of around 45k, as I was waiting to sell my other car, me being impatient, decided to finance that balance against the car on a straight forward HP deal, thus paying a set monthly interest. the rate was "fairly" attractive at 6.9% and as my intention was to pay it off quickly, I felt it would not be a big deal having this against the car.
As soon as I got the funds available, I tried to pay it off and by eck, they really didn't want to take the money, they seemed to want to do all that they could to ensure I kept the loan running.
As it turned out, I paid off half and decided to keep the rest for other things, so i did still leave a bit of finance on the car but not a great deal given the value. I intend to pay this off in a few months time.



I prefer the loan thing because I feel the car is mine to do what I want with if I get bored with it or fancy a change. i can even down grade if I need some money on the quick.

For those who like to keep the car longer and who have a bit more self discipline than me, I reckon the 3 year lease thing works really well but these do seem more structured towards new cars. this would never work for me as I like to think the car is miine and that i wont have to give it back after 3 years. my friend does it this way and always has a nice car to drive but I just feel it isnt really his. he isnt at all bothered, he takes out tyre and wheel Insurance and includes service package and literally just drives the thing for 3 years and hands it back and goes again with anew one 3 years later.

We once did a calculation against his then new RR sport hybrid and we worked out that if you added all of the payment that he had made over 3 years, it still didn't exceed what would have been the depreciation of the car.
I.e. had he bought it new for cash and sold it 3 years later, it would have cost him more that what he has paid in monthly payments over the same term. So it clearly can work for some!

 

[v8fettler]

HP with Balloon is as others have said, very comparable to PCP, apart from you cannot hand it back after 50% paid, or the end of the term. The Banks owns it while you pay them the contracted amount, then its yours on teh final payment no matter what.

The good thing about HP with Balloon is that it can get you in a more valuable car sooner than saving for it, because you can contract a higher final/residual value (as you found)keeping Monthly payments lower, because that final value is not linked to the vehicle, its not asset linked in that way, as a PCP would be.

The idea being PCP agreements are a bit of an Insurance for both parties. You can get rid if you lose your job, or hate the thing, and they get a Car back for what they estimate to be 'Book Value' which they can realise quite quickly. this is the opposite to HP, which is commited to taking the car.

If you know Cars, don't mind the aggro of selling etc, then HP can allow you to get a more valuable car on lower monthly payments, because of the larger balloon, but you will have to find that Balloon (either through private sale/refinanncing the balloon if possible).

 

[v8fettler]

Just to add.... any personal finance on a car is brilliant form the perspective it brings with it a load of protections against the purchase. You basically have the Bank responsible for the car while you pay them. If it turns out to be a Lemon, you've got the right to reject etc, and failing that, the Ombudsman to fall back on.

Saved my bacon, so I will always finance cars now, up until past the first year before settling it off, unless its a brand new car with a Warranty to enable the same rights... (both Warranty's and Finance Deals provide you with protection against a lemon (FSA Regs), and allow the Ombudsman to help you if things go south....)

 

[Shurv]

HP with a baloon is known as Lease Purchase, but it is exactly HP with a baloon where a % of the loan is deferred to the end of the agreement.Unlike a pcp no one is guaranteeing the balloon, the hirer is responsible for paying it at the end of the agreement.The good news is that it can be set at a pretty high level, often higher than a pcp, thus making the monthlies lower.The downside is that when you come to sell, if the balloon has been set high, the sale of the car may not be enough to pay the balloon and you need to add funds to clear it.
On something like a Porsche, lease purchase is often a really good way to get one.