Your opinions - XC90 2015 trade in or extend?

[Discoman]

Leasing/PCH versus PCP? I'm on PCP but can see the attraction of the former.

The theory with PCP is that you pay slightly more over the term and the final payment is then low enough that you have equity in the vehicle as a deposit for the next car. The reality at the moment is that many GFVs were too high so there is no equity but at least you have the option to put the car back on Santander and walk away. However, if the car is underwater on a trade basis it is probably still cheaper paying the final payment rather than buying another car retail as the GFV is somewhere in the trade/retail spread.

In all these calculations all that is relevant is the (discounted) purchase price, likely retained value and the APR. The rest is just how you want to profile the payments. My theory had been to keep the car at the end of the 49 month term and run it for another 2-3 years as I took the view that the much reduced depreciation later on would well offset any repair costs. The thing is the world is changing so fast that come 2023 chucking it back at them and buying something electric might make more sense.

[hrp123]

I appreciate the time everyone has taken to pen down their views, thanks.

So to summarise (btw from my angle, it is about going for absolute cheapest cost as opposed to cash flow):


PCH/PCP vs Cash purchase

PCP/PCH both reduce the uncertainty of having to deal with a car with an uncertain final value at the end of 24-48 months, which mitigates the risk of Brexit, Covid, electric cars, anti-diesel regulation etc.

If you have cash, some people say you should invest it and use cheaper new car financing. To compare it apples to apples, the cash should be invested in something that protects its value, I think you would be hard pressed to get 2%+ on a term deposit whereas your financing is costing anywhere from 4-5% APR. If you are happy to risk your cash, sure you may make much more.

Additionally, although cash means you take the risk of an uncertain final market value vs a PCP, you are implicitly paying £2-3K in additional interest for that certainty in your PCP contract.

Also personally I feel the final values implied in most of the PCP plans that I have seen look realistic based on what I see for my actual trade in value for a 5 year old car (£23K vs £17K forecast in some of the PCP plans). So basically including a 13-14% discount to new prices for a trade in, plus some additional depreciation due to other risk (electric cars, Brexit, new model etc) - I still think most PCP plans will be around 2K+ in positive equity. You can only realise this profit in the PCP though if you buy the car and then sell it or trade it in.

I guess for some reason if you anticipate returning the car at the end of a PCP and not getting a new one, you will be best off with PCH, as you lose your likely positive equity.


PCH vs PCP

PCH offers you more certainty and a simpler structure than PCP - as there is no uncertainty with regard to end value of the car and how much equity you have. But the downside is, you don't have an option to buy a good used car back with PCH. Depends on whether you likely changing your car (I do)!

Comparatively, PCH may seem cheaper (total lease and fees payments vs total interest and capital repayments) at the outset than PCP as the lease company most likely can but the new car cheaper due to fleet discounts etc, plus I'm guessing it's a more secure contract for the lender.

But PCP can work out cheaper than PCH if the final value of the car ends up being higher than the included depreciation in your contract i.e. you have positive equity at the end.

With the XC90s the general consensus seems to be they are likely to take an additional hit from the model change which would be felt lets say between 1-2 years from now but I feel PCP values may already reflect that.


PCP on a new car vs a slightly used car


From what I can see, having run the numbers a few times now, due to the higher APR on used cars and possibly in final market values, the purchase price of a 1 year used car has to be a good 20%+ cheaper than a new car to justify using PCP on a used car.

Conclusion

Cheapest option keep my car and run it till dead (5 more years so a 10 year old car in a new electric world starting in 2025) - max loss £23K + warranty + non-covered parts + consumables + hassle of dealing with service and risk of an early model XC90 + time without a car = let's say £25-26K over 5 years.

Next option new car - I think this will cost £30K including positive equity at the end - for a car with the spec I like - but this is for a 4 year contract. So add another £5K if you keep the car another year £35K maybe or £7-8K if you get a new car so £42-43K over 5 years.

Nearly new car - if you can save 15-20% off a new car for nearly new with low miles - will save vs a new car but better to use personal loan 3.5-4% or cash.

Slightly used car late 2017/18 - trade in for a similar spec XC90 (but with air suspension) that is 2.5-3 years old with a one year Selekt warranty but hopefully not the same potential issues as a 2015 car. Cost around £32-33K for low mileage well specced options. Pay £9-10K cost to change but offset extra cost of consumables, warranty spend etc on the 2015 - so probably works out £4-5K more than keeping the current car over 5 years but hopefully less hassle.

Thanks for all of your help! I think I am leaning towards the last option specified...

[hrp123]

Hopefully, owning a newer car will be less stress. That doesn't mean it won't give you trouble though. £3k is a lot of money... If anything was to go wrong with your existing car, that £3k would pay for a considerable amount of parts. Minus the cost of the Volvo warranty, that leaves you with £2,250 per year in your pocket.

Have included the extra warranty spend etc when I calculated the £3K - so it's actually £3K better even with the additional likely costs.


I would keep your existing car personally. That's because I don't purchase expensive cars knowing that they're losing thousands every year. I buy older/used ones outright that have lost the majority of their value, but that's just my choice. If I wanted a brand new car, then the lease route is the one I'd take... It just makes more sense.[/QUOTE]

In this day and age with all these new products, especially if you are a car guy (which I am), it really is tempting to push the boat out and spend the max possible to enjoy the latest brand new car with the best features. If you enjoy it and value it, I think the financial innovation of PCP/PCH is great.

The flipside is if you think in total costs over 3-5 years of ownership, the numbers feel very different vs lets say £100-200 difference in a monthly payment and a couple of thousand higher initial deposit. The first question most dealers ask is "what do you want to pay for your monthly payment"? I keep saying, I don't care about the monthly payment... it's about total cost over the term (which they conveniently don't show, you have to add it up!).

Another word they use which is deposit...it should be called upfront sunk cost. Deposit implies you get it back if you look after it.

For me the worst tactic is... "sir, I can give you some cash back!" if your trade-in car is worth more than the max deposit. It's my cash you are giving back, not a discount!

[Sceptre123]

My view... I know it won’t be popular! (I’m told by my dealer that I’m an unusual car buyer and that ‘everyone uses PCP these days’)

You need to decide why you want to change your car. I like a newer car because I like to think it’ll be less likely to leave me stranded. That leads me to keeping my car within warranty.

I know this view will be unpopular but PCP and HP are simply finance options which other people make money out of. I’ve never found this a cheaper option and I also don’t like the idea of having something (other than your house) that I can’t actual buy (my logic... if you could buy... why would you take a high APR option?).

My view... buy a year old car. I paid 38k for my XC90 which had a list price (1 year and 3k miles earlier) of 63k... they are out there but there do seem less good deals at the moment.

[Discoman]

Sounds like you have analysed the pros and cons correctly. The next thing to work out is likely supply. I wanted a sunroof, air suspension, petrol, heated rear seats and a heated windscreen together with high profile tyres and I did not like the R design seats. It’s all personal so you can see why I went factory order.

If you are less fussy on spec then there are plenty of used cars out there but as you say the APR on used cars is way too high. Bear in mind you can go direct to the lenders themselves and cut out the several points APR that the dealer is trying to take out of you.

It’s really a question of how much time you want to put into this. FWIW what swung a new car for me in the end was the £599 service pack. This is clearly heavily subsidised and would cost about £2000 if bought piecemeal but coming from a Discovery is was a nice feeling not having to dread what bill the garage could dream up every year. Best of luck with your search, these are truly excellent cars but you already know that!

[Kev0607]

Originally Posted by hrp123

I appreciate the time everyone has taken to pen down their views, thanks.

So to summarise (btw from my angle, it is about going for absolute cheapest cost as opposed to cash flow):


PCH/PCP vs Cash purchase

PCP/PCH both reduce the uncertainty of having to deal with a car with an uncertain final value at the end of 24-48 months, which mitigates the risk of Brexit, Covid, electric cars, anti-diesel regulation etc.

If you have cash, some people say you should invest it and use cheaper new car financing. To compare it apples to apples, the cash should be invested in something that protects its value, I think you would be hard pressed to get 2%+ on a term deposit whereas your financing is costing anywhere from 4-5% APR. If you are happy to risk your cash, sure you may make much more.

Additionally, although cash means you take the risk of an uncertain final market value vs a PCP, you are implicitly paying £2-3K in additional interest for that certainty in your PCP contract.

Also personally I feel the final values implied in most of the PCP plans that I have seen look realistic based on what I see for my actual trade in value for a 5 year old car (£23K vs £17K forecast in some of the PCP plans). So basically including a 13-14% discount to new prices for a trade in, plus some additional depreciation due to other risk (electric cars, Brexit, new model etc) - I still think most PCP plans will be around 2K+ in positive equity. You can only realise this profit in the PCP though if you buy the car and then sell it or trade it in.

I guess for some reason if you anticipate returning the car at the end of a PCP and not getting a new one, you will be best off with PCH, as you lose your likely positive equity.


PCH vs PCP

PCH offers you more certainty and a simpler structure than PCP - as there is no uncertainty with regard to end value of the car and how much equity you have. But the downside is, you don't have an option to buy a good used car back with PCH. Depends on whether you likely changing your car (I do)!

Comparatively, PCH may seem cheaper (total lease and fees payments vs total interest and capital repayments) at the outset than PCP as the lease company most likely can but the new car cheaper due to fleet discounts etc, plus I'm guessing it's a more secure contract for the lender.

But PCP can work out cheaper than PCH if the final value of the car ends up being higher than the included depreciation in your contract i.e. you have positive equity at the end.

With the XC90s the general consensus seems to be they are likely to take an additional hit from the model change which would be felt lets say between 1-2 years from now but I feel PCP values may already reflect that.


PCP on a new car vs a slightly used car


From what I can see, having run the numbers a few times now, due to the higher APR on used cars and possibly in final market values, the purchase price of a 1 year used car has to be a good 20%+ cheaper than a new car to justify using PCP on a used car.

Conclusion

Cheapest option keep my car and run it till dead (5 more years so a 10 year old car in a new electric world starting in 2025) - max loss £23K + warranty + non-covered parts + consumables + hassle of dealing with service and risk of an early model XC90 + time without a car = let's say £25-26K over 5 years.

Next option new car - I think this will cost £30K including positive equity at the end - for a car with the spec I like - but this is for a 4 year contract. So add another £5K if you keep the car another year £35K maybe or £7-8K if you get a new car so £42-43K over 5 years.

Nearly new car - if you can save 15-20% off a new car for nearly new with low miles - will save vs a new car but better to use personal loan 3.5-4% or cash.

Slightly used car late 2017/18 - trade in for a similar spec XC90 (but with air suspension) that is 2.5-3 years old with a one year Selekt warranty but hopefully not the same potential issues as a 2015 car. Cost around £32-33K for low mileage well specced options. Pay £9-10K cost to change but offset extra cost of consumables, warranty spend etc on the 2015 - so probably works out £4-5K more than keeping the current car over 5 years but hopefully less hassle.

Thanks for all of your help! I think I am leaning towards the last option specified...

I'm not quite sure I agree with your calculations.

Your existing car is paid for, or very close to being paid for. So the only running costs are your road tax, insurance, fuel & general maintenance like oil changes etc. Then if you decided to buy warranty for your existing car, that's an additional expense. So, your existing car is basically costing you nothing apart from normal running costs. Being under warranty (should you decide to purchase it) gives you the peace of mind for any future breakdowns. Also, your car being 5 years old has lost the majority of its value through depreciation.

If you trade your car in, its going to cost you £9-£10k before you even start, plus monthly payments for five years (or whatever term you decide). Yes the newer car will be under warranty, so the majority of things will be covered (Then again, extending your warranty on your existing car will give you that peace of mind too). Also, factor in the depreciation costs of the newer car = more money lost.

The cheapest option is to keep the car you've got, not to change it. The money you're considering investing into a new car (£9-10k) would be in your pocket then.

I understand that you want a newer vehicle though, so this probably doesn't make much of a difference. Although, keeping what you've got is the cheapest option.

[soupytwister]

Originally Posted by SignumGB

All that money spent and nothing to show for it at the end.......

Correct. However, if I owned it, I reckon it would have depreciated £26k over 4 years. So nothing to show for that depreciation either

It's horses for courses. Finance costs money. Best keep the variables of depreciation in the hand of the finance house rather than my assets and liabilities

[soupytwister]

Originally Posted by Director76

Lease co funders have access to the kind of fleet discounts that mere mortals can only dream about!

Absolutely 100% correct. The dealers/finance companies will be able to get cars with large discounts from Volvo on some occasions that the man on the street wouldn't be able to get - hence why you often get some unbelievable lease deals from time to time.

My 2019 Volvo S60 R-Design launch model I have leased for 18 months. It is £289/month with no upfront payment - so £5200 over 18 months with VED paid, warranty, etc. I think the car has got a £45k list price (I have no idea really - I just fancied it!). There is no way if I'd bought it for £45k cash new that I'd be able to trade it in for £40k after 18 months I'm unlikely to need to buy any new tyres/brakes etc, and the warranty items have all been covered free. So a nice easy fixed payment every month worry free. OK, perhaps someone can find a cheaper way, but it's just easier....bit like an iPhone contract. However, with an iPhone many people seem more than happy to pay £50/month for a £1000 phone!! I'm paying £289/month for a £45,000 car!! Which is better value

For the cash buyers out there, you'd have "less to show for it" after 18 months! Especially if your circumstances changed and you needed to sell it. With a lease, you can end it early and the penalty is 50% of the remaining payments. Is an easy "out".

I have 6 months out of the 18 months to go. I would just have to pay £289 x 50% x 6 payments to pay. So I simply phone up the finance house, hand it back to a guy who comes and collects it from my driveway, he drives it off, and I walk away. No WeBuyAnyCar, no dealers to sell to, no tyre kickers, no auto trader, etc etc.

With 6 months to go, I could take a hit of less than £900 to walk away from a £45k car hassle free...which in these crazy times, is an option that's nice to have!

** obviously we're talking about new/nearly new cars here so best not compare merits of a 6 yr old car in comparison to a shiny new whizzy up to date fancy technology car. Clearly driving around in a 20 yr old V70 Torslanda will (probably) work out cheaper Bangeromics is a matter for another thread (and one I also love having done that for years too!).

[soupytwister]

Originally Posted by hrp123

Did you find that when you lease a car you have to build and order it - seems like most of the stock cars are just standard models without any options.

Depends how quickly you want it. If you want something in the next 2 weeks, likely to already be in the UK and be standard options. My XC90 lease was already "pre-ordered" and on the dealer's pre-order books but it was still 2-3 months away so I was able to factory spec it just before it actually got built (you can change spec up to a month or two before build date). All dealers have orders on the books they pre-order which they match up to buyers - there's usually plenty of "orders" which haven't yet been allocated so you just need to find a dealer with an unallocated order and spec it how you want it - getting quotes on Carwow usually sniffs them out.

However, no point speccing up a lease car. You pay full price on the options - ie, if its £2500 for a full sunroof, you pay £2500/24 months if a 2 year lease. You're paying the full price for an option over the term of the lease period. Not good at all. It works out cheaper to go for the absolute top model with all the options baked into the purchase price and lease that - will work out cheaper.

It's all a bit of a game really....eyes need to be fully open!

Just remember - you're in the driving seat (so to speak!). Plenty of cars out there. Plenty of dealers wanting ££. Don't suffer any "dealer speak" and sharp intakes of breath from them. In this day and age, it's no different from an item on a supermarket shelf It's a product to be sold. You shouldn't be made to feel "privileged" to be able to buy one of their lovely cars However, just like anyone, they need their cut and deserve some of your ££ to do a deal. Just take a look at the BCA auction site - absolutely stacks of 1-3 year old XC90's going through auction every week - probably mostly ex-lease.

[hrp123]

Originally Posted by Kev0607

I'm not quite sure I agree with your calculations.

Your existing car is paid for, or very close to being paid for. So the only running costs are your road tax, insurance, fuel & general maintenance like oil changes etc. Then if you decided to buy warranty for your existing car, that's an additional expense. So, your existing car is basically costing you nothing apart from normal running costs. Being under warranty (should you decide to purchase it) gives you the peace of mind for any future breakdowns. Also, your car being 5 years old has lost the majority of its value through depreciation.

If you trade your car in, its going to cost you £9-£10k before you even start, plus monthly payments for five years (or whatever term you decide). Yes the newer car will be under warranty, so the majority of things will be covered (Then again, extending your warranty on your existing car will give you that peace of mind too). Also, factor in the depreciation costs of the newer car = more money lost.

The cheapest option is to keep the car you've got, not to change it. The money you're considering investing into a new car (£9-10k) would be in your pocket then.

I understand that you want a newer vehicle though, so this probably doesn't make much of a difference. Although, keeping what you've got is the cheapest option.

Sorry if I wasn't clear but yes absolutely keeping the existing car on the face of it should be the cheapest option, assuming nothing catastrophic goes wrong which isn't covered by the aftermarket warranty... and assuming you can continue to get a warranty.

However I think the next cheapest option is trading up to used but newer car that reduces the chances (famous last words) of a technical failure with the earlier models, plus has a cheaper warranty cost, and potentially less time off the road in servicing / repairs.

Thanks for your thoughts!