PCP vs Personal Loan - Decision Time

Chris_Justice

Hi Guys,

I've just bought a new car on PCP finance. The purchase price was £15,500 divided into a £1k deposit, £9k finance and £5.5k final value. The monthly payments are £261 with and interest rate of 9.2%.

I didn't realise until reviewing the PCP deal after leaving the dealer that you actually pay interest on the final value throughout the term (bad research on my part I know) so I looking at what the difference would be if I took out a personal loan to cover the full amount. For a loan of that size you can get rates at the moment of around 4.6% which over 4 years means monthly repayments are £330 which is the downside (although the loan could be over 5 years making it more comparable) but the overall interest paid would be in the region of £1900 vs £3400 on the PCP scheme AND when I come to sell in a few years time there will be more equity in the vehicle. I made a small table comparing the options assuming the car depreciates 33% over the 4 years.

PCP Loan Loan
Term 48 48 60
Repayment £260 £330 £270
Deposit £1,000 £1,000 £1,000
Total Payable £18,887 £17,394 £17,420
2 Year Equity £1,154 £4,798 £3,544
3 Year Equity £2,837 £7,399 £5,696
4 Year Equity £4,500 £10,000 £7,848
Cost of Finance £3,387 £1,894 £1,920

Since it’s within 14 days of taking out the finance I can just phone up, cancel and make a payment using the money from the personal loan and in doing so I would save myself £1500 and be in a stronger position when I come to sell so at the moment I’m leaning that way. Before I take the plunge can anybody point out a flaw in the plan? Is there something I’m missing or additional repercussions which I haven’t accounted for? Any and all advice is gratefully received.

Cheers,

Chris

Clive_Woody

It might be worth doing a soft search somewhere like Nationwide to see what kind of loan rate you might get. Yes there are low rates available but the rate you get depends on your individual circumstances.

Also I would guess your credit file currently shows that you have a £9k loan for the car. Do you have other debts too?

Any additional borrowing would effectively be on top of this £9k (yes I know you plan to use the loan to pay off the PCP but a lender would have no way of guaranteeing that you would do this).

From your message I assume the 9% is a flat rate of interest rather than an APR. A common tactic by car dealers to mislead punters. I think to get APR from flat rate you effectively x2

From what I can tell your equity calculations do not take into account depreciation which will be big as you loose thousands when buying from new.

CherlokHomes

On paper you're saving £1500...How much will this particular car be worth in 4 years time 3.5k. So in reality you'll never save a penny buying a brand new car you're losing thousands.

Chris_Justice

It's a 3 year old approved used car as opposed to new so the depreciation won't be quite so bad. I've assumed that a third of the value will be lost so it will be worth £10k when I come to sell it as opposed to the £15.5k I've bought it for. The effective loss would be the depreciation + the interest payments so on the PCP scheme as far as I can tell I'll always be £1500 worse off.

That's a good point regarding the borrowing so I'd need to do a little investigation regarding whether I can actually borrow that amount (shouldn't be a problem though).

CherlokHomes

Chris_Justice wrote: »

It's a 3 year old approved used car as opposed to new so the depreciation won't be quite so bad. I've assumed that a third of the value will be lost so it will be worth £10k when I come to sell it as opposed to the £15.5k I've bought it for. The effective loss would be the depreciation + the interest payments so on the PCP scheme as far as I can tell I'll always be £1500 worse off.

That's a good point regarding the borrowing so I'd need to do a little investigation regarding whether I can actually borrow that amount (shouldn't be a problem though).

The Car you are buying will be 7 years old when your agreement finish may I ask what Car it is?

Chris_Justice

Certainly. It's a BMW 1 Series Coupe

CherlokHomes

Chris_Justice wrote: »

Certainly. It's a BMW 1 Series Coupe

If it's the twin turbo 3.0 I'd say in 7 years time you could fetch 8k at a push and a lot more if you went for the 1M.

Anything other then these I would say 5- 6k at most.

Ant.Evs

I have to agree. You will prob only get around 6k for it when you come to sell.

15k Does sound an awful lot for a 3 yr old 1 Series thou!?

Chris_Justice

£15k is about the right price, I did shop around a bit first. And at the moment 6 year old models with 60k+ mileage are going for £11k+ so I don't think £10k is too unrealistic but this is all a bit off topic and the car is already bought

Basically it seems to me that I can save £1500 of interest payments by switching from PCP to normal finance on a better rate so I'm looking for a little validation on that.

You-kip

Chris_Justice wrote: »

£15k is about the right price, I did shop around a bit first. And at the moment 6 year old models with 60k+ mileage are going for £11k+ so I don't think £10k is too unrealistic but this is all a bit off topic and the car is already bought

Basically it seems to me that I can save £1500 of interest payments by switching from PCP to normal finance on a better rate so I'm looking for a little validation on that.

There's a poster on here called Apples2 I'm sure he'll advise you once he's on.