HP or PCP?

ccluedo

I've been shopping for a new car and have been offered the choice of regular HP or PCP. I have never used PCP and would welcome any constructive comments pls, the main one being are there any pitfalls to be aware of?

Financially I would pay approx £1,300 more over the 3 years for the PCP but would retain my £5k cash capital (HP deposit), and pay £88 less per month. Obviously I would have to pay at the end of 3 years if I want to keep the car but that's unlikely. Anyway, who knows where we will be in 3 years time
APR for either option is 5.9% and I haven't been able to find cheaper independently.

WellKnownSid

As you've concluded - for the same APR the PCP deal is more expensive overall because you're effectively paying off a smaller amount of a larger loan. That's what creates the headline figures that most people love - lower deposit, lower monthly payment.

Anecdotally, PCP deals appear to be quite conservative at the moment i.e. you may well end up with sufficient equity in the end to act as your next deposit - so you can keep paying the same (or less) per month to replace your car every 2-3 years.

And there's the catch. You are stepping on to a treadmill where you may end up replacing your car every three years - not because you want to, and not because it's sensible to do so, but because your financing arrangement dictates it.