PCP - can I finance the loan through my bank?

Rezaa91

Hi all,
this is my first post here on money saving expert so please excuse me if this is the wrong location for this post.

I am currently looking at getting a car on PCP and I am wondering whether it is possible to pay the full loan off with my 'deposit' so to speak, and fund this through my bank, which has a better interest rate, if I am accepted for it?

Or do I need to take the finance through the car dealership?
If this is the case, does any one know the max deposit I can put down in order to ensure low monthly repayments and interest charges (as a percentage of the car value)

Thanks in advance

Cornucopia

Rezaa91 wrote: »

I am currently looking at getting a car on PCP and I am wondering whether it is possible to pay the full loan off with my 'deposit' so to speak, and fund this through my bank, which has a better interest rate, if I am accepted for it?

Not sure what you mean by this. You can certainly choose to finance your car purchase with a loan from anywhere that will accept you. Unless your dealer is proposing a 0% deal, it's likely that other lenders' headline rates will beat the dealer's interest rate, but you may not necessarily be offered the headline rate.

Some third-party lenders offer PCPs and most offer straight car finance, so you'll need to understand the difference in order to properly compare deals.

http://www.moneysavingexpert.com/car-finance/personal-contract-purchase

Or do I need to take the finance through the car dealership?
If this is the case, does any one know the max deposit I can put down in order to ensure low monthly repayments and interest charges (as a percentage of the car value)

You don't need to take finance from the dealer, but they may tell you that they cannot offer you as good a price if you do not (this may or may not be true, and may require more shopping around).

If you take PCP finance from the dealer, there will be a maximum deposit for the scheme (maybe 30%?) Generally speaking, paying the maximum deposit will see the lowest possible payments and the lowest possible interest payment.

Rezaa91

Thank you for your reply.

I will give an example as to what I mean because I think that will make it easier.

Cash price: £12,000
Final payment: £5000
Loan amount: £7000.

So with a PCP I would just pay the depreciation (£7000) - could I get a loan from a bank for £7000 with a low APR and then give the dealership the full £7000, and pay my bank back monthly to take advantage of the low interest rates?
I've been in to discuss interest rates with dealerships and as the car I am looking at is a BMW 3 series approx 3-4 years old, their lowest interest rates I have managed to haggle down to is 6.9%. Where as I could potentially get 3.8% through my bank and other lenders.

I hope this is more clear than my original post.

Cornucopia

Rezaa91 wrote: »

Cash price: £12,000
Final payment: £5000
Loan amount: £7000.

So with a PCP I would just pay the depreciation (£7000) - could I get a loan from a bank for £7000 with a low APR and then give the dealership the full £7000, and pay my bank back monthly to take advantage of the low interest rates?

In short, no. It's the entire scheme or not.

Not only that, but with a PCP you are paying interest on the entire amount outstanding - so you start out paying interest on £12k and end up paying interest on £7k just before the end of the term.

Also, in terms of the PCP stories we get on these forums, it's often the nearly new deals that people seem to have most difficulties with - not least because they often come with higher rates than new car PCPs.

antrobus

Rezaa91 wrote: »

Thank you for your reply.

I will give an example as to what I mean because I think that will make it easier.

Cash price: £12,000
Final payment: £5000
Loan amount: £7000.

So with a PCP I would just pay the depreciation (£7000) - could I get a loan from a bank for £7000 with a low APR and then give the dealership the full £7000, and pay my bank back monthly to take advantage of the low interest rates?
I've been in to discuss interest rates with dealerships and as the car I am looking at is a BMW 3 series approx 3-4 years old, their lowest interest rates I have managed to haggle down to is 6.9%. Where as I could potentially get 3.8% through my bank and other lenders.

I hope this is more clear than my original post.

No, you need a loan from the bank for £12,000. That's the price of the car.

With PCP the loan amount is also £12,000. It's just that your repayments are set so that you repay £7,000 over the term of the loan, and then a final balloon payment of £5,000, which is also the guaranteed value of the car. (Subject to various conditions normally.)

Rezaa91

But after the term my plan would be to hand the car back and get a new car, I do not want to own the car afterwards. Sorry, I should have mentioned this initially.

Cornucopia

Rezaa91 wrote: »

But after the term my plan would be to hand the car back and get a new car, I do not want to own the car afterwards. Sorry, I should have mentioned this initially.

In which case, have a look also at Leasing. You may be able to lease a brand new car for not much more than the payments on a nearly new one.

MataNui

I understand what you are thinking but its not possible. Your PCP deal will be for x years (say 3 as an example). You think that because you are handing the car back you can borrow 7k cheaper from the bank (basically thinking as you are handing it back you are sort of buying half the car for half the amount that you can finance how you like). You cant do this.

The 'loan amount' isnt 7k, you have forgotten the interest. You pay interest on the full 12k. PCP is split into deposit - monthly - balloon. There will be a max you can put down as a deposit to ensure profit for the finance company.

Your options are simple:
1. Take the PCP as is. Pay the max deposit to reduce the interest and monthly then hand the car back at the end.
2. Get a loan from a bank for 12k and buy the car outright. Then trade it in after 3 years.
3. Use dealer HP for 12k and buy the car outright. Then trade it in after 3 years.

If this is a new car then you can also probably lease the car. Typically means a lower deposit and lower payments than PCP (barely) but there is no option to keep it.