PCP, deposit and personal loans

Qrbrrbl

Hypothetical question:

Say I want to purchase a car (new or used, doesn't matter for the question) at a value of £25k, which has a GMFV of £10k after 3 years. A PCP deal would give me 9%APR over the term, whereas a personal loan can give me 2.5%APR over the same term. I have no cash funds of my own to serve as a deposit.

Would it be possible, preferable, advantageous to take out a personal loan of £14k on 2.5%APR to use on a deposit, leaving just £1k on the PCP rate of 9%APR, rather than the full £15k on the PCP rate of 9%? Combined monthly payments of the two would potentially be lower than a pure PCP on 9% wouldn't they?

Assuming excellent credit history, would you even be able to get a personal loan for this?

Not asking about the relative (dis)advantages of PCP or anything like that, just interested in the hypothetical of trying to optimise a PCP deal.

Car_54

A loan of £14k would leave you paying 9% on £11k, not £1k. You are effectively borrowing £25k, not £15k.

bazzyb

As above, you pay interest on the whole amount you're borrowing, including the balloon.

The other issue is that you would struggle to find any lender that would let you put more than around 30% down as a deposit on a PCP.

Qrbrrbl

OK, I did wonder if there were limits on how large a deposit you could put down on PCP.

So using the above example then, if I were to take a loan to cover the maximum possible (in this case, say £8k), you would be looking for PCP to finance the £10k GMFV and the remaining £7k.

Would this then give you 9% PCP interest on £17k and 2.5% personal loan interest on £8k, therefore saving 7.5% worth of interest compared to putting the full £25k on PCP?

DrEskimo

I've seen some manufacturers stipulate that you have to borrow more than the final payment, so that limits your deposit. I image it might vary between manufacturers though.

But in theory, yes, although as pointed out you pay 9% on the final payment as well, which obviously doesn't decrease over the term (hence why PCP loans cost more than standard loans in interest, despite having similar APR).

If you can afford the higher monthly, you would be better off borrowing the whole lot (not that I would advocate borrowing >50%, particularly on a new car...) as the interest on your PCP example would be £4,872, whereas a personal loan of £25k over 3yrs also at 9% would be £3,472, a saving of £1,400.

Smellyonion

The PCP can be overpaid at anytime. Using the loan as a larger deposit before the PCP is set up may leave you ineligible for the benefits of the PCP. Ie deposit contribution etc.

Unless your income is high, you will struggle with getting a personal low at good rates with a 25k PCP in place. And with no funds in the bank, is it wise to make such a luxury purchase on a depreciating asset?

System

The truth of the matter is that if you haven't even got enough for the deposit, either in cash or by selling/PXing your current car then you can't afford to get a £25k car because you'd not be able to afford the repayments, whether it was a loan or PCP. If you were able to afford the repayments you'd already have money for the deposit.

Qrbrrbl

I appreciate what you're saying, but saying it's unaffordable is fundamentally incorrect. I have a PCP currently - when this expires I would potentially hand the car back and start again from scratch (downsizing, changing manufacturer etc). This doesn't mean that I can't afford the monthly repayments - in fact, my monthly payments would be going down moving from my current PCP to a full personal loan £25k car. Given I can comfortably afford the payments now, I could then comfortably afford the 25k car without putting a deposit in.

Not arguing that any of the above methods are a good way of funding a car, just thinking about hypothetical options at the moment. I will be putting a deposit together regardless.

Penelopa.Pitstop

bazzyb wrote: »

As above, you pay interest on the whole amount you're borrowing, including the balloon.

The other issue is that you would struggle to find any lender that would let you put more than around 30% down as a deposit on a PCP.

Mercedes allows or used to allow to put huge deposits. I know someone who paid £30K upfront and pays peanuts monthly.

bazzyb

Penelopa.Pitstop wrote: »

Mercedes allows or used to allow to put huge deposits. I know someone who paid £30K upfront and pays peanuts monthly.

Mercedes Agility maximum deposit is 30%.

Jonesya

Qrbrrbl wrote: »

I appreciate what you're saying, but saying it's unaffordable is fundamentally incorrect. I have a PCP currently - when this expires I would potentially hand the car back and start again from scratch (downsizing, changing manufacturer etc). This doesn't mean that I can't afford the monthly repayments - in fact, my monthly payments would be going down moving from my current PCP to a full personal loan £25k car. Given I can comfortably afford the payments now, I could then comfortably afford the 25k car without putting a deposit in.

The fact someone can afford the monthly payment for something doesn't mean its affordable, you've got to look at how much safety margin that person has in terms of extra disposable income over and above their outgoings and how much savings they have as a buffer.

All of your posts suggest you need to raise virtually all of the money for this car through borrowing, which kind of suggests you have little or no savings available to fund a deposit.

Everyone needs some savings for life unexpected events, big purchases etc, so if someone has little or no savings, it's probably reasonable to suggest that an expensive new car isn't affordable.