Buying first car - loan or PCP?

Tom161992

Hi all,
My partner and i are looking at getting our first car, and have been researching financing options. 

Does anyone have any guidance on what is better, a specific car loan from a bank or PCP through the car company? 

In particular, my partner is concerned about loans via banks reflecting badly on credit ratings and thinks that for cars you should always use the car company finance scheme - is this correct?

Thanks in advance

AdrianC

If you're borrowing £x,000, you're borrowing £x,000 - doesn't matter if you're borrowing it off Ford, BMW, Barclays or Tesco.

Obvs, borrowing it off www.HookyPayDayDesperation.com (is that the APR or their phone number?) is a different matter.

Grumpy_chap

For first car, cash is best.
If you go for finance, the lowest overall cost is the important figure.

Jonesya

Just bear in mind that PCP was invented by the car industry to keep you coming back to buy another car every 3 or 4 years.

With a bank loan or cash you own the car and having paid for the car, many owners will happily carry on running the car for many years as there's nothing which forces you to consider handing it back. From a car manufacturer's and dealer's perspective this is awful, you might buy that car and keep it 6 or 9 years, which compared to typical revolving 3 year PCP deals, means they've lost the income and commission from 1 or 2 extra car sales from you as a customer.

Scrapit

Tom161992 said:

Hi all,
My partner and i are looking at getting our first car, and have been researching financing options. 

Does anyone have any guidance on what is better, a specific car loan from a bank or PCP through the car company? 

In particular, my partner is concerned about loans via banks reflecting badly on credit ratings and thinks that for cars you should always use the car company finance scheme - is this correct?

Thanks in advance

Whats wrong with hp? I suggest investigating all ways of getting/buying a car to see what suits your situation best.

Mercdriver

Nothing wrong with a straight forward HP with no bubble at the end.  No mileage limits and the car is yours after the final payment is made.  You have to resist the "This car on PCP is only £x a week" sales line which avoids the elephant in the room of the bubble at the end that has to be paid to keep the car or start again at the beginning with another  deposit.  

[Deleted User]

Here’s a novel thought... How about paying cash?

Goudy

Loans and HP are different products compared to PCP so it's hard to compare them.

As this is a money saving site/forum, the general advise is always going to be whatever is the cheapest way, so whatever you're comparing you will probably look at the overall cost to eventually own the car.

This is pretty easy with cash, HP or a loan, but what if you don't want to own the car for long and fully finance it?

You might need a car now but plan to expend your family later and need to change, now a loan or HP on the full invoice price might seem unnecessary. A PCP deal will allow you to just pay lower payments while you plan on keeping it.

Another consideration is what you plan to buy, new or used.

Generally HP and PCP interest rates on used cars tend to be a lot higher than on most new cars, so a loan will almost certainly be the better option.

They used to say cash is king, but it's just not true anymore.

Nearly every PCP deal will come with a deposit contribution (more of that later) so it's often cheaper to sign up for a PCP with the contribution and then just pay off the outstanding finance after it's been handed over.

If you or your partner are public servants you can often access deals with large deposit contributions, so taking advantage of these can knock thousands off the price, it's what we do as we both get discounts due to working for the NHS.

I understand some will write you'll lose your deposit on a PCP deal and have to find another to start your next deal.

This is true, but select the right deals and they'll pay this for you.

As written, different PCP deals will come with different levels of deposit contributions and will often only require a small deposit from yourself.

Now at the end of your contract you have different options, hand it back to the finance company, pay the GFV and keep it or trade it in.

If you select the later you are free to negotiate with any dealer for your next deal. With a bit of haggling you can often negotiate a better price over your GFV on your trade in value, so it covers the outstanding GFV with some extra to go towards your next deal.

You aren't looking for thousands, just a few hundred to count as your part of the deposit on you next deal and to keep/get your business, dealers will factor this in.

So depending on what you plan to buy and how long you want to keep it, any of the options could work out the cheapest.

Mercdriver

You can't rely on offers of "we'll pay your deposit" being around when the current PCP comes to an end.  Even then what if they are only available on cars that you aren't interested in or are unsuitable for you?