Cash or PCP?

The_Moth

I am planning to buy a new car and have some quotes for both cash purchase and PCP. Roughly speaking the PCP quotes are about £2,000 cheaper than cash (e.g. £33k compared with £35k). I've never bought a car on PCP so don't know too much about it but I'm wondering if I could buy the car on a PCP deal and then immediately pay off the full amount outstanding thus avoiding much in the way of interest and benefiting from the lower purchase price. I've tried to research this but most of the advice seems to be about cases where the borrower can no longer afford the car or where they want to sell the car.  I'd be very grateful for any advice.

Goudy

You can take the PCP finance and settle it once you take delivery.

I think the most the finance company can charge you (by law) is a month or two of interest.

Lots, including myself have done this.

DrEskimo

Yes, I did this on my car as well. Very rare for any PCP to have early settlement charges. Sometimes have a token 'optional purchase fee' of £10.

Have you shipped around and used online brokers? I'm finding it increasingly more common that discounted cash price is lower than than PCP, which saves the hassle of doing the finance, pay off melark.

Grumpy_chap

Does the PCP early settlement allow you to clear the balloon payment as well?

Do you already have the cash to pay off the PCP?  If you need a bank loan to pay off the PCP (lower rate loan), you may look like you are piling two large debts in short succession.

DrEskimo

Grumpy_chap said:

Does the PCP early settlement allow you to clear the balloon payment as well?

Do you already have the cash to pay off the PCP?  If you need a bank loan to pay off the PCP (lower rate loan), you may look like you are piling two large debts in short succession.

Yes, the balloon is just a large final payment in the agreement, so has to be paid to be settled in full. Anything else is just an overpayment. It's no different to any other loan, just a slightly different structure, that's all.

fred990

Debt junkies will always tell you to borrow the money and pay interest to the bank because its cheaper! 
Alternatively if you're loaded and it's loose change just buy it. No way is the 'credit' deal cheaper...offer them their best pcp price less a tasty amount for cash....they'll take it.

Grumpy_chap

fred990 said:

No way is the 'credit' deal cheaper...offer them their best pcp price less a tasty amount for cash....they'll take it.

I agree with your logic, but it doesn't always work that way anymore.  The "price" of the car is set locally by the dealer (within limits).  The finance incentive is set at the manufacturer / lender level.  Additionally, and perversely, the dealer may be able to discount the "price" more if you take finance and there is a commission for selling the finance.   The assumption in this is that the consumer will not then redeem the finance straight away.

Petriix

I believe there's fairly strict legislation around finance arrangements which mean you are always allowed to settle in full at any time. The interest charges are limited to (I think) 60 days. Some finance deals allow partial overpayment without penalty so it is sometimes possible to overpay almost everything and then request a full settlement figure which will only show interest for 60 days on the small remaining balance.

In any case, it is (perversely) cheaper to buy on PCP then settle in full than to pay in full upfront.

neilmcl

There's no minimum amount of interest to pay, you just pay the interest you've incurred up to the point the settlement is agreed. You also have the legal right to cancel the agreement within 14 days, which is what I would do, without any penalty. and still reap the benefit of the dealer/manufacturer contributions.

Also, @fred990 is wrong, the days of "cash is king" is long gone. A big part of a dealer's income stream is selling cars via finance and as such credit deals are always going to receive preferential treatment when selling a car.

Mercdriver

Some firms are getting around it now by paying the first 3 instalments rather than a deposit contribution

WaywardDriver

Mercdriver said:

Some firms are getting around it now by paying the first 3 instalments rather than a deposit contribution

Current offer on Audi Q3 is first 3 instalments plus £3500 deposit contribution.