Loan vs PCP

Shopper1315

Hi all,
After some clarification on my current PCP deal.I have 28 months left at £259.97 in addition to the balloon payment of £6734. Apr is 5.9%. Settlement figure is £12586.89, saving £1166.30 in interest. When the PCP has ended i would simply give the caR back and start again usually with a 2k deposit.

My question, my bank are offering a loan of £12k at 3.3% apr. This alone over the course of 36 months gives me a saving of £600 on interest but with higher monthly payments which i could afford and im thinking as i would then own the car. this would allow me to px or sell the car to fund the deposit for the new car which should be more than the usual 2k deposit i would have put down. 

Does this make financial sense or would it only be recommended at the start of the PCP deal where the interest saving would be higher.

Thank you 

[Deleted User]

If you can refinance at a lower rate then you will pay less interest.

However, you'll be looking to double the debt so acceptance is not guaranteed, or may be at a higher rate.

DrEskimo

Shopper1315 said:

Hi all,
After some clarification on my current PCP deal.I have 28 months left at £259.97 in addition to the balloon payment of £6734. Apr is 5.9%. Settlement figure is £12586.89, saving £1166.30 in interest. When the PCP has ended i would simply give the caR back and start again usually with a 2k deposit.

My question, my bank are offering a loan of £12k at 3.3% apr. This alone over the course of 36 months gives me a saving of £600 on interest but with higher monthly payments which i could afford and im thinking as i would then own the car. this would allow me to px or sell the car to fund the deposit for the new car which should be more than the usual 2k deposit i would have put down. 

Does this make financial sense or would it only be recommended at the start of the PCP deal where the interest saving would be higher.

Thank you 

If you are having equity you are not handing it back at the end of the PCP, you are part exchanging it, exactly as you would do if you had a personal loan or indeed no finance at all. 

You will only have a greater deposit if you switch to a new loan because you are paying down the loan faster (i.e. paying down the balloon payment as well). Of course if you set aside the difference in the PCP and personal loan per month, and then kept on the PCP, the real world difference would only be the £600 saving in interest when you come time to part-ex.

But to answer your question, if you can get accepted for that rate and that amount, then of course it would make financial sense. You are saving £600.

What makes less financial sense is buying a new car, let alone buying new cars every few years.....particularly on finance where you are adding interest costs on top of very high depreciation costs.