Car PCP or loan?

20 Posts

in Loans
Hello all
We are looking at a new car which is in the region of £30,000. Generally speaking which is cheaper, a PCP deal or a loan, or is there another way?
We are looking at a new car which is in the region of £30,000. Generally speaking which is cheaper, a PCP deal or a loan, or is there another way?
With PCP it does feel like you are loaning the car rather than buying it.
Does it depend on the deal? I can probably post details of helpful
thanks!
Does it depend on the deal? I can probably post details of helpful

thanks!
0
Latest MSE News and Guides
Replies
You are correct that with PCP you are loaning the car rather than buying it. You have the choice to buy the car at the end of the term. With a loan you are buying the car.
All other things being equal, loan is cheaper overall than PCP. This is because on PCP you do not repay the balloon payment (unless you chose to buy the car at the end of the term) so the monthly payment is lower but interest has to be paid on that balance throughout. On a loan you pay more per month but there is no balance at the end so the total interest is lower. Incentives and zero percent finance can distort that assessment.
It does all depend on the car and the deal, so you would need to share details if people are to help further.
Finally, remember that you do not have to take finance from the dealer if external finance is cheaper.
The approach to get the best deal on a car is:
Good luck and hope you enjoy the new car.
Briefly, the trade in for our old car was more than the PCP maximum deposit, so we would have received £3K cash back. The PCP deal also gave us an extra £1K discount off the new car. Our intention was then to pay the balloon payment off at the end of the contract, giving us more options when we came to trade in again (have done this before).
Then the PCP interest rate changed from 3.4% to 5.4%.
Back to the calculator and, even after losing the extra £1K discount, Plan B worked out cheaper.
That was, use all the value of the trade in against the new car, throw in an extra £3K cash, then a 2.8% bank loan for the rest. Done, dusted and no balloon payment at the end.
Of course trying obtain two loans in quick succession on a high value item is not easy. If you have the money already saved it becomes much easier.
Whilst focusing on interest cost is good (ideally you would want that to be £0...) it's also worth thinking about depreciation costs. Is this a brand new car? Have you considered the difference in depreciation between brand new and 2/3yrs old? You could stand to save thousands, and many models have longer warranty periods, or can be extended for little cost per year. Worth considering what the actual value of a brand new car is to a used model of the same spec. Beyond being the first owner and have a different number on the plate, what are you actually getting additional for that much larger cost?
We are not ones for expensive holidays, but we do like the luxury of a brand new car every 4 or 5 years. That way, we can choose the exact car/colour/extras that we want, instead of making do with whatever was available. We also know that the engine hasn't been thrashed, and that no kids/dogs have thrown up or weed on the upholstery, and that no-one has smoked in the vehicle.
PCP/HP rates are much cheaper on new cars but of course you have the depreciation issue. If you're able to get a loan at around the 3% APR mark then that will probably be the cheapest way.
Many dealers will offer incentives to take out their finance, another option is to take all the goodies and then pay it off in full a few months later with a loan.