Car PCP or loan?

in Loans
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devonian20devonian20 Forumite
20 Posts
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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? 

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 :)


  • Grumpy_chapGrumpy_chap Forumite
    12K Posts
    Ninth Anniversary 10,000 Posts Name Dropper Combo Breaker
    I assume that paying cash is not an option for you?

    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.  
    • What car ?
    • What mileage in the PCP?
    • What discount did you get?
    • PCP / Loan details.
    • What do you normally do for replacing a car - do you swap every few years or buy and keep until it goes to the scrap yard?

    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:
    1. Choose the car
    2. Get the best possible cash price - use online broker sites to assist Broadspeed, CarWow
    3. Get the best price for your old car - use WBAC / Motorway for starters, try local "we buy for cash" garages
    4. Get the best finance to pay the balance, negotiate on the interest rate if it is high.

    Good luck and hope you enjoy the new car.
  • devonian20devonian20 Forumite
    20 Posts
    Second Anniversary Name Dropper First Post
    That’s all super helpful thank you. We will be sure to take everything into consideration. We will have a deposit from the old car of around £7k
  • macmanmacman Forumite
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    Part of the Furniture 10,000 Posts Name Dropper
    Define 'cheaper'. Per month, PCP is cheaper, which is why they're so popular. But what you really need to look at is the total cost of purchase, i.e. over the entire life of the loan.
    No free lunch, and no free laptop ;)
  • edited 17 May 2021 at 9:36AM
    SilvertabbySilvertabby Forumite
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    Sixth Anniversary 1,000 Posts Name Dropper Photogenic
    edited 17 May 2021 at 9:36AM
    We were going to buy our new car on PCP but changed our minds.

    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.

  • DrEskimoDrEskimo Forumite
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    It may be worth getting the car on PCP to get the best possible price (not always though, I have had many examples where outright purchase had same/larger discount), then settle straight away with lower rate personal loan with no balloon payment.

    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?
  • SilvertabbySilvertabby Forumite
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    Dr Eskimo - I know that there are others on these boards who would never even consider buying a new car, for the reasons you state.  But it's horses for courses.

    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.  
  • Aran76Aran76 Forumite
    33 Posts
    Fifth Anniversary 10 Posts
    Which car is it? Is it new or used?
    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.
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