PCP or HP, how do I choose?

ShabbaSon5623

Hello,
All my life I've had a company car and now it's being changed to a car allowance so I need to buy a car.  I want to get the same kind i currently have (my budget is fine for this, it's a hybrid so cheaper on fuel, etc).  I need to have a reliable car as I'm out and about a fair bit.  I do around 15,000 miles a year minimum though this can be up to 20,000.  I don't know whether PCP or HP would be best?  I had considered a loan however I would likely change my car in 3 years.
thanks in advance for the input.

daveyjp

£20k a year PCP could be expensive.
For that mileage if it must be new and you will be changing the car in three years consider leasing.

ShabbaSon5623

daveyjp said:

£20k a year PCP could be expensive.
For that mileage if it must be new and you will be changing the car in three years consider leasing.

20K would be the top end but with my job it could be easily 17k and i would over pay 3k miles in this instance.

neilmcl

If you're planning on changing it then why not just lease a car.

DrEskimo

It doesn't make any difference if you change every year, 3-years or 10-years, buying a used car to reduce the depreciation costs, and using the cheapest form of finance to reduce the interest cost will be the most cost effective way.

Therefore buy a (2/3yrs old) used car with finance with the lowest overall interest costs, then trade in at 3yrs. Rinse and repeat.

You can compare the cost (expected depreciation and interest) to a lease to see if it's cheaper, but at 20k miles on a new car, I suspect it won't be.

Grumpy_chap

If the company car allowance rules permit it, the MSE approach would be to run 2 or 3 year old car to 5 or 6 year old rather than brand new car on three-year cycles.  For this, a loan / HP is likely to then be more cost-effective than PCP / lease.

If your aim is to basically replicate the company car experience but using the allowance, which is a fair enough target, it is not often easy to achieve with a car allowance.  (Of course, your car allowance figure may be more generous than many.)  To replicate the company car experience, then lease or PCP is likely to be the most cost-effective approach - you would have to compare both.

One other thing to think about is the way mileage will be reimbursed.  Make sure you capture all the permitted tax allowances.

DrEskimo

Whilst I would still advocate buying used, can you accommodate an EV, and does the company offer a EV lease scheme through salary sacrifice?

You would get tax savings on the lease payments, have little to no BIK to pay and would save an absolute fortune on fuel based on your mileage.

Herzlos

If you're definitely keeping the car after 3 years then HP.

If you're definitely getting rid of it after 3 years then Lease.
If you're hedging your bets then PCP.

macman

You've given us no indication of whether you can afford the much higher monthly cost of a PCP vs HP? if you can't, and you must have a new vehicle, then the decision makes itself.

BOWFER

Herzlos said:

If you're definitely keeping the car after 3 years then HP.

If you're definitely getting rid of it after 3 years then Lease.
If you're hedging your bets then PCP.

Don't rule out lease because of the misconception the car 'must' be handed back.
I've bought quite a few lease cars off the lease company over the years.
Also bear in mind that if you lease, the lease company pays the roadtax
With PCP you pay.

motorguy

DrEskimo said:

It doesn't make any difference if you change every year, 3-years or 10-years, buying a used car to reduce the depreciation costs, and using the cheapest form of finance to reduce the interest cost will be the most cost effective way.

Therefore buy a (2/3yrs old) used car with finance with the lowest overall interest costs, then trade in at 3yrs. Rinse and repeat.

You can compare the cost (expected depreciation and interest) to a lease to see if it's cheaper, but at 20k miles on a new car, I suspect it won't be.

I'd agree with this.

Those sorts of miles on a PCP or a new car will make running one extremely expensive.

I'd buy at 2-3 years old, 3 or 4 year loan, rinse and repeat - though if its running well, no reason not to run on at it.

PCP deals are optimised for 6-10K mileages.  15-20K will be getting expensive.