Cash for car or pcp?

freddiecider

I am confusing myself so hope you can help. 

Currently have some money in savings account and thinking of buying a car outright- no PCP. However I am cautious of it taking just over half of my savings pot . My thinking is that I could buy it and then what I ‘would’ have paid into a PCP for 48 months, i then pay back into my own savings instead. Then in 4 years time I own the whole car and then have the savings pot from this 48 month self paid savings pot. 

Or, do I play safe. Get the car on PCP ? But then that means I don’t own the car after 48 months and my PCP monthly amounts have gone to nothing?

to me, the last scenario seems ridiculous and I can see the first option is much better. 

But am I missing something glaringly obvious? 

AdrianC

How much interest are you earning on the savings, after tax?
How much interest would you be paying on the finance?

So long as you aren't left short of savings during the interim, there's no other real factor.

Penguin_

One thing to bear in mind is that you often get free incentives such as a free service plan with the car if you buy through PCP so it may be worth seeing if the dealer is offering any deals. If this is the case, take the PCP out & pay the finance off after a week or so.

freddiecider

Interest on the finance is 5.4 which seems ridiculous!

interest on savings - very little ……

Also wondering ‘how much’ of a savings pot I should have for a ‘rainy’ day. 

facade

I would do as Penguin suggests, and see if taking out PCP will gain "incentives" that reduce the price, if so take PCP then settle the finance straight away, when you get to keep the "incentive"

Also try places like Carwow that can get you discounted prices on new cars.

If you do buy it on PCP (I mean paying the pcp each month) and something unforeseen happens, you still have to pay out half the total cost of the car from your savings before you can hand it back and then have nothing, or settle the finance from your savings and own it.

As to how much of a savings pot you need?

Depends on what happens, but generally as long as you can pay for a new boiler or Vets bill if the dog gets run over, or you keep say 2 months salary, that will be fine- if you have significant savings and you fall on hard times you wont get any assistance.

I would have thought if half your savings is the cost of a new car, that will be fine, and you will be adding to it each month.

BOWFER

Aaaargh, the old chestnut of "my PCP payments have gone for nothing"
No they haven't, they've gone towards you driving a new car for 4 years!

jimjames

freddiecider said:

Interest on the finance is 5.4 which seems ridiculous!

interest on savings - very little ……

Also wondering ‘how much’ of a savings pot I should have for a ‘rainy’ day. 

If you have the cash then borrowing for 4 years at 5.4% while getting 0.5% on money in the bank is definitely not money saving!

It's generally suggested to have 3-6 months spending available as emergency funds but that's really down to your own circumstances so if you have no sickness cover for example you might want more.

DrEskimo

The thing with PCP, is that since there is a final payment that doesn't reduce which you still pay interest on, the interest you actually pay is more than a typical loan with the same APR and term.

You need to look at actual cost, not just APR.

Typically, a PCP with a APR of 5.9% is equivalent to a personal loan of about 7-8% APR. So relative to your cash savings account, you are spending a lot of money paying interest to borrow money you don't need to borrow....

As others have said, buy on PCP and settle straight after if they have incentives. Better yet, buy the exact same car used and extend warranty if you have to. Savings in depreciation will far out-weight the cost of extended warranties.

Grumpy_chap

Use the savings unless the PCP has an "incentive" in which case, take the incentive then pay off the PCP with savings.

Cisco001

How about getting a 0% interest purchase credit card?
I think they usually doing 20 months?
When I bought my car couple years ago, I part pay with cash and part paid with credit card.

freddiecider

BOWFER said:

Aaaargh, the old chestnut of "my PCP payments have gone for nothing"
No they haven't, they've gone towards you driving a new car for 4 years!

Yes completely get that ……I’m just trying to get my head around whether I should buy it outright or go with the PCP to do it.