PCP or Buy W/loan?

Ljc80_2

So I have managed to get 9 years out of my trusty chariot, bought with 14k on the clock and now at 130k…it’s served me well. It was a year old and cost me £12k (£4k cash, £8k bank loan at £150/month over 5 years)

As a trade in I’ve been quoted 3k. 

I’m new to the PCP concept, seems like renting something I’ll never own?

So…Im thinking about buying a 2-3 year old with under 10k miles for £16k, Minus the trade in and throw in £2k I’ll be a little over £200 per month for 5 years.

Is this sensible or should I start the PCP/HP like everyone else seems to do?

Ljc80_2

I get that but the 5 years is just to spread the payments of the bank loan, id probably overpay it. 

My theory is £200 per month for 5 years then hopefully a few years of no payments… then start the cycle over again

Grumpy_chap

The current car cost you £12k and you will sell for £3k, so that is depreciation of £9k over 9 years = £1k per year.  

Can you better the trade in price by WBAC, Motorway etc?

The replacement used car will cost £16k.  If you keep that for 9 years and sell for £5k, it is depreciation around £1,250 per year.

If you go for a PCP, presumably brand new and equivalent to the £16k used car, that is likely a £25k new car, but it is 3 years newer so you can plan to keep it for 12 years and sell for £5k.  That means depreciation around £1,700 per year.

I have ignored finance costs in the above.  Unless the PCP has zero-percent interest, the finance cost will be higher for the brand new car than the used car because you are financing a larger sum for longer.

The MSE approach is likely to keep the current car for longer.

[Deleted User]

Ljc80_2 said:

Is this sensible or should I start the PCP/HP like everyone else seems to do?

PCP and HP are very different. At the end of the PCP terms you have paid for the depreciation of the car and still owe roughly the current value of the car to the finance company. Some people have benefited from that recently as used car prices are quite high so the car is worth more than they owe.

With HP you will own the car at the end of the finance deal but of course it will be more expensive in terms of monthly payments.

Each has merits depending on what you want, PCP is useful for buying new cars with no hassle and flipping to another new one after the say 3 or 4 year terms, but you never actually own the car. Having a new one mean you are under warranty from the manufacturer and therefore lower risk of paying unforeseen costs. 

Personal loan can work out better if you can get a better interest rate than PCP or HP and you own that car from day one so you can sell it for example even before you pay off the finance.

The issue is the price of the car, dealers load the prices of cars based on the finance package, just like DFS with their 0% finance on a Sofa for 3 years, well it isn't really 0%, the interest has already been included in a inflated price for the sofa, same for car deals, especially new cars.

Buying a second hand from a dealer that isn't finance focused might get you more for your money, and therefore a personal loan could work out quite well.

[Deleted User]

End of the day, it depends how long you are going to use this car for. Are you not fussed about having a new car and can easily see yourself driving this for the next 10 years? Then get a cheap bank loan or, better yet, an interest free credit card and buy the car outright. Like for like comparison over 5 to 6 years compared to a PCP option, buying it outright is almost definitely going to be the cheaper option. 

Also, if you go to a dealer that's offering a discount in exchange of taking out a finance package, do it and pay the finance of straight away.