Comparing PCP APR to cash in the bank interest rate

jlfrs01

I think it's worth getting the figures right - the OP said:

 "It was ordered from CarWow, dealer contribution of 3.7k and a lease contribution of 2.25k on a car with list price approx £37k"

Does this mean the figures to compare are to be based on a PCP for £31,200 versus buying the car instead and presumably paying the full list of £37,000? This latter figure may need to be amended if the vehicle can be bought outright with a discount off list.

valmiki

jlfrs01 said:

I think it's worth getting the figures right - the OP said:

 "It was ordered from CarWow, dealer contribution of 3.7k and a lease contribution of 2.25k on a car with list price approx £37k"

Does this mean the figures to compare are to be based on a PCP for £31,200 versus buying the car instead and presumably paying the full list of £37,000? This latter figure may need to be amended if the vehicle can be bought outright with a discount off list.

Hi, thanks for your input, here's what I see as my two options 

a) buy the car on PCP and settle the full amount £31k immediately (hence retaining the lease contribution and the dealer saving)

b) buy the car on PCP and just pay the monthly payments until the lease expires, at which point I would just purchase the car at the optional final payment

When I saw on the car finance quote generators that I would get 2.9% (as it stands - the car hasn't been delivered to the dealers yet so that may change) I was querying whether I would be better off keeping the money in the bank earning interest and just making the payments, as opposed to settling the finance in full as soon as I got the car.

The quotes provide a representative APR 2.9% and Fixed rate of interest per annum 2.18% - these figures may change when I get the paperwork. I was hoping that I could compare either of these two rates to what I get in a savings account, clearly I now see that it is not as simple as that!

noh

I'm guessing it is a Toyota CHR you are getting quotes on via Carwow ?
The stated cost of the credit is £2060.
If the interest you could earn on your savings, over 36 months, is greater than that amount then taking out the PCP plan is cheaper.

valmiki

noh said:

I'm guessing it is a Toyota CHR you are getting quotes on via Carwow ?
The stated cost of the credit is £2060.
If the interest you could earn on your savings, over 36 months, is greater than that amount then taking out the PCP plan is cheaper.

Hi, yes it is a CHR! the numbers are slightly different as we ordered back in February, the deals were a little more generous back then. Based on your numbers above though and a bank savings rate of 4%, I should take out the lease as I would lose interest on £31k for 3 years (less the monthly payments).

noh

I thought it probably was the CHR. I have been looking for quotes for various vehicles on Carwow and recognised the 2.9% APR.
What I would consider doing is putting the amount of the balloon payment in a fixed rate savings account for 3 years or whatever the term of the PCP agreement is. At present you could get 5.95% on a three year fix. 
https://moneyfactscompare.co.uk/savings-accounts/3-year-fixed-rate-bonds/?quick-links-first=false
Say the balloon payment is £17000 the interest earnt at 5.95% APR over three years would be around £3200 which is more than the cost of credit. The remaining £14000 could be kept in an easy access account and used to pay the monthly instalments. Interest would also be earned on that.

valmiki

noh said:

I thought it probably was the CHR. I have been looking for quotes for various vehicles on Carwow and recognised the 2.9% APR.
What I would consider doing is putting the amount of the balloon payment in a fixed rate savings account for 3 years or whatever the term of the PCP agreement is. At present you could get 5.95% on a three year fix. 
https://moneyfactscompare.co.uk/savings-accounts/3-year-fixed-rate-bonds/?quick-links-first=false
Say the balloon payment is £17000 the interest earnt at 5.95% APR over three years would be around £3200 which is more than the cost of credit. The remaining £14000 could be kept in an easy access account and used to pay the monthly instalments. Interest would also be earned on that.

Thanks! I will be doing something similar.

And, I guess to maximise the saving, I should put 0 deposit and longest term possible too (assuming the APR stays the same).