keep PCP vs buying car outright

revs

I've just signed my PCP finance agreement for my new VW Tiguan R Line arriving this week but unsure whether to keep the 4.86% finance or pay it off in the first 14 days. I've crunched some figures:

Total amount of credit £28,232
47 monthly payments of £361
final payment £15,435 (based on 6,000 miles per year)

If I invested the £28,232 at 5.8% over 4 years, withdrawing £361 monthly, I'd have £16,500 essentially giving me an extra £1000 in my pocket.

Are there any advantages/disadvantages for each payment method that I haven't considered?  I can't make my mind up which one to choose.  All opinions appreciated.

Thanks

daveyjp

You also need to factor jn replacing the cost of the PCP deposit,

revs

daveyjp said:

You also need to factor jn replacing the cost of the PCP deposit,

The PCP deposit will still remain if paying off in full

Goudy

Are you sure you have the interest rate of the finance correct?
4.86% seems pretty cheap, they are usually 7% or 8%  on new PCP deals.

revs

Goudy said:

Are you sure you have the interest rate of the finance correct?
4.86% seems pretty cheap, they are usually 7% or 8%  on new PCP deals.

yes, the finance was drawn up November 2021

Goudy

If your cash earns more in interest over the 4 years than you would pay to borrow the same figure then it makes sense take the finance.

Predicting interest on the cash might be a bit of a struggle if you aren't tying it up though.
What is current today in say an easy access account doesn't mean it will be the same next year, but a long fixed term would guarantee a set rate but you lose access. 
If you could afford the monthlies without dipping into the cash over those four years, you could get around 6 and a bit %.

Though if you do have access to it a various points in the four years, you can always settle the finance if the interest rate you earn on the cash drops towards the interest on the finance, say lock it up for 2 years and then chance it with another 2 year fixed.

The only drawback I see doing this is if you had to move the car on before what you owe and it's value match.
ie, in those 47 months.

Payments are linear, deprecation isn't and it only starts match up when you are very near the end of those monthlies.
Move it on before that and you'll lose some or all of what you made in interest on the cash.

Grumpy_chap

Remember to consider an income tax that may arise on the interest earned.  The savings need to out perform the PCP after tax