pay with savings or PCP with low apr?

gord115

My friend is buying a new car. 
He has the money to pay it out of his savings and he gets 4.36% interest on that.

But he can buy the car for £5300 deposit followed by 47 payments of £319.05.
Then a final payment of £15170.59. the interest rate is 2.9%. A total of £35312.94

Which is better?

Thanks in advance.

PRAISETHESUN

What's the price to buy outright with savings?

CliveOfIndia

As far as it goes, taking out the PCP is a better deal - he's earning more on his savings that what he'll be paying for the finance.  Additionally, quite often there will be some sort of dealer contribution on a PCP deal.

One thing to bear in mind - presumably the APR on the PCP is fixed for the term of the deal, whereas his savings rate can vary?  If the APR on his savings account drops below 2.9% then he'll be worse off on the PCP.

One other consideration - will he be paying for the PCP out of his savings, or will it come out of his regular monthly income?  If he's gradually depleting his savings in order to pay the PCP then there's probably not an awful lot in it overall.  Yes, he'll still be better with the PCP, but the sums involved will be pretty small.

A final consideration - is the final PCP payment guaranteed, or does it depend on the mileage?  I suspect that if the overall aim is to buy the car outright then mileage won't matter - but it's worth just checking. 

gord115

PRAISETHESUN said:

What's the price to buy outright with savings?

£32,864.20

gord115

iveOfIndia said:

As far as it goes, taking out the PCP is a better deal - he's earning more on his savings that what he'll be paying for the finance.  Additionally, quite often there will be some sort of dealer contribution on a PCP deal.

One thing to bear in mind - presumably the APR on the PCP is fixed for the term of the deal, whereas his savings rate can vary?  If the APR on his savings account drops below 2.9% then he'll be worse off on the PCP.

One other consideration - will he be paying for the PCP out of his savings, or will it come out of his regular monthly income?  If he's gradually depleting his savings in order to pay the PCP then there's probably not an awful lot in it overall.  Yes, he'll still be better with the PCP, but the sums involved will be pretty small.

A final consideration - is the final PCP payment guaranteed, or does it depend on the mileage?  I suspect that if the overall aim is to buy the car outright then mileage won't matter - but it's worth just checking. 

I'm pretty sure the final amount is  guaranteed. He will be paying out of his savings.

noh

At a guess he is buying a Toyota CHR.
You have missed a digit in the final payment you stated £1517.19 when you probably meant £15170.19
If I was him and had the money avaiable, I would take the PCP and put the final payment amount in a fixed account that matures before the final payment is due. Currently 5.7% is available on a 4 year fix.

Similar thread on the same subject here: https://forums.moneysavingexpert.com/discussion/6458080/comparing-pcp-apr-to-cash-in-the-bank-interest-rate/p1

gord115

Thanks everyone. I will pass the info on.

gord115

noh said:

At a guess he is buying a Toyota CHR.
You have missed a digit in the final payment you stated £1517.19 when you probably meant £15170.19
If I was him and had the money avaiable, I would take the PCP and put the final payment amount in a fixed account that matures before the final payment is due. Currently 5.7% is available on a 4 year fix.

Similar thread on the same subject here: https://forums.moneysavingexpert.com/discussion/6458080/comparing-pcp-apr-to-cash-in-the-bank-interest-rate/p1

No it is an electric Mini,

DrEskimo

gord115 said:

noh said:

At a guess he is buying a Toyota CHR.
You have missed a digit in the final payment you stated £1517.19 when you probably meant £15170.19
If I was him and had the money avaiable, I would take the PCP and put the final payment amount in a fixed account that matures before the final payment is due. Currently 5.7% is available on a 4 year fix.

Similar thread on the same subject here: https://forums.moneysavingexpert.com/discussion/6458080/comparing-pcp-apr-to-cash-in-the-bank-interest-rate/p1

No it is an electric Mini,

In which case tell him to save his money and wait for the new model. The current model only has a a 32kWh battery, and these are due to be replaced with either a 40kWh, or 60kWh in the new model.

If he did want the current model, you can get a 2-year old one with very reasonable mileage for half the price. Paying £32k on an outgoing, low range model seems like a sure fire way of getting hammered in depreciation....

Altior

The apr is likely to be below the inflation rate anyway, for some time. Quite apart from the savings. 

MrFrugalFever

No amount of savings interest will account for the sheer drop in depreciation on the electric mini. Lease the car and hand it back, keep savings in high interest account.