Is it wise to pay off my PCP (9.1%) with a Tesco Loan (5.8%)

IAMIAM

PCP 9.1% expires Aug 2029 (4 Years)
GMFV - £9870
Monthly Payments - £74

jaybeetoo

You need to factor in the depreciation of your car.  Our previous car was worth far more than the GMFV so we bought it.  Our current car is depreciating much faster than the PCP expected so we would not pay off the PCP early or at the end of the lease,it’s better for us to hand the car back.

DrEskimo

jaybeetoo said:

You need to factor in the depreciation of your car.  Our previous car was worth far more than the GMFV so we bought it.  Our current car is depreciating much faster than the PCP expected so we would not pay off the PCP early or at the end of the lease,it’s better for us to hand the car back.

But you need to also factor in the cost of the loan - it's the net cost that matters.

In this particular case, keeping the PCP running for 4 years at 9.1% will cost the OP ~£3,600 in interest. So the car will have to be worth less than ~£6,270 before they see a net cost benefit in keeping the PCP and handing the car back. You need to determine whether that level of unexpected depreciation is likely.

Moving to a personal loan at 5.8% would cost ~£1,200, so this affects the net cost threshold to ~£7,400.

So it becomes a probability question. If the OP thinks it's more probable that the car will be worth at least £7,400 or more, then the personal loan will be more cost effective. If they think it's probable it will be worth less than £7,400, then keeping the PCP would end up being more cost effective.

Isthisforreal99

There is of course no guarantee that the 5.8 rate will be offered.

IAMIAM

DrEskimo said:

jaybeetoo said:

You need to factor in the depreciation of your car.  Our previous car was worth far more than the GMFV so we bought it.  Our current car is depreciating much faster than the PCP expected so we would not pay off the PCP early or at the end of the lease,it’s better for us to hand the car back.

But you need to also factor in the cost of the loan - it's the net cost that matters.

In this particular case, keeping the PCP running for 4 years at 9.1% will cost the OP ~£3,600 in interest. So the car will have to be worth less than ~£6,270 before they see a net cost benefit in keeping the PCP and handing the car back. You need to determine whether that level of unexpected depreciation is likely.

Moving to a personal loan at 5.8% would cost ~£1,200, so this affects the net cost threshold to ~£7,400.

So it becomes a probability question. If the OP thinks it's more probable that the car will be worth at least £7,400 or more, then the personal loan will be more cost effective. If they think it's probable it will be worth less than £7,400, then keeping the PCP would end up being more cost effective.

It will probably be worth around 12-15k in 4 years time....