Declined PCP - No debts

rev229 wrote: »

Yes I have savings but it’s the rainy day fund and for retirement in the next few years.

Doesn't make sense.

The interest on the finance of the PCP will have an interest rate higher than the money you're saving. That means you are losing money by being on a PCP deal. I'll illustrate.

Lets consider £200, a single month's PCP payment, over the period of a year. PCP deal is 5%,
interest on savings 2%.

So over a year £200 owed on the PCP deal will add an additional £10 in finance interest charges so you have to repay £210. The £200 put in your savings account would be worth £204 after a year.

Congratulations. By having £200 outstanding on finance because you put £200 into savings you are now £6 worse off after 12 months. But it is worst than that because if we're talking about the last £200 of the PCP deal to be paid there's 3, 4 or 5 years cumulative interest to add up so say a 5 year PCP deal that last £200 of the outstanding capital you pay on finance has cost you an additional £55.26 in interest over the 5 year period.

Unless you can get finance at an interest rate lower than the interest rate or return on your savings then you will be worse off buying a car on finance. If your goal is to maximise money for retirement then getting a new car on PCP every so many years is complete stupidity because you get to finance the years with the highest rate of depreciation.. If you truly want to maximise your savings for retirement you buy a 3 year old car outright in cash or 0% finance if you can find it.