PCP or bank loan for car?

[Pottymouth83]

Looking to buy a new car and can’t work out what the best finance option is. Previously had cars on PCP but we are currently without a car as it was written off by thieves.

We have about £10k saved we could put towards a car and are looking to spend about £25k-28k. When we’ve chatted to various dealers about PCPs they’ve all advised us not to put down a big deposit - they say £4K is about right- as although it reduces the monthly payments, it means you have a lot of equity tied up in the car and it makes no difference as ultimately you end up paying the same total amount. Would that same logic apply to a loan - ie is it a bad idea to get a circa £15k loan, add it to the £10k we already have and use that to buy a car instead of a PCP? Or is that more sensible as we would own the car outright at the end of the loan unlike with a PCP? I can’t work out what would be the best option??

With pcp you generally end up changing the car every 3 years. So as long as you dont mind doing that then it's a good way to always have a fairly new car that is less likely to go wrong. However mileage is a factor and usually only works well for people that do about 10k a year including with work.

A loan means you would need to stick with that car until you build up enough to have another deposit and start again.... also if the car is written off would the value of it be high enough to cover any remaining loan and also deposit for a new Car, bearing In mind insurance companies wont give you private sale price but usually work off parker's guides etc.

Cars depreciate in value very quickly, it is rare to find a car that will hold its value

Also be mindful that by 2030 majority of cars will be electric especially as companies are looking to stop producing diesel vehicles .

Personally I like the PCP... we are on our 2nd pcp vehicle and due to get a new one next year, the value of the vehicle has always been enough for a deposit on a newer car (usually a year or 2 old) we dont own it but know that we can keep up with the payments and both feel fairly secure in our jobs. If the engine blew up it wouldnt be our problem to solve. Our mileage is pretty low due to our jobs and we dont mind doing the research every few years to find a new suitable car.

Thanks @Highflyingadored I’ve had PCPs twice before and like them too - but I’m finishing the interest is much higher than a loan. Also, what you said about “if the engine blows up it wouldn’t be our problem” - how is that? Because when I’ve had PCPs we’ve always had to pay for servicing and repairs as if we owned the car?

Finding the interest not finishing

So you have to pay for general wear and tear, tyres, brakes, bulbs etc and you need to keep an up to date service and MOT on it (I do a dealership service plan as it works out cheaper) however if the engine suffers a major mechanical fail that was not a fault from driving/dodgy repairs then the pcp company are liable to get the car fixed or replaced as they technically own the car.

Now with modern cars it is unlikely that something like that would happen but its not beyond the realms of possibility.

If your plan is to pay the balloon payment and keep the car for longer than 3 years then it probably does make more sense to go the loan route.

We bought a new car in 2019, we looked at the figures very carefuly as we weren't sure the best way to buy.
We ended up buying a car with partly cash and partly interest free loan from the manufacturer.
Have a look at carwow gives you prices for pcp and cash. It saved us so much money, we got the quote then asked our local dealer to match it, they did so bar a couple of hundred.

Ah I see what you mean @Highflyingadored

@rosesarered321 that’s a good tip, to get the dealer to match a quote online. May I ask what brand you bought as I’ve not come across a dealer with 0% finance!

At the moment second hand car prices are quite high because of the global microchip shortage slowing manufacturing of new cars.

I've just got a new car on PCP as it worked out as a similar monthly payment as 3 yr old model of the same car, with similar balloon payment at the end of the term - however value of new car will be higher at the end of it, so more as deposit for next car. You are looking at a higher price bracket than I was though, so the market might well be different.

I'm hoping to get a hybrid or electric vehicle next but couldn't afford it this time.

If you are planning to keep the car for longer might be best to get a loan for the lower interest rate?

We've always had cars on pcp, change them every couple of years, always have a nice new car to drive.
We put down the minimum deposit.
We've just sold our most recent car back to the dealer and made 6k due to 2nd hand cars being in high demand.
Personally pcp has always worked for us

Volvo, it was a little over your budget, but we got a great discount plus the interest free credit, plus we paid £595 for five years Volvo servicing which includes comprehensive breakdown cover.

We'd never bought a new car before but it was a much better deal than buying an ex demonstrator like we normally do.

It’s actually a Volvo we’re interested in!

we’ve chatted to various dealers about PCPs they’ve all advised us not to put down a big deposit - they say £4K is about right- as although it reduces the monthly payments, it means you have a lot of equity tied up in the car and it makes no difference as ultimately you end up paying the same total amount

You need to run the figures yourself.
I would not trust a car dealer to tell me the sun is hot, let alone work out what is best for me financially in the long run.

We got a new focus in 2019 with 0% PCP. Found it on car wow. Shockingly similar cars are selling for only £1,500 less than what it cost despite being two years old.

@Welshiefluff you’re right - since typing that, I’ve realised that it was a naive comment! The dealers get commission on every pound they get you to borrow which is why they try to dissuade you from a large deposit.

Really struggling - there are so few cars around to buy!

Also a brand new 0 mileage car is out of the question- as we’re without a car at the moment, we need one that’s available ASAP. Even if we were after a brand new one, the wait times at the moment are ridiculous.

I had a PCP car with no deposit, it was 0% finance so made no difference to what it cost and I was actually planning to pay cash, but there was no discount available for this and by taking finance I got free servicing and breakdown cover, which wasn't available if I paid cash, so worked out better that way.

Are there not any nearly new cars available in dealers OP? I also had to get a new car in an emergency a few weeks ago as my old one failed its MOT and wasn't worth repairing.

I was worried about the shortage but when I started looking there was a few in dealers that were what I was looking for, but I saw one that was advertised on ebay by a car supermarket. I looked to see what was available of this type and it was actually a reasonable deal - a 2 YO Skoda Citigo for £8k. I was initially going to get one a little older, but it wasn't much more for this one. It was also at a branch that was only a couple of miles from my house so easy to view and collect.

Mine came from Available Car which has a few branches in northern England/Midlands, but there are a few similar outfits across the country. I also looked at Cinch/Cazoo but they were more expensive.

I test drove it within a day and picked it up after about a week, and it would have been quicker apart from it had only just come in and needed checking and preparing for sale.

Interestingly, I've just looked at their website to see what they have of this type of car right now and there's only 4 Citigos instead of 10 when I was looking and one I looked at but hasn't sold has now actually increased in price by about £500. The closest comparison to the one I bought is a year older, higher mileage and nearly £1k more expensive.