# PCP vs Loan



## RandomlySet (Jul 10, 2007)

Talk to me guys.

A bit late, considering we just took delivery of a new car on Saturday just gone!

We've had a PCH in the past, and the last car (Pulsar) was on PCP. We actually made money on that by selling it to Arnold Clark!

So, we have just taken a new PCP deal on the Swace for 4 years. SWMBO has now said that for a few quid a month less, we could clear the finance on it with a personal loan, but would mean keeping the car for 7 years! I think in her mind, when it comes to finding a new car in 3.5-4 years, we'll struggle to find what we want, and no doubt, prices for new cars will have shot up (like they have done since we got the Pulsar). After just a few days, she loves this car and says she's happy to keep it.

I guess with the PCP we have, we can just walk away after 4 years, or maybe make a little cash like we did on the Pulsar. Whereas with a loan, if we kept it until the end of the term (7 years), then anything we sell it for is all ours.

Am I missing anything else?

All I'd say is, the whole reason she was open to the idea of new cars originally, was because of her "family curse with second hand cars" :lol: She found her family were always saving away "just in case" something broke, and MOT failures etc. So in 2015, she agreed to having a new car to remove any stress and anxiety (thinking that any potential issues would be covered by warranty in the first few years).

_PS, obviously with PCP, we could just hand it back after about 3.5 years if we suspected any potential mechanical issues. But that said, we do about 5,000 miles a year, so hardly getting a beating TBH_


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## SteveTDCi (Feb 8, 2006)

For me it’s all about spending the least amount of money in terms of interest payments. 

What interest rate do you have on the Suzuki ?

I’ve never understood why people buy brand new to save money, it’s usually driven by saving money on fuel. If you maintain them correctly and for me that means servicing every year then they don’t usually cost a lot to run, unless it’s something ac related then a warranty won’t cover that - seems to happen to golfs and q5’s at the minute,


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## RandomlySet (Jul 10, 2007)

TBH, we got the last 3 cars (well 4 if you include this) more as "peace of mind" for her more than anything else.

The other option when looking at replacing the Pulsar was to take a personal loan, and buy a 2 year old car or similar. But then comes the stress and anxiety for the Mrs again once any warranty etc has ran out (she has terrible anxiety and worries about everything).

So, TBH, the new car thing is more about convenience I guess...

It does work out we'd pay a lot less if we cleared the finance and had a personal loan. It also means sticking with the car for 7 years rather than 4....

That said, it's an estate and we've just had our first kid, so I guess it'll be practical for that whole time, and when kiddo is 6-7, we can then look at going back down to a regular hatch.


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## Taxboy (Aug 23, 2006)

Don't forget with a loan you can still have the flexibility of selling the car at any time. You don't necessarily have to keep it until the loan is paid off. However as I'm sure you are aware the depreciation curve flattens the longer into ownership

Sent from my moto g(7) plus using Tapatalk


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## Andy from Sandy (May 6, 2011)

So long as the loan company don't insist the car is used as security. i.e. they take it away to repay the loan if you forfeit.


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## Andyblue (Jun 20, 2017)

It’s sounds like you’re comparing a 4 year PCP against a 7 year loan to buy the car ? 

Few questions that may (or may not  ) help…

Can you cash in that early and actually buy the car like your thinking ? 
Do you have the option to purchase the car at the end of the 4 years ? 
Have they given you a figure for what it would cost to purchase the car at that point (presuming you can) ? 

Does taking a short term loan at that point work out more expensive / cheaper than a 7 year loan now - taking into what you e already paid over 4 years ? 

Do you really want to be taking a loan out for 7 years on the car ? 

Hope it’s of some help…


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## macca666 (Mar 30, 2010)

Too many variables I reckon to give a ********** answer similar to Andyblue comment above.

I've done both and my last 2 cars were PCP which I paid off at the end of the term. First one was 4 year and the last one 2 year you'll find the length of the PCP can make a difference to your APR.

Each time I buy I look at all optionss and tend to price pcp over 2, 3 and 4 years working out how much I pay overall to see what suits me best. 

I've found their are dealer incentives for taking their finance meaning additional contribution or lower rates which is why its worked out better for me recently. 

Again though with PCP depends how much deposit, miles pa, final payment, length of agreement etc IMO its not just a case of one over the other is down to personal circumstances and choice.

With your PCP you should have a final payment figure so you could take a loan at that point fir the 3 year and ultimately own the car paid back over the same period as your 7 year personal.


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## MDC250 (Jan 4, 2014)

Only time a loan would make sense to me is is when you slap a large deposit down to keep the monthly spend low. This is kind of counter intuitive as generally the whole reason to finance a car is to keep as much of your money to yourself as possible. Tying up large amounts into a depreciating asset doesn’t generally make sense.


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## Richf (Apr 26, 2008)

Yep you need to do the maths and work it out 

Its not easy to compare the two as one is for 7 years and the other 4 and you will only be paying for about 50% of the car on the pcp deal 

Work out what the GFV of balloon payment would cost to finance via a loan for 3 years which should give you a better comparison.

PCP is sometimes cheaper but always easier you need to work out if the convenience is worth the price you pay


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## percymon (Jun 27, 2007)

Dependent upon how savvy the PCP provider is they may have set a high GFV to keep payments low, or as reflection of how used car prices are progressing currently. This can work to your advantage if after 4 years you want a change and just walk away. 

They may also have used old numbers in which case buying outright at the end of the PCP and then reselling can work in your favour (I'm at this point now, i was originally going to just hand back, but in the end paying the balloon and subsequently reselling within a few months will net me £7k profit).

Either way i would imagine your PCP interest rate is higher than a bank loan (typically under 3% currently), but 4 years PCP interest vs 7 years bank loan interest might ultimately be much the same overall outlay.


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## James_R (Jun 28, 2007)

RandomlySet said:


> Talk to me guys.
> 
> A bit late, considering we just took delivery of a new car on Saturday just gone!
> 
> ...


You should have a cooling off period of 14 days for your PCP, during which you can say actually I don't want the PCP finance with the manufacturer, and get them to do the order form again with you paying the balance in full (by way of you arranging a personal loan)

Again as said before, as long as the bank don't insist your car is security on your loan, you can sell the car whenever you want because the car wont be 'financed'.

Explore your possibilities and do the maths to see what suits you.
You've got the car and it sounds like you like it (or your mrs does)

Theres nothing to stop you changing the car at 4 years in the future if you have a personal loan.
You'd just top it up if you needed more money for the next one :thumb:


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## Cookies (Dec 10, 2008)

I'm going to look at this from a slightly different perspective.

If peace of mind is key, and you're potentially intent on a personal loan over 7 years, then either look at buying a car like a Kia or a Toyota* which will have warranty cover for 7 years.

Alternatively, once you get to the end of year 3, factor in the additional cost of an extended manufacturer's warranty on top of the loan amount to see what makes best financial sense.

*Toyota gives you a year's warranty and breakdown cover with each service, up to 10 years and 100000 miles. Fantastic value.

Cooks

Sent from my VOG-L29 using Tapatalk


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## kingswood (Jun 23, 2016)

pcp is a liabilty - your duty bound to pay for the car for the length of the contract (maybe release at the half way point)

a loan the car becomes an asset you can sell at anytime.

a new pcp you have hassle free motoring during the term - no mot, warranty etc. maybe a set of tyres.

keeping a car 7 years - unless a ling warranty manufacturer - you have pre-emptive maintenance to consider. disk, pads, suspension, clutch 

im a weirdo and have to own my cars. when I bought the R32 in September 2015 I lent 10k over 4.5 years. £200 a month. I could have pcp'd a new Golf 7 R for about the same money for 4 years. then have to hand it back. 

once I'd paid the golf off its now still worth 8k.


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## Gas head (May 28, 2010)

PCP is the most expensive way to purchase a car according to my bank which also does pcp deals.
Personal loan seems to be the way to go.


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## Rob_Quads (Jul 17, 2006)

One of the key things with comparing it is just pick a fixed point. If you want that to be 3 years compare it over that period. That said it doesn't mean you loan needs to be over 3 years. You can spread it over how ever many you like just make sure your doing it such that at 3 years your happy that you won't owe more than the car is worth. 

Then you can compare all the rates and decide what is best. 

We've always ended up going cash buyers, normally because we have gone for the 2/3 year old cars which historically didn't have PCP etc although more recently they now do. Recently the loan rates have been so low its been the winner for me. 

I have also owned cars for more than 2/3 years and often don't know how long I will keep it i.e. 350z kept for 5 years, Octavia VRS 3 years, SQ5 3 years and nothing around to replace it with at the moment. Wifes Mazda 3 and a Mitsubishi ASX only lasted 1 year.


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## Richf (Apr 26, 2008)

kingswood said:


> pcp is a liabilty - your duty bound to pay for the car for the length of the contract (maybe release at the half way point)
> 
> a loan the car becomes an asset you can sell at anytime.
> 
> ...


A loan is a liability

You can pay off the pcp at any time and you can sell the car thats no different than a loan


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## Richf (Apr 26, 2008)

Gas head said:


> PCP is the most expensive way to purchase a car according to my bank which also does pcp deals.
> Personal load seems to be the way to go.


According to the bank ?

A pcp can often be cheaper than a bank loan in depending on dealer finance contributions, 0% pcp can sometimes be had also

The last 2 cars i bought on pcp deals were paid off the following week so i got the dealer contribution, the car before that was bought on pcp with the capital invested and I made more money on the capital than i paid in interest on the finance. My most recent car was bought for cash as I couldn't get a good deal

Where PCP doesnt work as well is if you change every 3 years but this is always a bad option as you are owning the car at its highest depreciation point which is always most expensive.

As I said before you need to do a finance breakdown on each and every deal and compare them, there is no one size fits all approach to getting the best deal


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## Andy from Sandy (May 6, 2011)

Do people who use PCP negotiate the future value figure such that when the time comes to chop in the car for another the option to purchase is more attractive?

These deals must affect the whole market. At present used car prices are high, if that is used as the basis for the future value and also for the people loaning money to these dealers to purchase the car to lease it out there maybe a shock for some if the bottom falls out in 3 or 4 years time.


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## 20vKarlos (Aug 8, 2009)

This is quite literally a numbers game that only you and your partner can decide on... 

This argument is the "Robbing Peter to pay Paul" of all systems and it can ONLY be your circumstances that determine the deciding factor. 

What can you afford each month without it being a stretch?
Planning for the future, are you likely to have another child? that's an expense that needs some thought NOW if you're planning on a 7 year financial agreement.

What works now WILL NOT work in 5 years in most cases, so if I am honest, pay more over a shorter period if you can.

HP, PCP, a Loan... They all have their positives and negatives when it comes to the nitty gritty.

PCP & HP...
Can you pay it off now or early?
If you sell the car, you MUST clear the finance immediately or the buyer can clear the finance on the phone when buying too. 

Loan...
You can pay it off at any time with larger payments.
You can refinance the loan if you get a better paying job etc and want to clear it faster. 


If you want to do this.. DO IT NOW! you've just had a credit search in the last month (I'm guessing) so it would be better to do it now rather than next month as your file will have dropped slightly due to the PCP deal 

I spent a long time with numbers looking at my best method of purchase for the Skoda Superb, and it worked out better for me to HP that car and I did rather well out of it in the end.


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## kingswood (Jun 23, 2016)

Richf said:


> A loan is a liability
> 
> You can pay off the pcp at any time and you can sell the car thats no different than a loan


you'd have to come up with the full pcp value, in my case with the R wld have being 30k. good luck if your circumstances change 12 months into a 4 year deal. they won't be interested

a bank loan is a liability, you owe the bank money, but its not tied to the car. you can sell it with no penalty and pay the loan off if ur circumstances change


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## Del-GTi (Mar 31, 2007)

Bit late to the party but here is my tuppence worth:

Any finance agreement is a liability! You owe someone money, simple as that! But for most people, that’s how life works. 

Age old question of pcp vs loan. For me, someone who pcp’d their current car - I’d say it depends on whether you just like to keep your car until it’s time for another one or like to swap every couple of years.

PCP - low monthly payments, but if you decide to change car 1 or 2 years in, you won’t have paid enough and will owe more than car is worth. (Unless you’ve paid huge deposit, which is a waste as you never see that money again.) Keep for full term, hand back, walk away. Or hand back, take another car. Or pay gfv payment and keep car. Simples.

Loan - higher monthly payments, usually for longer (to compensate for no gfv payment). Normally lower apr, car is yours from day one so if you decide to change, negative equity might be closer to zero. 

All just my opinion. But for info, my next car will be paid for with a loan - as I get bored with cars after about 2 years. My pcp deal meant I always owed more than car was worth but the payments were really low so I didn’t mind keeping it. It’s been cheap motoring. Just I’ve kept it longer than I’d have liked.


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## Andy from Sandy (May 6, 2011)

> It's been cheap motoring.


You are a salesman's dream customer! That is exactly how they want you to see their deals.


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## andy665 (Nov 1, 2005)

as has already been said there are so many variables to this that its totally impossible to say what is best. I have bought new and used, used cash, bank loans, PCP, dealer HP and Contract Hire.

Decisions have been made on whats best for me at the time, not always the cheapest options as sometimes you are prepared to pay for convenience etc. Currently one car with a small personal, one car owned outright and one on Contract hire that will be replaced with a used car and mix of cash and small personal loan


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## Del-GTi (Mar 31, 2007)

Andy from Sandy said:


> You are a salesman's dream customer! That is exactly how they want you to see their deals.


Don't assume that I'm that naive. If you knew what I was paying monthly you'd agree it's been a cheap car to run.


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## Richf (Apr 26, 2008)

kingswood said:


> you'd have to come up with the full pcp value, in my case with the R wld have being 30k. good luck if your circumstances change 12 months into a 4 year deal. they won't be interested
> 
> a bank loan is a liability, you owe the bank money, but its not tied to the car. you can sell it with no penalty and pay the loan off if ur circumstances change


Of course its a condition that you cant sell the car until you actually own it

If your circumstances do change you could take out a loan and settle the pcp its not different

Its certainly not advisable to take out a car loan, and then sell the car, that would leave you with a debt and no car and may breach the conditions of the loan.

Its also not advisable to take out a pcp if you dont have at least 12 months payments in the bank imo.

So often pcp deals are blamed for irresponsible lending but more often than not its irresponsible borrowing thats the problem


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## Andy from Sandy (May 6, 2011)

The thing is though the lender is, in this day and age, supposed to protect the buyer from themselves and not allow them to take on more debt than they can afford.

I was reading an article the other day discussing how the car industry is possibly creating a big problem for itself similar to the prime mortgage bad debt blunder.


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## Richf (Apr 26, 2008)

Andy from Sandy said:


> The thing is though the lender is, in this day and age, supposed to protect the buyer from themselves and not allow them to take on more debt than they can afford.
> 
> .


Are they, do we not have any personal responsibility anymore?

I think the majority of people do take on more debt than they can afford should their circumstances change, most people have less than £10k in savings and should the worst happen they are unprepared. If someone doesn't have enough money saved to last at least 3 months they should not take on any debt at all


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## Andy from Sandy (May 6, 2011)

I do agree with you on being responsible. Unfortunately some try to keep up with the Jones' not knowing the Jones' are in a bad way with their finances as well!

By your own admission people are not being responsible, "I think the majority of people do take on more debt than they can afford." Which is why they ought to be protected from themselves but a sale is a sale.


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## Walesy. (Oct 1, 2009)

Andy from Sandy said:


> I do agree with you on being responsible. Unfortunately some try to keep up with the Jones' not knowing the Jones' are in a bad way with their finances as well!
> 
> By your own admission people are not being responsible, "I think the majority of people do take on more debt than they can afford." Which is why they ought to be protected from themselves but a sale is a sale.


This happens round this way and has been more evident of recent, infact its pretty rife. All dickish attitudes too, I gather to mask the issues. Living month to month and as someones said, very little in savings!

These are the people that go to a social gathering/pub and take a half bottle with them. I kid you not! But they quote all sorts about the cars, holidays etc. 
One guy I know PCP'd a BMW M4 to keep up or stand out from the Jones' and it was all over social media...that's away now and rather quickly just into the pandemic, the showy offy stuff also stopped. So people are going to come undone soon in my opinion.

The PCP, never got it...
You pay a deposit, pay the monthly, pay fuel, pay insurance etc. etc. and its not yours. So in my mind, it does bother me. Id rather know, I own that car. Maybe I am just of an old mindset, I dont know.

I started with HP long ago when the deals were ok (had a friend in the industry to which rates were silly low) but I hated it, but I then used personal loans afterwards giving me the flexibility. The extra I was saving using PL's, got tucked away and I am now in a position I buy cash outright (max 6 months old from dealer), still using my payments limit as a savings account for cars. However, that's not beneficial now as the interests rates are so low in savings accounts etc. you make nothing.

I wouldn't rule out a PL again of I felt the need, Hitachi PF and Cazoo were offering silly low rates a while back. Not sure how thats going to go after this carry on.


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## GleemSpray (Jan 26, 2014)

It's nothing new, unfortunately. 

I worked with a guy back in the early 90`s who was paying well over £1000 a month to finance a 911 turbo, but would deliberately meet people away from his house because it was a very run-down terrace.

"The more you know, the less you need " and all that.


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## ridders66 (May 24, 2019)

In the words of the great Monty Python, " SPAM, SPAM, SPAM ,SPAM, SPAM!!!"


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