High vs low deposit on Pcp. Which of these?

[chuci]

Hi you knowledgeable folk. As things stand I just paid off the 12k balloon on my current car. Its currently worth just over 20k and I'd like to get a new car. The dealership has given me these 2 quotes based on the different deposits I put down. Both are over 48months

1)
12k deposit. I'll bank the other 8k
48 x £681
Balloon - £28050

2)
Full px of car - 20k
48 x £465
Balloon - £28050

Annoyingly the Apr is 8.9% hence the higher monthlies these days

The reason why I have equity on my current vehicle is because I never get anywhere near the 10k miles a year and I guess due to the chip shortage. This time round will be similar from a miles pov.

I have no idea if I'll hand the car back at the end and use any equity towards a new vehicle or just pay it and keep it

Any idea which one I should go for? TIA!

Edited by chuci on Thursday 2nd February 15:50

[Mandat]

chuci said:

Hi you knowledgeable folk. As things stand I just paid off the 12k balloon on my current car. Its currently worth just over 20k and I'd like to get a new car. The dealership has given me these 2 quotes based on the different deposits I put down. Both are over 48months

1)
12k deposit. I'll bank the other 8k
48 x £692
Balloon - £28050

2)
Full px of car - 20k
48 x £465
Balloon - £28050

Annoyingly the Apr is 8.9% hence the higher monthlies these days

The reason why I have equity on my current vehicle is because I never get anywhere near the 10k miles a year and I guess due to the chip shortage. This time round will be similar from a miles pov.

I have no idea if I'll hand the car back at the end and use any equity towards a new vehicle or just pay it and keep it

Any idea which one I should go for? TIA!

I would say that you need to decide for yourself in how much cash you want to pay upfront, balanced with what the monthly payment will be.

The main thing to consider is that the lower the deposit, the more you are borrowing, and consequently will be paying more interest.

Edited to add:

Looking at a simple loan calculator, the additional interest on £8,000 at 8.9% for 4 years works out to £1,475.

Edited by Mandat on Thursday 2nd February 15:56

[chuci]

Mandat said:

I would say that you need to decide for yourself in how much cash you want to pay upfront, balanced with what the monthly payment will be.

The main thing to consider is that the lower the deposit, the more you are borrowing, and consequently will be paying more interest.

So is the idea (assuming I'm OK with putting all 20k up front) and regardless of whether I keep the car at the end or px it again, that it's always better to pay more upfront? Or is there a scenario where it makes more financial sense to pay less upfront e.g if I'm handing it back?

If I work out the difference in monthly cost (681 - 465) * 48 months it equals 10368. So by paying 8k more deposit I'm saving £2368 in interest.

[Mammasaid]

chuci said:

So by paying 8k more deposit I'm saving £2368 in interest.

Correct, however you won't have the 8k in the bank. It depends what is more important to you, lower payments or cash in the pocket.

You pays your money, etc.

[Mandat]

It all depends on what you want to achieve.

You may be happy to put all £20,000 upfront or you may want to bank some / all of it for a rainy day. If you already have another £20,000 in the bank then it will be different to having £0 savings.

If you want to minimise the total interest paid, then go for say a HP loan, so that you are not paying interest on the balloon for 4 years. The flip side is that the monthly payments will be higher than with a PCP.

Another thing to consider is that with PCP you have the option of handing the car back at the end of term if you don't want to pay the balloon. HP doesn't give that option (unless to do a voluntary termination).

The point is that there are many variables that you can tweak, and ultimately it will be down to what you are comfortable with signing up to, and how much you want to spent.

[Halitosis]

Only as you've asked in the finance section, the most financially prudent choice would be to keep your existing car. Second best option would be to get a 48 month standard bank loan at a much lower APR (maybe 5% for £25k?), giving you a ~45k budget and full ownership of the car at the end of it with no balloon payment due.

But that's all far too sensible and we only live once

[chuci]

Halitosis said:

Only as you've asked in the finance section, the most financially prudent choice would be to keep your existing car. Second best option would be to get a 48 month standard bank loan at a much lower APR (maybe 5% for £25k?), giving you a ~45k budget and full ownership of the car at the end of it with no balloon payment due.

But that's all far too sensible and we only live once

See I was thinking this but what I couldn't work out was the scenario where the car gets stolen/written off. Gap insurance is not available for regular bank loans.

[Mark V GTD]

The availability of gap insurance has nothing to do with how the car is payed for.

[chuci]

Mark V GTD said:

The availability of gap insurance has nothing to do with how the car is payed for.

I called a few and they said they don't cover finance via bank loans.

[anonymous-user]

chuci said:

Hi you knowledgeable folk. As things stand I just paid off the 12k balloon on my current car. Its currently worth just over 20k and I'd like to get a new car. The dealership has given me these 2 quotes based on the different deposits I put down. Both are over 48months

1)
12k deposit. I'll bank the other 8k
48 x £681
Balloon - £28050

2)
Full px of car - 20k
48 x £465
Balloon - £28050

Annoyingly the Apr is 8.9% hence the higher monthlies these days

The reason why I have equity on my current vehicle is because I never get anywhere near the 10k miles a year and I guess due to the chip shortage. This time round will be similar from a miles pov.

I have no idea if I'll hand the car back at the end and use any equity towards a new vehicle or just pay it and keep it

Any idea which one I should go for? TIA!

Edited by chuci on Thursday 2nd February 15:50

What would you rather have: £8k now in your hands or £216 of additional outgoings for the next four years?

Taking the 8k now will also cost you more in interest over the four years.

Whichever works for you is down to your preferences.

[timbo999]

chuci said:

I called a few and they said they don't cover finance via bank loans.

ALA do:

https://www.ala.co.uk/quote/quote-qualification.ph...

Edited to add that many insurance company policies include it if you are the first registered keeper. NFU do so for up to 2 years old.

Edited by timbo999 on Thursday 2nd February 22:37

[steve_n]

If you can make 8% a year for the next 4 years then you can offset the extra interest on only laying down £12,000. Not an easy task so I wouldn't count on it.

However, you're talking about an extra £60 a month of interest to keep £8,000 in your pocket. Potentially useful depending on other savings like others have said. With cash interest rates now more meaningful you could halve the cost of the extra interest by getting a good rate on the £8,000.

If you'll have to use the £8,000 to cover the extra monthly cost then you won't be able to offset the extra interest as much.

Edited by steve_n on Thursday 2nd February 22:47

[gangzoom]

Mammasaid said:

chuci said:

So by paying 8k more deposit I'm saving £2368 in interest.

Correct, however you won't have the 8k in the bank. It depends what is more important to you, lower payments or cash in the pocket.

You pays your money, etc.

I might be missing something here......

Why would anyone want to pay an extra £2368 of interest in exchange for having £8000 in their bank account now??

Unless you have a very good financial plan for that £8000, you are actually paying nearly 30% interest assuming your figures are correct.

Based on these number there is only ONE financial sensible thing to do in this situation.

Edited by gangzoom on Friday 3rd February 05:29

[Dr Jekyll]

BlackWidow13 said:

What would you rather have: £8k now in your hands or £216 of additional reduced outgoings for the next four years?

Taking the 8k now will also cost you more in interest over the four years.

Whichever works for you is down to your preferences.

EFA

[g3org3y]

gangzoom said:

Based on these number there is only ONE financial sensible thing to do in this situation.

And the answer (genuinely for once!) may be MX5. https://www.pistonheads.com/gassing/topic.asp?h=0&...

[gangzoom]

g3org3y said:

And the answer (genuinely for once!) may be MX5. https://www.pistonheads.com/gassing/topic.asp?h=0&...

100% more financially sensible (and more fun) than planning to pay nearly £2500 of interest on a £8000 loan amount ??!!???.......The interest saved is enough to buy that MX5 and give you change.

Edited by gangzoom on Friday 3rd February 18:39

[jamiedimonBTClover]

gangzoom said:

g3org3y said:

And the answer (genuinely for once!) may be MX5. https://www.pistonheads.com/gassing/topic.asp?h=0&...

100% more financially sensible (and more fun) than planning to pay nearly £2500 of interest on a £8000 loan amount ??!!???.......The interest saved is enough to buy that MX5 and give you change.

Edited by gangzoom on Friday 3rd February 18:39

Not that everyone wants an old 2 seat rust bucket.

OP didn't mention the car.

The actual answer hasn't been given, because most of you are too arrogant to ask the right questions. But don't let that degrade PH advice further.

[chuci]

jamiedimonBTClover said:

Not that everyone wants an old 2 seat rust bucket.

OP didn't mention the car.

The actual answer hasn't been given, because most of you are too arrogant to ask the right questions. But don't let that degrade PH advice further.

It's a glc. I married an American. *facepalm*

[gangzoom]

jamiedimonBTClover said:

Not that everyone wants an old 2 seat rust bucket.

OP didn't mention the car.

The actual answer hasn't been given, because most of you are too arrogant to ask the right questions. But don't let that degrade PH advice further.

You think paying £2300 of interest on a £8000 debt is a good thing?

[jamiedimonBTClover]

gangzoom said:

You think paying £2300 of interest on a £8000 debt is a good thing?

It doesn't matter what I think..... the OP has not given us his full finances or attitude to risk.

There is nothing wrong in paying interest. It's £47 a month here.... only when its stacked up againt everything else can we say it's good or bad.

He's not putting 8k on a credit card that some idiots buying 2nd hand cars do. At least. I bet a good chunk of MX5 is funded that way. Or paying for stuff when sheds blow up....

Can an 8k investment outperform 8% plus interest with low risk. Unlikely. You could offset half "ish"the interest cost if he bought Gilts. But then you are in the land of faff for 47quid a month. Could save that dumping Sky packages.

The most straight forward and in absence of full details, would be reduce LTV from the start and get on with his life.

Going max deposit has 2 other benefits. If you want to "own' or buy it outright - it's psychological easier to hit a lower GFV. And if you want to switch earlier in the deal you are at a lower risk of being in negative equity.

But smaller deposit might mean rainy day or investment punting fund.... 8k punting SPX might yield much more than 2.3k IF (IF) the markets go risk on.

2nd hand sheds or HP never formed part of the OP....

EdIt to add.... I wouldn't be assuming there is equity in it at 4years though. That's your zero cost exit point. There might be equity in it, but 4 years is a long time to predict.

Edited by jamiedimonBTClover on Saturday 4th February 08:07