Best way to buy car - PCP or bank loan?
Discussion
Good evening all,
I am having a bit of an issue deciding which way I will go about buying my new car and was hoping to get some thoughts. It's a new Mercedes
It's a Mercedes AMG A35 and the price of car is £39,982. I am adding my car as a £10k part exchange, so cost of financing will be £29,982. I have put a deposit down of £500 already and the car will be built and delivered by end of May.
PCP
£356 x 48 monthly payments @ 6.3%
GFV - £18,750
10k miles
Bank Loan - from my own bank (I have not shopped around with likes of Tesco as I do not want to run the risk of ruining my credit history. I went to my Bank and they said they have pre-approved me)
£21k @ 5.2% for 60 months (5 years) - this is as much as I want to borrow
Add £8,332 of my own money
I have the money to pay for the car in full but I do not want to sink nearly £30k into a depreciating asset upfront so I want to pay off monthly whilst having a nice pot of money available when/if I need it.
What do people think is the best way for me to finance the deal here? I see the pro's and cons for both. If I go PCP, I wouldn't look to pay the balloon at the end, i'd most likely look to trade in after 4 years.
My worries with PCP is I will be left with negative equity at the end of the deal, which means the salesman (or saleswoman) will roll in the negative equity into my new deal so I will be paying more per month on the next car (who knows by how much?) and also I will probably need to find a deposit again. Also, currently there is some uncertainty around my work location, I could find myself travelling more miles in the next year or so which would mean I could be hit with excess mileage (I think it's 12p per mile). Am I right in saying if I were to part exchange I do not have to worry about paying any excess mileage? I am aware though it could impact the value of my trade in (which goes back to the negative equity part). Also, could I then be sucked into a PCP trap for years to come??
Benefits of PCP is I will save the £8k and lower monthly payments but the hassle of 4 years time has me thinking.
Benefits of the bank loan is I pay the monthly payments, don't worry about mileage etc and can keep the car however long I want to without the worries of having to make a decision in 4 years. Negative is obviously higher monthly payments and putting £8k of my own money in.
I also will be remortgaging start of next year, would either PCP or a big bank loan of 21k have a potential impact? I have previously had PCP and a smaller bank loan whilst applying/remortgaging without issue but wasn't sure if things have changed over last 2-3 years?
I appreciate some people may not agree with me buying a brand new car due to depreciation etc but it's what I want to do, I have never had one in my life and I think right now is the best time for me to do it.
I apologise for the long post but I was hoping to get some advice as I really can't decide at the moment.
I am having a bit of an issue deciding which way I will go about buying my new car and was hoping to get some thoughts. It's a new Mercedes
It's a Mercedes AMG A35 and the price of car is £39,982. I am adding my car as a £10k part exchange, so cost of financing will be £29,982. I have put a deposit down of £500 already and the car will be built and delivered by end of May.
PCP
£356 x 48 monthly payments @ 6.3%
GFV - £18,750
10k miles
Bank Loan - from my own bank (I have not shopped around with likes of Tesco as I do not want to run the risk of ruining my credit history. I went to my Bank and they said they have pre-approved me)
£21k @ 5.2% for 60 months (5 years) - this is as much as I want to borrow
Add £8,332 of my own money
I have the money to pay for the car in full but I do not want to sink nearly £30k into a depreciating asset upfront so I want to pay off monthly whilst having a nice pot of money available when/if I need it.
What do people think is the best way for me to finance the deal here? I see the pro's and cons for both. If I go PCP, I wouldn't look to pay the balloon at the end, i'd most likely look to trade in after 4 years.
My worries with PCP is I will be left with negative equity at the end of the deal, which means the salesman (or saleswoman) will roll in the negative equity into my new deal so I will be paying more per month on the next car (who knows by how much?) and also I will probably need to find a deposit again. Also, currently there is some uncertainty around my work location, I could find myself travelling more miles in the next year or so which would mean I could be hit with excess mileage (I think it's 12p per mile). Am I right in saying if I were to part exchange I do not have to worry about paying any excess mileage? I am aware though it could impact the value of my trade in (which goes back to the negative equity part). Also, could I then be sucked into a PCP trap for years to come??
Benefits of PCP is I will save the £8k and lower monthly payments but the hassle of 4 years time has me thinking.
Benefits of the bank loan is I pay the monthly payments, don't worry about mileage etc and can keep the car however long I want to without the worries of having to make a decision in 4 years. Negative is obviously higher monthly payments and putting £8k of my own money in.
I also will be remortgaging start of next year, would either PCP or a big bank loan of 21k have a potential impact? I have previously had PCP and a smaller bank loan whilst applying/remortgaging without issue but wasn't sure if things have changed over last 2-3 years?
I appreciate some people may not agree with me buying a brand new car due to depreciation etc but it's what I want to do, I have never had one in my life and I think right now is the best time for me to do it.
I apologise for the long post but I was hoping to get some advice as I really can't decide at the moment.
Edited by bowers on Tuesday 2nd April 00:31
If you have the means to buy it, you are FAR better off financially by doing so rather than pay interest on a loan. You won't make the interest in savings that you'll be paying out. You will, however, be saving £350 per month that you can put back in and no balloon payment later. This is the option to go for.
With PCP bear in mind the interest rates aren't the numbers normal people understand - they're there to make it look less than it is. You also pay interest, I believe, on the balloon payment amount as well.
Obviously a bank loan is far simpler than PCP and in real terms cheaper, because interest is less and you own a car at the end.
With PCP bear in mind the interest rates aren't the numbers normal people understand - they're there to make it look less than it is. You also pay interest, I believe, on the balloon payment amount as well.
Obviously a bank loan is far simpler than PCP and in real terms cheaper, because interest is less and you own a car at the end.
Edited by Baldchap on Tuesday 2nd April 07:21
schmunk said:
Tesco Bank is offering 3.0% APR on loans of that amount, others even less. You should shop around for a better loan rate.
The main issue is getting one.On an experien crest score of 999 we were pre approved for the loan, then when we applied guess what?
14.2%
We tried three lenders, HSBC, Admiral and Tesco and not one would offer the quoted 2.9-3.3% when applied for.
This was for £15k over 5 years for a car.
If you don’t intend to own it at the end then consider leasing, however you should go for the option that costs you the least amount of money over the set loan period
I would not put 10k in, yes it lowers the payments but when you get to year 4 when you start the next pcp you won’t have another 10k towards the next deal, the negative equity in year 4 won’t matter as you can just hand it back, however it does mean you won’t have anything for a deposit.
Personally I would look to see if I could afford the monthly payments based on £2000 deposit, if not consider the bank loan option, you will pay more per month but you will also pay a lot less interest and have an asset at the end worth 15k (guessing)
I would not put 10k in, yes it lowers the payments but when you get to year 4 when you start the next pcp you won’t have another 10k towards the next deal, the negative equity in year 4 won’t matter as you can just hand it back, however it does mean you won’t have anything for a deposit.
Personally I would look to see if I could afford the monthly payments based on £2000 deposit, if not consider the bank loan option, you will pay more per month but you will also pay a lot less interest and have an asset at the end worth 15k (guessing)
Ran some numbers on this - bank loan is the clear victor as the reduction in interest and amount of money paid interest on means you'd be getting your £8K back at the end and then some. You could also terminate at the end of year 2 if you wished and be ahead (you'll have more back than the *extra* 8K you've put in). I've used numbers based on PCP of Mercedes-Benz A Class A35 4Matic Premium Plus (https://www.autotrader.co.uk/classified/advert/201903286370293) for approximations of the value estimates earlier on.
If I've got this wrong, please someone correct me!
Amount in / Amount owed
Day 1
PCP - £10,500 / £35,838 (£356 * 48 + £18,750)
Loan - £18,832 / £22,092 (£21,000 * 1.052)
End of Year 1
PCP - £14,772 / £31,566
Loan - £23,250.40 / £17,673.60
End of Year 2
PCP - £18,744 / £27,294
Loan - £27.668.80 / £13,255.20
Assume value of car = £23,800
Money in pocket after selling car and settling loan = +£10,574.80 (£23,800 - £13,225.20 outstanding loan balance)
End of Year 3
PCP - £23,016 / £23,022
Loan - £32087.20 / £8836.80
Assume value of car = £20,575
Money in pocket after selling car and settling loan = +£11,738.20
End of Year 4 (PCP End Point)
PCP - £27,288 / £18,750
Loan - £36505.60 / £4418.40
Assume value of car = £18,750
Money in pocket after selling car and settling loan +/- = +£14,331.60
As you've said you wouldn't be paying the final payment on the PCP, therefore you'd stand at £0.
If I've got this wrong, please someone correct me!
Amount in / Amount owed
Day 1
PCP - £10,500 / £35,838 (£356 * 48 + £18,750)
Loan - £18,832 / £22,092 (£21,000 * 1.052)
End of Year 1
PCP - £14,772 / £31,566
Loan - £23,250.40 / £17,673.60
End of Year 2
PCP - £18,744 / £27,294
Loan - £27.668.80 / £13,255.20
Assume value of car = £23,800
Money in pocket after selling car and settling loan = +£10,574.80 (£23,800 - £13,225.20 outstanding loan balance)
End of Year 3
PCP - £23,016 / £23,022
Loan - £32087.20 / £8836.80
Assume value of car = £20,575
Money in pocket after selling car and settling loan = +£11,738.20
End of Year 4 (PCP End Point)
PCP - £27,288 / £18,750
Loan - £36505.60 / £4418.40
Assume value of car = £18,750
Money in pocket after selling car and settling loan +/- = +£14,331.60
As you've said you wouldn't be paying the final payment on the PCP, therefore you'd stand at £0.
LaurasOtherHalf said:
schmunk said:
Tesco Bank is offering 3.0% APR on loans of that amount, others even less. You should shop around for a better loan rate.
The main issue is getting one.On an experien crest score of 999 we were pre approved for the loan, then when we applied guess what?
14.2%
We tried three lenders, HSBC, Admiral and Tesco and not one would offer the quoted 2.9-3.3% when applied for.
This was for £15k over 5 years for a car.
When you say applied for, did you apply with all 3 and get given quotes based on you after running your details?
RammyMP said:
That’s true but how much money would have been sunk into the car by then? With a £10k deposit will that be economic?
It would stand at about 22,5k (half) over 3 years, having a quick look at leasing and it would be a cheaper option although you dont have the flexibility of the PCPWhy are you concerned about negative equity with the PCP
If you keep the car for the term and simply hand it back there is no negative equity - irrespective of what the car is worth
If you hand it back with more miles than agreed then there is no negative equity - simply an excess mileage charge
If you keep the car for the term and simply hand it back there is no negative equity - irrespective of what the car is worth
If you hand it back with more miles than agreed then there is no negative equity - simply an excess mileage charge
Why this agonising over interest rates and monthly payments....but missing the fat elephant eating your lunch?
List price of A35 AMG is £35.5k before any discount is haggled, yet OP is paying £40k. Broadspeed have them listed at 3k discount before the discussion starts.
I would not buy any new mass market car unless discount is at least 15%, and closer to 25%. UK list prices are all bumped up to create headroom for greater monthly payments for those buying on PCP etc. Aka a massive rip off screwing those consumers paying the depreciation of first 3 years on PCP (increasing list price by 25% can double the monthly payment if the car is worth roughly half list after 3 years). How else can brands afford to make big deposit contribution promotions?
Appreciate OP wanting to experience a new car, but that first mile driven is the most expensive lunch....and the car will still be the same lump of moving metal after 1000 miles.
Bought new VW Polo last June list 17k for 13k, and few years ago a C63AMG for 15k off List (albeit it was MB dealer demo with 1600 miles), and a new E250cdi for 8k off list. So keen deals are out there if you have patience and confidence to look, and then finance as part of the overall motoring cost will be relatively insignificant.
List price of A35 AMG is £35.5k before any discount is haggled, yet OP is paying £40k. Broadspeed have them listed at 3k discount before the discussion starts.
I would not buy any new mass market car unless discount is at least 15%, and closer to 25%. UK list prices are all bumped up to create headroom for greater monthly payments for those buying on PCP etc. Aka a massive rip off screwing those consumers paying the depreciation of first 3 years on PCP (increasing list price by 25% can double the monthly payment if the car is worth roughly half list after 3 years). How else can brands afford to make big deposit contribution promotions?
Appreciate OP wanting to experience a new car, but that first mile driven is the most expensive lunch....and the car will still be the same lump of moving metal after 1000 miles.
Bought new VW Polo last June list 17k for 13k, and few years ago a C63AMG for 15k off List (albeit it was MB dealer demo with 1600 miles), and a new E250cdi for 8k off list. So keen deals are out there if you have patience and confidence to look, and then finance as part of the overall motoring cost will be relatively insignificant.
HocusPocus said:
Why this agonising over interest rates and monthly payments....but missing the fat elephant eating your lunch?
List price of A35 AMG is £35.5k before any discount is haggled, yet OP is paying £40k. Broadspeed have them listed at 3k discount before the discussion starts.
I would not buy any new mass market car unless discount is at least 15%, and closer to 25%. UK list prices are all bumped up to create headroom for greater monthly payments for those buying on PCP etc. Aka a massive rip off screwing those consumers paying the depreciation of first 3 years on PCP (increasing list price by 25% can double the monthly payment if the car is worth roughly half list after 3 years). How else can brands afford to make big deposit contribution promotions?
Appreciate OP wanting to experience a new car, but that first mile driven is the most expensive lunch....and the car will still be the same lump of moving metal after 1000 miles.
Bought new VW Polo last June list 17k for 13k, and few years ago a C63AMG for 15k off List (albeit it was MB dealer demo with 1600 miles), and a new E250cdi for 8k off list. So keen deals are out there if you have patience and confidence to look, and then finance as part of the overall motoring cost will be relatively insignificant.
Maybe that's the discounted price with options?List price of A35 AMG is £35.5k before any discount is haggled, yet OP is paying £40k. Broadspeed have them listed at 3k discount before the discussion starts.
I would not buy any new mass market car unless discount is at least 15%, and closer to 25%. UK list prices are all bumped up to create headroom for greater monthly payments for those buying on PCP etc. Aka a massive rip off screwing those consumers paying the depreciation of first 3 years on PCP (increasing list price by 25% can double the monthly payment if the car is worth roughly half list after 3 years). How else can brands afford to make big deposit contribution promotions?
Appreciate OP wanting to experience a new car, but that first mile driven is the most expensive lunch....and the car will still be the same lump of moving metal after 1000 miles.
Bought new VW Polo last June list 17k for 13k, and few years ago a C63AMG for 15k off List (albeit it was MB dealer demo with 1600 miles), and a new E250cdi for 8k off list. So keen deals are out there if you have patience and confidence to look, and then finance as part of the overall motoring cost will be relatively insignificant.
As an aside not all mass marketed cars are available with a discount of 15-25% when looking for my type r the dealers were holding firm
Montybaber said:
HocusPocus said:
Why this agonising over interest rates and monthly payments....but missing the fat elephant eating your lunch?
List price of A35 AMG is £35.5k before any discount is haggled, yet OP is paying £40k. Broadspeed have them listed at 3k discount before the discussion starts.
I would not buy any new mass market car unless discount is at least 15%, and closer to 25%. UK list prices are all bumped up to create headroom for greater monthly payments for those buying on PCP etc. Aka a massive rip off screwing those consumers paying the depreciation of first 3 years on PCP (increasing list price by 25% can double the monthly payment if the car is worth roughly half list after 3 years). How else can brands afford to make big deposit contribution promotions?
Appreciate OP wanting to experience a new car, but that first mile driven is the most expensive lunch....and the car will still be the same lump of moving metal after 1000 miles.
Bought new VW Polo last June list 17k for 13k, and few years ago a C63AMG for 15k off List (albeit it was MB dealer demo with 1600 miles), and a new E250cdi for 8k off list. So keen deals are out there if you have patience and confidence to look, and then finance as part of the overall motoring cost will be relatively insignificant.
Maybe that's the discounted price with options?List price of A35 AMG is £35.5k before any discount is haggled, yet OP is paying £40k. Broadspeed have them listed at 3k discount before the discussion starts.
I would not buy any new mass market car unless discount is at least 15%, and closer to 25%. UK list prices are all bumped up to create headroom for greater monthly payments for those buying on PCP etc. Aka a massive rip off screwing those consumers paying the depreciation of first 3 years on PCP (increasing list price by 25% can double the monthly payment if the car is worth roughly half list after 3 years). How else can brands afford to make big deposit contribution promotions?
Appreciate OP wanting to experience a new car, but that first mile driven is the most expensive lunch....and the car will still be the same lump of moving metal after 1000 miles.
Bought new VW Polo last June list 17k for 13k, and few years ago a C63AMG for 15k off List (albeit it was MB dealer demo with 1600 miles), and a new E250cdi for 8k off list. So keen deals are out there if you have patience and confidence to look, and then finance as part of the overall motoring cost will be relatively insignificant.
As an aside not all mass marketed cars are available with a discount of 15-25% when looking for my type r the dealers were holding firm
So first step that OP needs to take is to bin off his current dealer and buy it off DTD, lose the deposit if necessary. Then if you can swing the monthly payments you’d be better off taking the bank loan - because on a PCP that £10K you’re putting in will never be seen again.
Begall said:
Looks like an A35 Premium Plus (the list price for which exactly matches the price he lists in the OP) can be had for 4.5K less via drive the deal. There aren’t many options you can even put on that, 4.5K worth would be pretty greedy.
So first step that OP needs to take is to bin off his current dealer and buy it off DTD, lose the deposit if necessary. Then if you can swing the monthly payments you’d be better off taking the bank loan - because on a PCP that £10K you’re putting in will never be seen again.
Not knowing the options/packages I wouldn't know if that was feasibly list price, I suppose I assumed it was including some kind of discountSo first step that OP needs to take is to bin off his current dealer and buy it off DTD, lose the deposit if necessary. Then if you can swing the monthly payments you’d be better off taking the bank loan - because on a PCP that £10K you’re putting in will never be seen again.
Surely if you lose the deposit you will still be paying it back in monthly payments which will also never be seen again?
I am quite simplistic in that I look at total cost over a time period (assumption is car is returned early or at end of term with no equity) approx 22.5k over 3 years, 27k over 4 yrs, bank loan is 42.5k over 4 years (4%) but it's a lottery how much the car is worth when selling up so could be 28k over 4 years or 22.5k depending on sale price
Assuming you keep the car and have the money for the balloon at the end its approx 45k (pcp) or 42.5k (bank loan)
leasing is cheaper but less flexibility during the term
Personally I like decent deposits on PCP (to stay above the depreciation curve) also I ensure I have cash put away for the balloon in case I want to keep the car (which I never do) in fact I rarely make it past a year before swapping cars (clown)
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