Loan vs PCP - a quick sanity check
Discussion
Looking at buying a used Corolla Hybrid at the moment so would appreciate if someone with more experience might check the logic below:
Scenario A: a 3 year old car costs around 24k and is being financed via PCP with circa £390 per month for 48 months and a ~ 11k balloon payment at the end.
Scenario B: a 5 year old car around 17k and is being financed with a personal bank loan for the same term and comparable monthly payment, no balloon payment at the end.
Question: am I assuming correctly that all things being equal (car being serviced on time, no accidents etc) the actual 'equity' would be higher in Scenario B?
I have no experience of PCP and these cars are relatively new, so hard to estimate what the actual value scenario A car would be at the end of term, but it's unlikely to be more than a couple of thousand over the balloon, is it?
I am not overly concerned about the optics of having newer car etc, just trying to see if the cheaper Scenario B makes more financial sense by allowing to lose less money over the loan term. It would be reasonable to assume a 9 year old car would still be worth at least 3-4k, unless something major happens in which case none of this matters much.
Any thoughts and personal experience appreciated.
Scenario A: a 3 year old car costs around 24k and is being financed via PCP with circa £390 per month for 48 months and a ~ 11k balloon payment at the end.
Scenario B: a 5 year old car around 17k and is being financed with a personal bank loan for the same term and comparable monthly payment, no balloon payment at the end.
Question: am I assuming correctly that all things being equal (car being serviced on time, no accidents etc) the actual 'equity' would be higher in Scenario B?
I have no experience of PCP and these cars are relatively new, so hard to estimate what the actual value scenario A car would be at the end of term, but it's unlikely to be more than a couple of thousand over the balloon, is it?
I am not overly concerned about the optics of having newer car etc, just trying to see if the cheaper Scenario B makes more financial sense by allowing to lose less money over the loan term. It would be reasonable to assume a 9 year old car would still be worth at least 3-4k, unless something major happens in which case none of this matters much.
Any thoughts and personal experience appreciated.
vindaloo79 said:
Are you married to the that make and model - car leasing can sometimes be a cheap way of driving a new car for much less than personal finance.
Sometimes you have to ‘buy the deal’ not the car.
There is a popular thread in these forums that discus some such deals.
Perhaps I should have been a little clearer - I am not looking to be seen driving a new car. I am aware that overall cost of leasing over a fixed term would be cheaper than buying a car, but I have a long history of driving cheap sheds and believe that buying a car (even with a loan) is a better option for me than leasing.Sometimes you have to ‘buy the deal’ not the car.
There is a popular thread in these forums that discus some such deals.
smokey mow said:
In scenario A you will pay £18720 over the 48 months and still owe a further £11000 for the ballon payment before you own the car.
Scenario B you will have paid off the full loan after 48 months and own the car outright.
Thanks, that is my understanding as well. I am simply trying to work out if there are any advantages to scenario A other than the car being newer? Let's say I go with PCP and pay off the balloon at the end - is it reasonable to assume there will not be much difference between the balloon payment and market value of the car? Scenario B you will have paid off the full loan after 48 months and own the car outright.
People are using the word "equity" in regards to PCP but it seems to me there may not be much in it, so purely from financial perspective loan seems like a safer choice, no?
Apologies if I am not making much sense, English is not my native language and I do have a tendency to waffle.
Is there also a deposit to pay on the PCP?
What's the APR on either the Loan or the PCP?
Do you have any savings you can use to reduce the amount borrowed?
Again, you could read 45 pages of the car finance thread. My feeling is that scenario A gets you a newer car with less mileage. Scenario B will be cheaper overall. That's to be expected. Another factor to consider is whether or not the 3 year old car is the same as the 5 year old. For example I'm fairly sure the 1.8 engine changed for the better at some point but I don't know when. Was there a facelift or anything?
What's the APR on either the Loan or the PCP?
Do you have any savings you can use to reduce the amount borrowed?
Again, you could read 45 pages of the car finance thread. My feeling is that scenario A gets you a newer car with less mileage. Scenario B will be cheaper overall. That's to be expected. Another factor to consider is whether or not the 3 year old car is the same as the 5 year old. For example I'm fairly sure the 1.8 engine changed for the better at some point but I don't know when. Was there a facelift or anything?
smokey mow said:
In scenario A you will pay £18720 over the 48 months and still owe a further £11000 for the ballon payment before you own the car.
Scenario B you will have paid off the full loan after 48 months and own the car outright.
Scenarios A & B are essentially the same, as you'll own the car in either case.Scenario B you will have paid off the full loan after 48 months and own the car outright.
In scenario A, you'll pay £29,720 for a £24,000 loan.
In scenario B, you'll pay £18,720 for a £17,000 loan.
In scenario A you'll be paying a greater amount of interest because: a) you are borrowing a larger amount, and b) you are paying interest on the balloon sum over the 4 year period.
cpl_payne said:
vindaloo79 said:
Are you married to the that make and model - car leasing can sometimes be a cheap way of driving a new car for much less than personal finance.
Sometimes you have to ‘buy the deal’ not the car.
There is a popular thread in these forums that discus some such deals.
Perhaps I should have been a little clearer - I am not looking to be seen driving a new car. I am aware that overall cost of leasing over a fixed term would be cheaper than buying a car, but I have a long history of driving cheap sheds and believe that buying a car (even with a loan) is a better option for me than leasing.Sometimes you have to ‘buy the deal’ not the car.
There is a popular thread in these forums that discus some such deals.
Thanks for your input, everyone - certainly food for thought. That 45 (as of now) page thread has more drama than Eastenders 
Not sure I have enough fortitude to separate the emotionally charged rhetoric from pure facts.
Not sure I have enough fortitude to separate the emotionally charged rhetoric from pure facts.ninepoint2 said:
Perhaps you should consider leasing, we have recently taken out a lease that is costing us £4500 (which includes VED) on a car with an invoice price of £30500, over 2 years, it's obviously under warranty for that period so it's fixed price motoring and no depreciation to worry about. I also have a history of owning/driving older cars and still have one, but the lease deal was almost too good to be true for a second/commuter car.
Out of interest - what car is that? £4500 over 2 years is very low these days irrespective of the car price. I have been keeping an eye on the leasing thread but from what I have seen petrol or hybrid family sized cars tend to be around £300+ per month. Over 4 years that's not far off 14-15k loan which should be enough to buy a car with plenty of life still left in it and some value remaining after paying off the loan.cpl_payne said:
Thanks for your input, everyone - certainly food for thought. That 45 (as of now) page thread has more drama than Eastenders Not sure I have enough fortitude to separate the emotionally charged rhetoric from pure facts.
Ahh that's the drawback, it's an Electric Mini Cooper, never in my wildest dream did I think we would ever go down the EV route, but it's shared between my wife and son and it's main use is a 26 mile round trip commute so it's ideal really. On an Octopus flexible tarrif its costing less than £1 a day to charge. Personally I'm not a fan but for what we need it for the deal was a no brainer really and anyhow I have my S8 and my son his M2 for proper driving. Not sure I have enough fortitude to separate the emotionally charged rhetoric from pure facts.ninepoint2 said:
Perhaps you should consider leasing, we have recently taken out a lease that is costing us £4500 (which includes VED) on a car with an invoice price of £30500, over 2 years, it's obviously under warranty for that period so it's fixed price motoring and no depreciation to worry about. I also have a history of owning/driving older cars and still have one, but the lease deal was almost too good to be true for a second/commuter car.
Out of interest - what car is that? £4500 over 2 years is very low these days irrespective of the car price. I have been keeping an eye on the leasing thread but from what I have seen petrol or hybrid family sized cars tend to be around £300+ per month. Over 4 years that's not far off 14-15k loan which should be enough to buy a car with plenty of life still left in it and some value remaining after paying off the loan.I’ve found that when doing pcp, you do tend to have ‘equity’, because the finance company will always hedge their bets, so if you choose to give the car back, they aren’t in the red for it. Therefore, you’ll likely have a bit of equity in it if you decide to sell it on at the end of term rather than give it back.
Financing a car with a loan that will be repaid in full in its term will also likely give you equity (assuming nothing catastrophic goes wrong with the car), because you are paying off the entire thing, rather than leaving a bunch of money still on the table with the lender. Therefore you are paying off the car faster than the depreciation.
In my experience loans are usually cheaper than pcp over the term for interest, but you can get lower monthlies via the pcp route.
Financing a car with a loan that will be repaid in full in its term will also likely give you equity (assuming nothing catastrophic goes wrong with the car), because you are paying off the entire thing, rather than leaving a bunch of money still on the table with the lender. Therefore you are paying off the car faster than the depreciation.
In my experience loans are usually cheaper than pcp over the term for interest, but you can get lower monthlies via the pcp route.
cpl_payne said:
Out of interest - what car is that? £4500 over 2 years is very low these days irrespective of the car price. I have been keeping an eye on the leasing thread but from what I have seen petrol or hybrid family sized cars tend to be around £300+ per month. Over 4 years that's not far off 14-15k loan which should be enough to buy a car with plenty of life still left in it and some value remaining after paying off the loan.
I guess you need to factor in how much an older car will cost in maintenance too though, and whether you would want to sell it once you've paid off the loan (as it will be getting on a bit then / costing more to run). If trading in, you'd get a lot less than your perceived value, unless you are happy to sell privately. Lots of ifs and buts I'm about to chop in my car, bought with a loan. Ended up costing me circa 250 per month when taking into account repairs etc., so could be a bit cheaper to buy. But then again I was running around in an older car as opposed to something brand new...
cpl_payne said:
Question: am I assuming correctly that all things being equal (car being serviced on time, no accidents etc) the actual 'equity' would be higher in Scenario B?
Another way of phrasing the question would be: in 4 years is the value of Car B likely to be within £11K of Car A? Yes.Cloudy147 said:
I’ve found that when doing pcp, you do tend to have ‘equity’, because the finance company will always hedge their bets, so if you choose to give the car back, they aren’t in the red for it. Therefore, you’ll likely have a bit of equity in it if you decide to sell it on at the end of term rather than give it back.
Financing a car with a loan that will be repaid in full in its term will also likely give you equity (assuming nothing catastrophic goes wrong with the car), because you are paying off the entire thing, rather than leaving a bunch of money still on the table with the lender. Therefore you are paying off the car faster than the depreciation.
In my experience loans are usually cheaper than pcp over the term for interest, but you can get lower monthlies via the pcp route.
The last 3 PCP deals my wife has had have all had equity to put into the next deal.Financing a car with a loan that will be repaid in full in its term will also likely give you equity (assuming nothing catastrophic goes wrong with the car), because you are paying off the entire thing, rather than leaving a bunch of money still on the table with the lender. Therefore you are paying off the car faster than the depreciation.
In my experience loans are usually cheaper than pcp over the term for interest, but you can get lower monthlies via the pcp route.
All the deals were low or 0% so even after interest there was something decent and the manufacturer contribution was also good with over £3k from the last one.
In your example, I would rather go with option B, or increase the loan amount to buy the newer car from A without the PCP.
In my experience, decent PCP deals don't seem to crop up much on used cars.
I agree with the comments about seeing if you can get a deal on a new car, even if you don't "want" one. The lack of hassle of a new, warranted car not needing an MOT etc does have benefit.
In my experience, decent PCP deals don't seem to crop up much on used cars.
I agree with the comments about seeing if you can get a deal on a new car, even if you don't "want" one. The lack of hassle of a new, warranted car not needing an MOT etc does have benefit.
georgeyboy12345 said:
Another vote for option B.
In any case, as they are Corolla hybrids, they’ll both be clocked ex-private hire and they’ll really have done 300,000 miles.
Suspect this is much closer to reality than initially assumed: having read the other thread where OP is asking if clocking is still prevalent. Absolutely no guarantee an approved used Toyota has not been clocked, sadly. If it was registered as a taxi some kind of paid history check would presumably show it, no?In any case, as they are Corolla hybrids, they’ll both be clocked ex-private hire and they’ll really have done 300,000 miles.
One of these days I am going to get a stroke from overthinking all of this.
Better off flipping a coin! Heads: get the cheapest brand-new whatever that is big enough. Tails: borrow £15k, spend 10 on a big-engined Toyota/Lexus, leave 5 for repairs/maintenance and stop trying to square the circle.
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