How to save £100s on your car finance…

As a  car enthusiast I often get asked by friends and family for my views.  Around 80% of cars are bought on PCP(personal contract purchase) whereby monthly payments are paid depending on the contract term/mileage. Here are my thoughts.

PCP Pros and Cons

The impact of the interest rate

Interest rates can be a big factor in the cost of PCP deals. As an example, see a quote below for a Peugeot 2006 Allure (generated 4Apr20), the interest rate of 5% APR results in £2,974 interest being paid through the monthly payments=> 18% of the cost of owning the car! Borrowing the money by other means is sometimes a big cost saving opportunity!

Lowering interest charges

Depending on the figures (the scale of the pros and cons) a PCP deal may still be the best option. However two alternatives well worth considering are as follows:
  • Option 1: Take a personal loan and go to the dealer as a cash buyer and save on interest; see quote from Sainsburys (2.9% APR) below, the savings on interest buying the above Peugeot in this way would be over £1600!(£1339.76 vs £2,974.72 above)  Click here to access the sainsburys loan calculator. Note: monthly payments are higher but you own the car at the end.
  • Option 2: Take  minimum term PCP to receive any incentives and then pay for the car at the end of the term using a personal loan again saving on interest.

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Top tip:

If you decide to proceed with a purchase through a personal loan, to get an idea of a car’s future value look at the guaranteed future value on the pcp quotes. These values are set very carefully (too low and monthly cost would be unattractive/ too high and cars would be handed back worth under the agreement price- finance companies would loose money!) so likely to be fairly accurate.