I’ve been looking at the options for buying a car (not new but nearly new). We’ve got a deposit equivalent to about 1/3 of the car value and would pay the car off over 4 years.

Considering the three options of Hire Purchase (HP), Personal Contract Plan (PCP) and cash (deposit + personal loan), the most expensive is PCP and HP is not that much cheaper either. So I’m favouring the personal loan option, which on the face of it seems cheaper by quite a huge margin.

Is there anything I should watch out for going the personal loan route? Couple of things might be jumping through some more hoops with the car dealer and also not knowing exactly what APR rate I’d get on the loan until I apply for it. I think I’d have to get better than 9% APR to beat HP and PCP options (not entirely sure that’s right though). Car dealers clearly make a lot of finance, so could I end up with a worse deal going cash + loan route?

Did this ourselves, loan is through work but the same as getting it from a bank. Had friends do it, loan from Sainsbury’s at about 2% and a decent deposit.

As long as you can afford the loan repayments what’s to worry about?

You’ve pretty much got it. If you get your own loan you just become a cash buyer, makes the actual car buying much simpler but maybe less wriggle room.

HP – dealers often talk in % interest but it might be flat rate, rough double that to turn it into APR (used to work for a finance company, people got quite upset when they realised they’d signed up for 20% APR!). Dealer gets commision on the finance when it’s above a certain %, they lose money if it comes too low.

PCP – you wouldn’t have paid off the car after the term. You’d either hand it back or pay a final lump to keep it.

You should easily be able to get a loan better than 9% APR at the moment

Personal loan is usually cheapest unless there is a Manufacturer offer on PCP such as £1000 towards your deposit.

Worth noting you can usually negotiate a bigger discount in the car if a dealer thinks you are using their finance as they get targets and commission from it. If you go in as a cash buyer the only profit they can make is margin on the car.

If that’s the case then worth getting the PCP from dealer take the offer and settle the finance before the 1st payment. Take a personal loan to cover if needed.

We did this with a new car we had the money for in savings, took out PCP to get an offer then settled it with the money before 1st payment.

Worked out cheapest 🙂 Dealer was a bit grumpy though when he got wind of it.

Sometimes you can get a better deal by taking the finance option, then immediately settling it with a personal loan (or cash if you’ve got it)

Margins in new cars are around 2%. All the money is now made on finance. Dealers take a hit on the car to secure a profit in the finance.

As said above best get pcp offer then settle with cash/personal loan.

Ok, thanks.

We have friends who’ve just done the buy on PCP/HP then settle with a loan. My only thought on that is the agreement for PCP/HP being on credit history and affecting the loan rate I’m subsequently offered. I.e. PCP/HP might drop credit rating and impact on getting a personal loan.

I suppose I could do one and my wife the other

I was considering a 2nd hand car pcp. New cars you can get 4%APR, used are well over 10%!

When I was buying mine, ‘new’ was 2.9% APR with a hefty dealer deposit. 2nd hand was 11.9% which is beyond rude. I ended up buying a pre-reg and negotiated the dealer down to 5.5% APR. We also put down a fairly large deposit so the actual loan value and therefore interest to pay was lower.

I looked at a loan, but as I was buying a diesel decided I wanted the assurance I could hand it back at no cost if the bottom dropped out of the market.