Examples of car financing: PCP, HP, leasing, loans, which is the cheapest?

With inflation on the rise, prices are generally rising. Do your homework, though, and you can lower the cost of buying your next car with financing by more than that rate of inflation. By trading in an expensive manufacturer PCP for non-manufacturer leases, you can drive a new or used car for much less. Here we show you some of the car financing options available.

Auto Financing Tips

Automakers don’t make it easy to compare offers, as they offer multiple types of financing and vary in deposit amounts, contract lengths, and mileage allowances. All of these affect monthly payments and the total amount paid.

To directly compare offers, you need similar quotes, because a car could easily go from £100 a month to £400 just by changing the terms of the contract. APR figures are also helpful as they show how much is charged in interest and other mandatory fees. The lower the number, the better.

You also need to know if deposit contributions are available, because APRs don’t take them into account. Offers with large deposit contributions and interest charges may be cheaper than zero percent APR (interest-free credit) because deposit contributions may exceed interest.

Comparable quotes should highlight the best offer. For the best chance of getting the lowest monthly payments, set the largest deposit you can, set the agreement for the longest period, and make sure the mileage allowance is low, but not so low that you incur excess charges. of mileage Perhaps most importantly, consider whether you want to own the car when the lease is up.

If you’re not worried about ownership, leasing generally offers lower monthly payments than PCP, but it’s more difficult, and potentially more expensive, to end leases early. In the meantime, if you want to own the car, PCP works, although buying in installments or a low-rate loan should cost less overall.

how to negotiate

Some dealers present finances as fixed costs, but that’s not always true. While certain items, like new car APRs, are preset, you can still haggle.

Instead of asking for a lower APR on a new car, push for lower monthly payments and/or deposits than advertised deals, and make sure the dealer isn’t simply increasing the deposit or contract length, or reducing the mileage allowance to accomplish this, which would mean paying more or getting less for your money.

With used cars, there is more room for dealers to offer lower APRs and fewer chances for deposit contributions. Getting the lowest cash price on the new one will also minimize your payments. And whether you buy new or used, the more you get for your current car, the lower your future payments will be.

How to Compare Auto Financing

Potentially even more important than haggling is shopping. You may have your heart set on a specific car, but what if an alternative can save you £200 a month or the car you really want is only £20 a month more? The only way to know is to get similar quotes.

It’s also worth checking your credit score to gauge your chances of getting the best deals. With a great score, you’ll usually be able to get the best deals at the lowest APRs, and low-rate loans are likely to offer you better value than dealer PCP or installment options.

In the meantime, if you have a low score, it’s worth improving before applying for financing to get lower payments. Registering to vote, checking your credit profile for errors, paying off existing debt, or borrowing a small amount, if you have no credit history, might help.

What type of auto finance deal is cheapest?

Below, you’ll find cost breakdowns for various auto finance offers on a selection of new and used cars. All offers are based on a three-year contract with mileage of 10,000 miles per year and a deposit of £3,000, although there are some variations.

For him lease.com Deals on the BMW and Tesla, deposits are £3,199 and £3,491 respectively, while the used Kia Sportage has a £500 deposit contribution which lowers the PCP price.

Car Financing Examples

Take a look at the financial examples, then scroll down for our analysis of the best types of offers to qualify for.

Used Peugeot 208: £10,000

peugeot 208

An external loan is the cheapest option if you want to keep the Peugeot 208 at the end of the deal, with a saving of €1,134

PCP

hp

external loan

Monthly payment

35 x £139.02

36 x €224.16

36 x €205.54

Total amount to pay (return car)

£7,865.70

Total amount to pay (buy car)

£11,533.70

£11,069.76

£10,399.61

Optional final payment

£3,668.00

APR

9.90%

9.90%

3.70%

Used Kia Sportage: £19,850

sports

With the Kia Sportage, the personal loan option guarantees a low APR and savings of £2,043.

PCP

hp

external loan

broker/loan

Monthly payment

36 x £248.34

36 x €539.58

36 x £488.27

36 x £473.78

Total amount to pay (return car)

£11,940.24

Total amount to pay (buy car)

£22,099.44

£22,424.88

£20,577.72

£20,056.23

Optional final payment

£10,159.20

APR

6.90%

9.90%

2.80%

2.80%

New BMW 1 Series: £30,085

bmw 118d

Opting for a leasing.com lease offer saves you over £3,500 compared to a BMW lease. If you want to own the car at the end of the deal, the loans are good value at savings of £4,650.

Leasing Leasing.com

manufacturer lease

PCP

hp

External loan

Broker/Loan

Monthly payment

35 x €328.90

35 x €445.15

36 x €427.36

36 x £832.48

36 x £790.67

36 x £747.97

Total amount to pay (return car)

£14,710.40

£18,580.25

£18,384.96

Total amount to pay (buy car)

£34,576.70

£32,969.28

£31,464.12

£29,926.92

Optional final payment

£16,191.74

APR

6.90%

6.90%

3.30%

3.30%

New Tesla Model 3: £48,490

model 3

HP is the best financial option if you intend to keep the Tesla. Otherwise, it’s leasing.com where the deal comes out £11,260 cheaper.

Leasing Leasing.com

manufacturer lease

PCP

hp

External loan

Monthly payment

35 x £565.30

36 x £694.00

36 x £876.00

36 x £1,382

36 x £1,394.28

Total amount to pay (return car)

£23,276.30

£27,997

£34,536

Total amount to pay (buy car)

£54,405

£52,746

£53,194.01

Optional final payment

£19,881

APR

5.90%

5.90%

6.70%

New Cars: Leases and Loans Make Sense

Opt for a non-BMW lease on a 118i and you can cut monthly payments by £98 – that’s 23 per cent and £3,675 in total – compared to BMW’s PCP offer. Do this with a Tesla Model 3 and payments will be reduced by £311. That’s a whopping saving of 35.5 per cent and £11,260 overall.

So if you don’t want to own the car, non-manufacturer leasing options make more sense. The BMW lease costs £116 per month more than the cheapest non-manufacturer lease available, with Tesla’s own lease deal coming at a premium of £129 per month.

But what if you want to own the car when financing is available? A prompt payment discount from a broker and a low APR loan could reduce the total cost of BMW’s PCP by 13.4 per cent (£4,650). Tesla cash discounts aren’t available, though choosing Purchase Hire instead of PCP would save you three per cent (£1,659) because larger monthly payments translate to lower interest costs.

Used Cars: Consider PCP and Loans

The story is different with used models, because pre-owned leasing is typically not available and, when it is offered, typically costs more than PCP deals.

However, a low-interest loan could reduce your total spend on a £10,000 Peugeot 208 by 9.8%, or £1,134 compared to the Peugeot PCP, while monthly payments would be reduced from £224 to installment purchase at £206 with a loan. Doing the same with a £20,000 Kia Sportage could save you 9.2 per cent, or £2,043, with a monthly reduction of £540 to £474.

Meanwhile, if you’re sure you don’t want to keep the car, PCP offers the lowest monthly payments, with Peugeot monthly payments of £139 and Kia payments of £248 over three years. Then I would just return it at the end of the contract.

Do you need to sell your car before buying a new one? Get an appraisal from our Motorway-powered car sales tool…

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