Car finance examples: PCP, HP, leasing, loans, which is cheapest?

New car or used? PCP or HP? Leasing or loan? We get our calculators out to show why you should take several factors into account before signing on the dotted line

With inflation on the up, prices across the board are increasing. Do your homework, though, and you can cut the cost of buying your next car on finance by more than that rate of inflation. By swapping an expensive manufacturer PCP for non-manufacturer leases you can drive a new or used car for a lot less. Here we show you some of the car finance options available.

Car finance tips

Car manufacturers don’t make comparing deals easy, presenting multiple finance types and varying deposit amounts, contract lengths and mileage allowances. These all affect monthly payments and the total amount paid. 

To directly compare offers you need like-for-like quotes, because one car could easily jump from £100 per month to £400 simply by changing contract terms. APR figures are also useful, showing how much is charged in interest and other compulsory charges. The lower the figure, the better. 

You need to know whether deposit contributions are available, too, because APRs don’t account for these. Offers with large deposit contributions and interest charges can be cheaper than zero-per-cent APR ones (interest-free credit) because deposit contributions can outweigh the interest.

Like-for-like quotes should highlight the best deal. For the best chance of the lowest monthly payments, lay down the biggest deposit you can, set the agreement over the longest period and ensure the mileage allowance is low, but not so much that you might incur excess mileage fees. Perhaps most importantly, consider whether you want to own the car when the contract ends. 

If you’re not concerned about ownership, leasing typically offers lower monthlies than PCP, but it’s harder – and potentially more costly – to end leases early. Meanwhile, if you want to own the car, PCP works, although Hire Purchase or a low-rate loan should cost less overall.

How to negotiate

Some dealers present finance as having fixed costs, but that’s not always true. While certain elements such as new-car APRs are pre-set, you can still haggle. 

Rather than asking for a lower APR on a new car, push for lower monthlies and/or deposit than on advertised deals, and ensure the dealer isn’t simply increasing the deposit or contract length, or reducing the mileage allowance to achieve this, which would mean paying more or getting less for your money. 

With used cars, there’s more scope for dealers to offer lower APRs and less chance of deposit contributions. Getting the lowest cash price on the new one will minimise your payments, too. And whether you’re buying new or used, the more you get for your current car, the lower your future repayments.

How to compare car finance 

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

It’s also worth checking your credit score to assess your chances of accessing the best deals. With an excellent score, you’ll usually be able to get the best deals with the lowest APRs, and low-rate loans are likely to offer you better value than dealer PCP or Hire Purchase options.

Meanwhile, if you have a poor score, it’s worth improving this before applying for finance to get lower payments. Registering to vote, checking for errors in your credit profile, paying off existing debts or borrowing a small amount – if you have no credit history – could all help. 

Which type of car finance deal is cheapest?

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

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

Car finance examples

Take a look at the finance examples and then scroll down for our analysis of the best deals types of deals to go 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 payable (return car)

£7,865.70

-

-

Total amount payable (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

sportage

With the Kia Sportage the personal loan option secures a low APR and a £2,043 saving.

 

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 payable (return car)

£11,940.24

-

-

-

Total amount payable (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 deal saves you more than £3,500 compared with a BMW lease. If you want to own the car at the end of the deal loans are good value with a £4,650 saving.  

 

Leasing.com lease

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 payable (return car)

£14,710.40

£18,580.25

£18,384.96

-

-

-

Total amount payable (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 finance choice if you intend to keep the Tesla. Otherwise, it’s leasing.com where the deal comes out £11,260 cheaper.  

 

Leasing.com lease

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 payable (return car)

£23,276.30

£27,997

£34,536

-

-

Total amount payable (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 slash monthlies by £98 – that’s 23 per cent and £3,675 in total – compared with BMW’s PCP offering. Do this with a Tesla Model 3 and payments drop by £311. That’s an enormous 35.5 per cent saving and £11,260 overall.

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

But what if you want to own the car when the finance is up? A broker cash discount and low-APR loan could cut 13.4 per cent – £4,650 – from the overall cost of BMW’s PCP. Tesla cash discounts aren’t available, although picking Hire Purchase over PCP would save you three per cent – £1,659 – because the larger monthly payments translate into lower interest costs.

Used cars: consider PCP and loans

It’s a different story with used models, because second-hand leasing isn’t normally available and, when offered, typically costs more than PCP agreements. 

However, a low-rate loan could cut your overall spend on a £10,000 Peugeot 208 by 9.8 per cent – or £1,134 compared with Peugeot’s PCP – while monthly payments would fall from £224 for Hire Purchase to £206 with a loan. Doing the same with a £20,000 Kia Sportage could save you 9.2 per cent – or £2,043 – with monthlies dropping from £540 to £474. 

Meanwhile, if you’re sure you don’t want to keep the car, PCP offers the lowest monthly payments, with Peugeot monthlies of £139 and Kia payments of £248 over three years. You’d then simply hand it back at the end of the contract.

Need to sell your car before buying a new one? Get a valuation from our car selling tool powered by Motorway...

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