There are all kinds of thoughts and questions that go through your mind before you choose a new car. There are the initial ones like ‘how much can I afford to spend’ and ‘how much is my car worth’, then more specific questions like ‘which car is best for me’ and ‘how should I pay for the car?’
In this article we’re going to answer the last of those questions, provided you choose to pay with finance over cash. Using cash to buy a new car is a good way to save money but not many of us can afford to drop tens of thousands of pounds in one go.
So, if you are going to use finance to buy a car, should you use PCP or PCH? Personal Contract Purchase is our focus here, particularly in 0% APR form. This is a type of finance where you have the option to buy the car at the end of the term, and with 0% APR it can offer a lot of benefits.
Should you choose to lease (or Personal Contract Hire, PCH) instead, though? There are arguments to say that this is just as valid, which we’ll look at here too. Read on to find out the reasons to choose 0% car finance over leasing, plus some reasons not to.
Table of Contents
Reasons to choose 0% car finance over leasing
- You can choose to buy the car at the end of the finance term if you decide you really want to keep it
- It costs the same to buy over a number of months as it does to buy with cash
- Term lengths are usually shorter so you can change your car or own it faster than with leasing
- It may not be more expensive in terms of monthly cost in some cases
Reasons not to use 0% car finance over leasing
- You’ll have to put down a large deposit with PCP finance, which doesn’t suit buyers without a lot of cash to put down
- Leasing is often cheaper per month because the car has to be handed back at the end of the term
- Leasing is often easier for those without good credit to secure
- Some 0% finance deals can change and have interest added later, so not all are as good of a deal as they can seem at first
What you need to know about 0% APR PCP car finance and leasing
What exactly is 0% APR PCP car finance, then? When you use PCP finance, you put down a deposit, then pay a set number of monthly payments. At the end of the term you can either pay for the rest of the car or hand it back.
With 0% finance, instead of paying interest on the amount you pay for the car, you’ll just be making up the difference to be able to buy the car. You won’t pay any extra, aside from any fees involved, because there’s no interest on the loan.
Leasing is essentially just a really long car rental. You pay an initial rental, usually a few thousand pounds but this varies a lot, followed by 2-4 years’ worth of monthly payments. At the end, you hand the car back. There’s no option to buy, so it suits those who want to change their car every few years. PCP finance at 0% APR is best for anyone who wants to own a car but doesn’t want to pay upfront in cash.
Always check the small print before you sign up to any finance deal. Key things to consider are the length of the agreement, limits on the mileage you can drive, the amounts you’ll pay at each stage and whether you can afford to keep up with payments.
Going over the mileage limit or damaging the car can cause penalties or problems so make sure you are aware of what will happen in the event of one of those things happening.
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