Calculating car finance: How to get the sums right

  • How to work out exactly what you’ll pay
  • Consider deposit, monthly payments and final payment
  • Watch out for additional costs and excess mileage charges
  • How to work out exactly what you’ll pay
  • Consider deposit, monthly payments and final payment
  • Watch out for additional costs and excess mileage charges

Look into car finance and the figure you’ll see plastered everywhere is how much it will cost every month to get a shiny new car on your drive. However, this is only part of the picture of how much you’ll pay if you go for a PCP offering – where you'll have the choice to hand the car back, or pay a prearranged figure to keep it at the end of the term.

Most PCP plans consist of an initial deposit – though some brands let you put down nothing upfront – followed by a regular monthly cost and then an "optional final payment", which is the amount you’ll have to find if you want to buy the car at the end. 

How to decode PCP finance costs

Most PCP scheme details are displayed in a table, which might initially look daunting, but there are several key figures to look out for. If you plan to hand the car back at the end of the finance term, the important figures are the deposit, the monthly payments and the number of payments due.

A car that costs £100 per month on a 37-month PCP set-up with a £2,000 deposit will cost you £5,600 if you hand it back after three years (36x£100 plus the £2,000 deposit – the 37th payment would be the "optional final payment"). Provided the car hasn’t exceeded the agreed mileage limit and is within fair wear-and-tear limits, there should be nothing extra to pay.

Pay attention to the "optional final payment"

Should you plan to buy the car outright, however, several other figures come into play, including the optional final payment which allows you to take ownership of the car. PCP schemes should display a "total amount payable" figure, which includes the deposit, monthly costs, optional final payment and any other charges – such as any "option to purchase" or "finance facility" fees. 

This total amount payable figure shows exactly how much you will have paid if you buy the car. However, discounts offered by the dealer or manufacturer aren’t usually included in this – and these can save you a substantial amount of money – so it’s worth looking out for these savings.

Where the manufacturer hasn’t provided this figure, you can work it out by subtracting any dealer or manufacturer contributions from the total amount payable figure. This should show exactly how much you’ll have paid to buy the car – and is provided by only a handful of car companies with their "total amount paid by customer" column.

In many cases, the total cost is less than the list price of the car – which offers you great value. However, in other cases there can be as much as a 20 percent premium for paying through a finance scheme, so it’s worth comparing the total cost with the car’s list price to establish whether you can find a better form of financing, such as a loan. Take a look at our finance calculator to work out how much you could borrow.

Make sure you know what you’re getting for the money

Finally, ask the dealer to tell you exactly what is included in the price – and how many miles you can cover before being stung with excess mileage charges.

It’s nearly always better value to pay a little more for a higher mileage agreement than having to pay excess mileage costs – as these charges can vary wildly from less than 5p per mile to around 30p per mile. Therefore, it’s wise to play it on the safe side and agree a mileage limit that you won’t exceed.

Meanwhile, some offers include free servicing, insurance or maintenance. If there’s only a small premium to have these thrown in, it could prove a very good value option. If, however, you can get a servicing pack from the manufacturer and find your own insurance yourself for less than the additional charge, consider how much you’re willing to pay for the extra convenience.

Want to find out more about car finance? Take a look at the articles below:

Which finance option is right for you?

How to secure a posh car for a bargain budget with car finance

Zero-deposit car finance that could save you money

Top cars for £120 per month 

New car finance vs used cars

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