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‘Toxic’ car finance could work out as the best way to pay for a new car – Telegraph.co.uk

Its anticipated value after three years, the length of most finance deals, on the road is approximately £15,950, according to Mercedes, amounting to a £19,255 cost. 

Estimating value is far from an exact science as car values are notoriously hard to predict. But if you own the car outright any drastic fall in value will cost you money when you sell.

Of course this is only a factor if you want to sell after three years to buy a newer model.

Personal contract purchase

The most popular car loan (and what the Bank of England is so worried about) is a PCP. Here you buy the new car with an upfront deposit and pay monthly payments for a fixed period, usually three years.

At the time of the sale the dealer will set an “optional purchase payment”, also known as a balloon payment, which you will have to pay as a lump sum at the end of the term if you want to keep the car. A buyer could also hand the car back and walk away, costing you nothing extra. 

As long as you can afford the repayments, a PCP can end up being cheaper than buying the car in cash up front. With the E-Class, assuming a deposit of £5,999, the dealer will currently offer a balloon payment of £15,950 and you will pay £344.59 a month for three years.

‘Toxic’ car finance could work out as the best way to pay for a new car – Telegraph.co.uk}

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