Am thinking about buying a new Citigo S and wondering how best to finance it.

The main options seem to be

1. Buy it using savings offset again my mortgage (so effectively borrowing at my mortgage rate - which is pretty low at the mo).

2. Personal Contract Plan (deposit, borrow, then balloon payment)

3. Loan

Option 3 is probably a no-no cos I have such a good mortgage rate but I am wondering if there benefits or traps in option 2 that I need to take account of.

Ta

depends on what you want.. I always get my cars on HP as contract is a no no due to mileage...

if you are going to do less than 10k a year PCP can be good (swmbo has her citygo on PCP) limited to 10k a year gave her a good payment, and she should be able to have a new car every 3 years, but never own it..

I will own mine after my payments term is finished, but I may still change before then.... OR I may keep until paid for...

I went down the PCP route this time

Usually have a new one every few years at the finance is paid so technically I never actually owned a car in the past well maybe for a few months

So I took the the plunge and opted for a lease agreement

10k per year is 192 miles per week to give you an idea or 27 miles a day every day

Personally I've always used savings or HP - I just do not like the idea of PCP - shelling out for something that I'll never actually own... seems like throwing moey away.

Mortgages are pretty low at the moment so I'd bet that will probably give you the lowest 'effective' finance rate, albeit it would probably mean you paying off your mortgage over a longer period which, in itself, could be a bad hit!

In a similar position, I usually change cars as soon as offset pot equals my mortgage (so I effectively have to spend some money), then I overpay into the offset by at least the equivalent the repayment would have been over 24 months. Unfortunately? as I have taken this course for the last 10 years or so my mortgage offset is now less than the cost of a new car so the 3.75% interest I pay on the mortgage is effectively no longer available for a new car. With the job situation, even in 'jobs for life' like mine it is making me think twice about changing atm. Certainly wouldn't want to go with a balloon payment as you are paying the (7.9%) interest on that mount for the term of the policy, and at the end you have to be confident of being able to find the cash or end up with no car.

Or give it them back and exchange for another using any equity as deposit

Just be aware fiance charges are the highest on the PCP option.

This is because you are paying interest on the whole value of the outstanding money, a fair share of which you are not paying back.

So you have more capital outstanding for longer... so more finance charges even if the rates are the same.

Having to make a choice like the OP is asking I would take from the mortgage and make very sure I paid it back off each month so the car is paid over over a sensible period and does not push the mortgage up long term.

It's the cheapest way.

Get a quote for all three, then work out which one works out the cheapest taking into account charges such as acceptance fees, option to purchase fees etc. the PCP is a good option if you are definitely 100% positively sure you are going to change it in 3 years as you defer part of the payment for three years so get a lower monthly payment, but as boss fox says some companies do have higher charges on these.

I got an £8,000 loan to pay for my car at 6.4% APR. Over 60 months this equates to £1,330 in interest.

Not the cheapest option but I can over pay and shorten the term, or save a little extra each month and pay the loan off sooner reducing the interest I pay.

Whatever the car is worth after 5 years will be mix of my deposit and a reduction in the amount I need to borrow next time.

Add in the fact they normally throw in free servicing for the duration of the PCP that's £300 saved off the interest...

Mileage plays a big factor though - we went for a 5k/yr PCP. In 2 months, wifey has done 260 miles. Worth it? Over the year, the car is cheaper than taxis for the trips she does. On the upside, we should have some equity in the car come hand-back time! New Fabia should be out then...which is what we went shopping for in the first place! I was hoping for an early DSG 1.2 but came away with the Citigo.