The case for paying cash
- No interest, so the vehicle costs what it costs.
- No monthly commitment, and nothing to affect future borrowing.
- You own it immediately and can sell whenever you like.
- No mileage limits, condition assessments or end-of-term decisions.
The case for financing anyway
Financing is not only for people who cannot pay cash. There are three reasons someone with the money still finances.
- Liquidity. Emptying your savings into a depreciating asset leaves you exposed if something else goes wrong.
- Opportunity cost. If your money is earning more than the finance costs, paying cash is the more expensive choice in real terms.
- Section 75 protection. Using linked credit for part of the purchase makes the lender jointly liable with the seller if the vehicle is misdescribed or faulty.
Depreciation applies either way
A common argument for cash is that financing means "paying for a depreciating asset". That is true, but so is buying one with cash. Depreciation happens to the vehicle regardless of how it was paid for.
What financing changes is who carries the depreciation risk. On a PCP, the guaranteed future value moves some of that risk onto the lender.
How to decide
- Work out the total cost of credit on the finance you would actually be offered.
- Compare it to what the cash would earn if you kept it invested or saved.
- Consider whether emptying your savings leaves you without a buffer.
- Factor in the value of Section 75 protection on a large purchase.