Cheap cars: motors that cost less on finance than paying with cash

New research from the motoring boffins at WhatCar? has identified a number of motors which work out cheaper if you buy them using car finance rather than paying with your own cash.

How does that happen? And are the cars actually any good?

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Why finance can be cheaper

The study compares buying vehicles with your own money to buying them using a personal contract purchase (PCP) finance deal.

PCP has become one of the most popular methods for buying a car in recent years ‒ check out our guide to the various car finance purchase options to see how it compares.

According to WhatCar, the big factors here are incentives from the manufacturer and the dealer, such as deposit contributions or 0% finance.

When the deposit contribution is bigger than any discount you might get from paying in cash, and the interest charged on the finance is low enough that it doesn’t cancel out that saving, then buying on finance works out cheaper.

But why would manufacturers want this to happen?

Firstly, it’s a way for carmakers to offer a discount on a particular model in order to boost its sales, without making it blatantly obvious that they are trying to give that car a helping hand.

But there’s also the fact that PCP deals can lead to repeat business in the future, as the drivers continue using these forms of finance on their next cars.

Cheaper on finance

So which cars are cheaper to purchase in this way?

WhatCar crunched the numbers looking at all of the incentives currently on offer from manufacturers, and ran it against the ‘target prices’ on offer should you purchase in cash. Around 14% of the 6,000 cars studied worked out cheaper on finance.

Here is a selection of those, which have all scored at least three stars in the magazine’s road tests. Savings are based on a four-year PCP deal with a 15% deposit, and a 10,000-mile annual limit.

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Small cars

Model	List price	Cash target price	Total finance cost	Saving
Peugeot 108 1.0 72 Allure	£13,930	£11,722	£10,839	£883
Toyota Yaris 1.5 VVVT-i Icon	£16,580	£15,528	£14,653	£875
Ford Fiesta 1.1 75 Trend 3dr	£16,135	£15,341	£14,819	£522
Mazda 2 1.5 Skyactiv-G 95 SE-L Nav	£16,835	£16,544	£16,044	£500
Kia Rio 1.25 2	£15,195	£14,299	£13,808	£491

Ford Focus Titanium could work out cheaper on finance (Image: Shutterstock)

Family cars

Model	List price	Cash target price	Total finance cost	Saving
Ford Focus1.0 Ecoboost 125 Titanium X	£23,935	£22,040	£20,790	£1,250
Kia Ceed 1.0T GDi IST 2	£18,850	£17,678	£16,847	£831
Peugeot 308 1.5 BlueHDi 130 Allure	£25,865	£22,817	£21,568	£1,249

Executive cars

Model	List price	Cash target price	Total finance cost	Saving
Jaguar XE 2.0 D180 HSE	£39,215	£36,140	£35,699	£441
Skoda Superb 1.5 TSI SE	£24,850	£22,812	£22,165	£647
Volvo S60 2.0 B5 R Design	£39,035	£36,386	£34,367	£2,019

BMW 5 Series could be cheaper on finance (Image: Shutterstock)

SUVs and luxury cars

Model	List price	Cash target price	Total finance cost	Saving
Vauxhall Grandland X 1.5 Turbo D Griffin	£30,130	£28,453	£26,953	£1,500
Volkswagen Touareg 3.0 V6 TDI 231 4Motion SE	£46,470	£43,063	£41,563	£1,500
BMW 5 Series 530d M Sport	£50,925	£43,200	£41,630	£1,570
Audi A7 40 TDI Sport S tronic	£47,850	£42,257	£41,400	£857

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Doing the sums

This study really demonstrates the importance of doing your homework ‒ and your sums ‒ before signing up to any deal on a new car.

With any finance deal, it’s important that you understand precisely what it will cost, not only on a monthly basis but also over the full term of the arrangement.

You also need to consider how your circumstances may change in the future ‒ just because you are comfortable with those PCP monthly payments right now, will that still be the case if you have to take a lower-paying job or your other outgoings increase?

Ultimately you may feel more comfortable paying a little more in order to purchase the car outright from the beginning, rather than taking the gradual approach offered by PCP, even if it would mean saving a few quid.